ResCap paper firms as possible buyer hooked; Dynegy debt gains as transfer deemed fraudulent

By Stephanie N. Rotondo

Portland, Ore., March 9 - There was some strength in the distressed debt realm Friday, though it died out a bit by the end of the day, according to a trader.

Still, most of the day's notable credits ended with a firmer tone.

Residential Capital LLC, for instance, was gaining ground on news that its parent company, Ally Financial Inc., had potentially found a buyer for the money-losing mortgage unit.

Dynegy Holdings LLC was also higher, despite its parent company dismal earnings report out Thursday. But Friday saw new news for the company, as an examiner's report came out and stated that Dynegy Inc.'s transfer of assets from under Dynegy Holdings was fraudulent.

And, continuing the trend was ATP Oil & Gas Corp. The Houston-based oil exploration company said Friday that it had allocated a new term loan and that asset sales had further helped it improve liquidity.

ResCap gains on possible buyer

Residential Capital debt was moving up in active trading as news outlets reported that Ally Financial had potentially hooked Fortress Investment Group LLC as a buyer for the unit.

A trader said the 9 5/8% notes due 2015 were "active after the news," first trading down and then back up.

He pegged the issue at 81 bid, 82 offered.

Another trader quoted the notes at 80½ bid, 82½ offered, adding that the credit default swaps were "definitely stronger," seeing anywhere from plus-8 basis points to plus-16 bps.

But a third trader said the bonds were down nearly a point to 811/2, on about $20 million traded.

According to news reports, ResCap would likely be sold as part of a prepackaged bankruptcy plan. Currently, there are 22 mortgage-linked securities lawsuits facing the unit, which has dragged down Ally's bottom line. If Ally were to keep the unit, it would also have to deal with $2.4 billion in maturing debt over the next three years.

ResCap is based in Minneapolis.

Dynegy examiner: Transfer a fraud

Dynegy Holdings' was also heading into higher territory Friday, as an examiner's report was published - and the findings were favorable to the Dynegy Inc. subsidiary's bondholders.

A trader said the 7¾% notes due 2019 were initially "up a bunch," though they then "came back in," still ending up on the day.

He said the debt got as high as 70 before settling in around 67 bid, 68 offered. That compared to 65 bid, 66 offered in the previous session.

Another trader placed the 7¾% notes around "68-ish" and the 8 3/8% notes due 2016 around 70.

A third trader deemed the 7¾% notes up nearly a point at 67, with about $10 million bonds changing hands.

In the examiner's report, the court-appointed examiner, Susheel Kirpalani said that Dynegy Inc.'s transfer of CoalCo assets from under Dynegy Holdings was in fact a fraudulent transfer that benefited solely the parent and its stockholders.

"The examiner concludes that the conveyance of CoalCo to Dynegy Inc. was an actual fraudulent transfer and, assuming that Dynegy Holdings was insolvent on the date of the transfer (approximately two months before the bankruptcy filing), a constructive fraudulent transfer, and a breach of fiduciary duty by the board of directors of Dynegy Holdings," Kirpalani wrote.

All parties involved have said they have received a copy of the report and intend to examine it thoroughly before moving forward.

Dynegy and its parent are based in Houston.

ATP up as liquidity improves

A trader said ATP Oil & Gas' 11 7/8% notes due 2015 was "an active one," as the company announced it had allocated a new term loan and that asset sales had further enhanced its liquidity profile.

He saw the paper gain "almost 4 points," ending at 741/2, with about $24 million in paper trading.

A second trader said the bonds were "up a bunch" around 74.

ATP said Friday that its previously announced first-lien loan add-on had been allocated and upped to $155 million from $140 million. Additionally, the interest rate on the add-on - as well as on the existing loan - was changed to 8¾% floating.

Also, the company said it had incurred about $60 million of additional liquidity through asset sales in March 2012 and that another $100 million could be coming during the month as well.

Dex firms

Dex One Corp.'s 12% PIK notes due 2017 were "up a bit," but on small trades, according to a trader.

He said the bonds were trading between 28 and 30 during the final trading session of the week.

The gain came as the company received lender approval to buy back debt at subpar prices.

Dex is a Cary, N.C.-based phonebook publisher.

Strength remains in market

Elsewhere in distressed territory, a trader said AMR Corp.'s unsecured notes were stronger, trading around 37.

And, he said Ambac Financial Group Inc.'s bonds - which tend to trade in line with one another - were trading at 133/4. A majority of creditors voted to approve the company's plan of reorganization on Thursday.

At another desk, a trader said Edison International Inc.'s debt continued to thrive, its 7½% notes due 2013 offered around 80 and its 7% notes due 2017 up half a point at 63.

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