Coal sector gets hit as EPA drafts carbon rules; Hawker said to be planning bankruptcy filing

By Stephanie N. Rotondo

Portland, Ore., March 28 - Distressed bonds attempted to move up as Wednesday's session began, a trader said, but couldn't hold the gains as the equity markets drifted down.

"Volume was relatively OK," the trader said. "I wouldn't say it was quiet exactly."

The weaker marketplace, combined with potentially negative news, put pressure on the coal sector during midweek trading. From Patriot Coal Corp. to Alpha Natural Resources Inc., coal bonds were on the decline. The losses were due in part to new carbon dioxide rules proposed by the Environmental Protection Agency that would essentially deny the development of new coal plants.

Elsewhere, Hawker Beechcraft Acquisition Co. paper was unchanged to slightly better as "a bunch of news" came out, a trader said. First, the company said it had secured a new loan along with a forbearance agreement. And second, news outlets late in the day started reporting that the loan was secured in order to give the company time to arrange a prepackaged bankruptcy filing.

Coal space fizzles

A trader said, "The coal sector continues to get hammered."

Patriot Coal's 8¼% notes due 2014 were down over 4 points, the trader reported, ending at 79. Another market source called the notes down just 1¾ points at 81¾ bid.

The first trader also saw Alpha Natural Resources' 6¼% notes due 2021 at 90 - down a deuce - and the 6% notes due 2019 down nearly 2 points, also at 90.

And, James River Coal Corp.'s 7 7/8% notes due 2019 weakened by 2 points, closing around 69, according to the trader. Also falling were Arch Coal Inc.'s 7¼% notes due 2020, which also dropped 2 points to end around 90.

The losses came as the broader market was on the decline, but the arena was also getting pressure from the EPA. Late Tuesday, the government agency released new proposed limits on greenhouse-gas emissions that targeted the release of carbon dioxide. If enacted, the rules would require new coal plants to have carbon-capture technology, something the industry has said would not be cost-effective.

Though critics are already slamming the proposed rules, the EPA asserts that with natural gas prices being as low as they are, no one is building new coal plants anyway.

Hawker may face bankruptcy

A round of news put a bit of focus on Hawker Beechcraft's debt Wednesday.

One trader said the 8½% notes due 2015 "seem kind of unchanged" around 15, noting that there "wasn't much action." A second trader, however, said the bonds were "a little higher" on "a bunch of news."

He also placed the issue around the 15 mark.

First, the Wichita, Kan.-based aircraft manufacturer and reseller said that it had secured a new $120 million term loan from its lenders as well as a forbearance agreement that expires in June. Second, towards the end of the day, news outlets started reporting that the company was in process of putting together a prepackaged bankruptcy filing.

The reports cited people familiar with the matter.

Based on the reports, the new loan was part of the overall plan to eventually file for Chapter 11 protections, as it gives the company enough time to negotiate with its creditors, including Centerbridge Partners, Angelo Gordon and Capital Research & Management.

It is expected that these lenders would also provide debtor-in-possession financing of less than $500 million.

Hawker is owned by Goldman Sachs Group Inc.'s private-equity arm and Onex Corp. The company was purchased from Raytheon Co. in early 2007.

Nortel declines again

Nortel Networks Corp.'s debt continued to dip on Wednesday.

A trader said the 10¾% notes due 2016 were "a scrap weaker" at 1121/2, while another quoted the notes at 112 bid, 112½ offered.

As previously reported, the bonds are down from their recent highs around the 114 mark. The Toronto-based telecommunications products company is currently in bankruptcy, where it has been since January 2009.

Market comes off

Among other distressed issues, NewPage Corp.'s 11 3/8% first-lien notes due 2014 were modestly higher at 681/4, according to a trader.

The trader also saw Dex One Corp.'s 12% PIK notes due 2017 at 32.

Another trader said ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 were lower, trading around 73.

Meanwhile, Bon-Ton Stores Inc.'s 10¼% notes due 2014 - which had recently run up - were "off a little bit" at 87 bid, 87½ offered.

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