Dynegy debt makes comeback; American General bonds stage rally; Sprint Nextel unchanged, slips

By Stephanie N. Rotondo

Portland, Ore., Aug. 16 - Distressed bonds closed out Monday's session as a mixed bag, "kind of how it went out Friday," a trader said.

It wasn't clear if the day's lackluster performance had anything to do with it being a summer time Monday, or if it was due to recent economic data.

Still, a few credits were seen making modest comebacks after losing Friday's round. Dynegy Inc. debt regained a couple of the points it lost last week following acquisition news. And American General Finance Corp.'s bonds also tried to earn back some of its recent losses.

Elsewhere, Sprint Nextel Corp. finished the trading day much like the overall market, as sources differed on whether the notes were unchanged or weaker.

Dynegy makes a comeback

Dynegy debt recouped some of its Friday losses, which came after the company announced it had agreed to be acquired by the Blackstone Group LP.

A trader said the 7¾% notes due 2019 were more than 2 points higher at 67. However, he also noted that the 8 3/8% notes due 2016 had slipped a point to close around 751/2.

"I don't know what to make of it all," he said.

At another desk, a market source pegged the 7¾% notes at 65½ bid, up just over a point from Friday's levels.

Another trader said the 7¾% notes was one of the most actively traded junk bonds on Monday, with about $30 million changing hands. He saw those bonds - which had fallen badly on Friday, down around 4 or 5 points on the session - up about 3 points on Monday, to around the 67-bid level.

However, he said that the company's 8 3/8% notes, which also lost ground on Friday, dropping about 2 or 3 points, were down another deuce on Monday, finishing around the 74 bid level. He said that there was more than $20 million of those bonds changing hands, putting them up on the junk bond land's most actives list along with the 7¾% notes.

Deal terms

Dynegy said it would receive $4.50 per share, in cash, for its business, representing a 62% premium over the Aug. 12 closing share price. The total transaction value is approximately $4.7 billion, which includes the assumption of Dynegy's outstanding debt.

"Dynegy's board of directors believes the proposed transaction with Blackstone provides our stockholders with a significant premium over the current stock price and removes the risks to the existing stockholders associated with volatile commodity prices, challenging capital markets and environmental and regulatory uncertainties," said Bruce A. Williamson, chairman, president and chief executive officer, in the press release announcing the deal.

In conjunction with the Blackstone purchase, the buyer has also entered into a deal with NRG Energy to acquire four of Dynegy's natural gas-fired assets, including the Morro Bay and Oakland facilities in California.

NRG will pay $1.36 billion for the assets. As a result of that agreement, Blackstone will essentially get Dynegy for no money down.

However, there are a few concerns about the transaction.

Credit concerns

In a Wall Street Journal report, Liam Denning noted that if Blackstone turns the NRG sale proceeds into dividends, Dynegy itself would be left with its existing debt burden and a smaller stream of cash.

"That would raise the company's already high credit risk," Demming wrote.

Alternatively, Blackstone could also choose to buy back some of the outstanding debt.

"This likely would only make sense, however, if Blackstone bought the bonds below even today's market values of between 60 and 80 cents on the dollar," wrote Demming. "Shareholders might wish they got a higher premium. Bondholders may end up scrambling to limit their losses."

Following the acquisition news, Fitch Ratings placed Dynegy's credit ratings on evolving watch.

"The Rating Watch evolving reflects the uncertainty regarding the final profile and capital structure of the company following the close of the acquisition and sale of the assets, and disposition and application of sale proceeds," the agency said in a statement.

"[Dynegy] potentially stands to benefit from [Blackstone's] resources and power generating experience; however, Fitch does not expect any direct credit support from [Blackstone] and future ratings will reflect [Dynegy's] standalone credit profile.

AmGen stages rally

American General Finance notes also managed to regain a portion of its recent losses, a trader said.

The trader saw the 5.4% notes due 2015 up a deuce around 771/2. The 6.9% notes due 2017, however, were unchanged around 78.

Parent company American International Group Inc.'s 8¼% notes due 2014 were also steady around 110.

Last week, AmGen bonds experienced double-digit losses over a two-day period after it was announced that AIG had agreed to sell most of the money-losing unit to Fortress Investment Group LLC. The rumor mill quickly started churning and it was opined that Fortress might attempt to restructure AmGen's $17 billion debt load on less-than-favorable terms bondholders.

Among others, Fitch Ratings cautioned that "new ownership and existing management may potentially seek to engage in some type of business reorganization, up to and including a restructuring of the firm's capital structure."

It has been estimated that, since learning of the news, bondholders have lost $792 million. AmGen bond investors include the likes of Loomis Sayles & Co. and Pacific Investment Management Co.

Fortress is expected to pay about $130 million for an 80% interest in the company. AIG will retain the other 20% and will book a pretax loss of $1.9 billion, according to a regulatory filing.

Sprint notes slip

Sprint Nextel paper ended the day unchanged to weaker, depending on whom you asked.

One market source called both the 8¾% notes due 2032 and the 6% notes due 2016 unchanged at 99½ and 94, respectively.

But another source deemed the 6% notes down nearly a point, though also around that 94 mark.

The Overland Park, Kan.-based company made headlines Friday after a Bloomberg report claimed that the $36 billion 2005 buyout that added Nextel to Sprint was the third worst merger, based on a study of the 100 largest takeovers between 2005 and 2008.

The company is now valued closer to $30 billion, including debt.

Paul Deckelman contributed to this article

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.