Patriot Coal bonds sink amid bankruptcy speculation; Navistar debt trades off after downgrades

By Stephanie N. Rotondo

Phoenix, July 9 - Patriot Coal Corp. was the nom du jour Monday, as Bloomberg reported that the company had lined up financing ahead of a bankruptcy filing.

The filing did in fact come Monday, but well after the market had closed. The original report sent the bonds down nearly 10 points on the day and clobbered the stock.

Navistar International Inc. was meantime "off a little," according to a trader. The declines came on the back of downgrades from Fitch Ratings and Standard & Poor's, both citing concerns about the company's engine technology transition.

Also weaker were Bon-Ton Stores Inc.'s bonds. Last week, the company had released the final tender results of its debt swap and also announced same-store sales for June.

Patriot paper plummets

A trader said that Patriot Coal was "just about to file [for bankruptcy]," referring to a news report by Bloomberg that stated the coal producer had lined up financing ahead of the entrance into Chapter 11.

He saw the 8¼% notes due 2018 at 33 bid, 33½ offered, down from 38 bid, 42 offered last week.

Another market source pegged the issue at 32½ bid, down nearly 10 points from Friday levels.

The stock (NYSE: PCX) also took a massive beating, falling $1.58, or 72.1%, to 61 cents, in well above average trading.

In its report, Bloomberg cited "two people with knowledge of the matter" who said that St. Louis-based Patriot Coal had lined up debtor-in-possession financing via Citigroup Inc., Barclays plc and Bank of America Corp.

Well after the market closed, Bloomberg's report proved true: Patriot said it had in fact filed for Chapter 11 protections and that it had secured $802 million in DIP financing.

Falling demand has hurt the company, which has lost over $7 billion in value this year, due in part to production cutbacks. New environmental regulations have also burdened Patriot and its peers, as consumers seek cleaner forms of energy.

The company has been working with creditors since May to come up with a restructuring plan and had hired Blackstone Group LP to facilitate negotiations. A proposal was not settled on, however.

Navistar off on downgrades

Navistar's 8¼% notes due 2021 were "off a little" in Monday trading, falling to 93 from 95, according to a trader.

The losses came as Fitch and S&P downgraded the Lisle, Ill.-based company, citing concerns about a plan to switch engine technologies.

On Friday, Navistar held a conference call in which it announced that it was switching gears, so to speak, and was looking to develop a new diesel engine model that should roll out early in 2013.

The company has struggled to gain federal approval on its previous model, which has hurt the bottom line.

Though the new engine might have a better shot at gaining approval - the engine will use liquid urea to help cut emissions - investors are concerned about the costs associated with the transition and have thus reacted negatively to the news.

Both Fitch and S&P echoed those concerns. S&P said that profitability in the near term could be hampered and Fitch noted that the transition could tighten liquidity.

Bon-Ton loses ground

Bon-Ton Stores' remaining 10¼% notes due 2014 fell over a point to trade around 84, a trader reported.

On Thursday, the York, Pa.-based retailer reported the results of a tender offer for the bonds. All told, $330 million, or 71%, of notes were tendered - the same amount as had been tendered as of the early deadline. That leaves about $135 million of the paper still outstanding.

Those that did participate in the tender received new 10 5/8% second-lien notes 2017.

Bon-Ton also announced its same-store sales results for June on Thursday, which showed a 0.8% decline. Total sales dropped 1% to $238.3 million.

Year-to-date same-store sales were down 0.7% and total sales fell nearly 1% to $1.06 billion.

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