Kodak debt gets boost on planned new issue; Dynegy pressured by bankruptcy warning; CEDC gains

By Stephanie N. Rotondo

Portland, Ore., March 9 - Volumes remained depressed Wednesday, though the distressed market was generally better, according to traders.

Eastman Kodak Co. was the day's notable mover, as the bonds gained anywhere from 4 to 6 points on the day. The move came as the company announced a plan for a new issue, the proceeds from which might be used for debt repurchases.

Meanwhile, Dynegy Inc. was making headlines again and the news put pressure on the company's debt. Still, the losses were not as much as some were expecting.

Dynegy posted its 10-K late Tuesday and while numbers were better than expected, the company said compliance issues might result in a bankruptcy filing later this year. But not everyone believed the hype, speculating that Dynegy might be saying such things as a way to squeeze lenders and bondholders.

Kodak paper gets boost

Eastman Kodak bonds were up huge as the market learned the company was planning to issue $200 million of new notes.

One trader said "maybe $40 million, maybe more" of the 7¼% notes due 2013 traded, up 4 to 5 points at 981/2.

Another trader called the notes up 5 points at 98 bid, 99 offered.

A third source saw the bonds climbing more than 6 points, ending at 99 bid.

Moody's Investors Service assigned a B1 rating on the proposed eight-year senior secured notes. The company has said the proceeds would be used for general corporate purposes, including a debt buyback.

The Rochester, N.Y.-based company has been struggling to achieve profitability. But the new issue is giving some market players hope that the company can affect a positive turnaround.

"I'd like to think they could at least pay off the 7¼% notes in 2013," a trader said.

Dynegy pressured by news

Houston-based power producer Dynegy warned of a potential bankruptcy filing in a 10-K filed late Tuesday with the Securities and Exchange Commission. As a result, the company debt - corporate and bank - traded down.

Still, a bond trader said he "would have expected it to have fared worse" than it did, calling the bonds "fairly steady."

The 8 3/8% notes due 2016 were "off the most," losing 1 to 1½ points to close around 761/4. The 7¾% notes due 2019 were deemed unchanged at 681/2.

At another desk, however, the 7¾% notes were seen dropping more than a point to 68¼ bid.

Dynegy's strip of institutional bank debt also headed lower in trading as the company said that it does not expect to be able to meet covenants going forward and that, if a fix is not found, bankruptcy could be in the future.

The strip of debt was quoted by one trader at 98¾ bid, 99¼ offered, down from 99¼ bid, 99¾ offered, and by a second trader at 98 7/8 bid, 99 3/8 offered, down from 99¼ bid, 99¾ offered.

The company said in the filing that, based on available forward commodity price curves and considering current derivative contracts, it will likely be unable to comply with the EBITDA to consolidated interest expense covenant, particularly in the third and fourth quarters of this year.

Additionally, the company expects its available liquidity will continue to be reduced as a result of borrowing limitations under the covenant regarding the ratio of secured debt to EBITDA.

Dynegy went on to disclose in the 10-K filing that it is attempting to amend or replace the existing credit facility to avoid non-compliance with covenants, and that any amended or new deal will likely be smaller than the current $1.8 billion capacity currently available and carry higher pricing.

The company may also seek additional sources of liquidity in an effort to secure sufficient cash to meet its operating needs, which could include asset sales, public or private issuances of debt, equity or equity-linked securities, debt for equity swaps, or any combination thereof.

Dynegy watchers skeptical

Despite Dynegy's warning, one market watcher wondered if the company wasn't simply "posturing" in an effort to "try to extract more from lenders and bondholders."

"There's an end-game I haven't fully figured out," he said. In his view, the bonds are likely covered at their current trading levels.

"There's more upside than downside," he said. "If you told me I had to either buy or sell, I'd buy."

"We don't anticipate a near-term chapter 11 filing and expect the company and its activist shareholders will find a way to amend/extend the current bank agreement or come up with alternative financing," wrote Gimme Credit LLC analyst in a note to clients. However, "we continue to be concerned that bondholders will be subjected to asset sales used to fund shareholder enhancements or even a debt restructuring that proposes a principal haircut."

At Dec. 31, the company had a $68 million term loan due in April 2013, an $850 million synthetic letter of credit facility due in April 2013 and a $1.08 billion revolver due in April 2012. Pricing on the credit facility ranges from Libor plus 337.5 basis points to 375 bps based on ratings.

Dynegy also has about $160 million of bond debt maturing through the first quarter of 2012.

For the entire year of 2010, Dynegy posted a net loss of $234 million, or $1.95 per share. That compared with a loss of $1.2 billion, or $7.60 per share, the year before.

Adjusted EBITDA was $539 million, versus $803 million in the prior year.

During the fourth quarter, net loss came to $164 million, or $1.36 per share, compared with $355 million, or $2.33 per share, in the fourth quarter of 2009.

Adjusted EBITDA was $103 million, down from $105 million year-over-year.

As of Dec. 31, liquidity was $1.8 billion, consisting of $397 million of cash on hand and $1.4 billion available under the company's credit facility. As of March 3, available cash had grown to $448 million.

Following the release of the 10-K, Fitch Ratings dropped Dynegy's issuer default rating to CC, with a negative outlook.

Elsewhere in the power space, a trader said Edison Mission Energy's 7% notes due 2017 "continues to drift lower," quoting them at 71 bid, 72 offered.

CEDC grinds higher

A trader said Central European Distribution Corp.'s 9 1/8% notes due 2016 were "up a little bit" at 94 bid, 95 offered.

"So that continues to grind higher," he said.

The Warsaw, Poland-based alcohol and spirits distributor is holding an investor call on Thursday. The trader said that whatever is said during that meeting will determine whether the gains will continue or not.

On Wednesday, Standard & Poor's dropped its long-term corporate credit rating on the company to B from B+, the senior secured notes due 206 to B from B+ and the senior convertible notes due 2013 to CCC+ from B-.

S&P said the action was based on weak operating performance in 2010 and the belief that deleveraging will not happen in the near term.

Sara Rosenberg 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.