ATP Oil & Gas bonds fall on DIP news, filing expected soon; J.C. Penney reports dismal quarter

By Stephanie N. Rotondo

Phoenix, Aug. 10 - Distressed bonds were again taking a backseat to a "decent slate of new issues," a trader said Friday.

The trader also added that the market was neither firm nor soft.

"There were less big upsiders," he said. Even some new issues were trading off of their highs.

The nom du jour was ATP Oil & Gas Corp., which was reported to have lined up debtor-in-possession financing for a bankruptcy filing, expected as soon as Friday. The bonds were down just a point or two on an outright basis, but if you included accrued interest, they were down 3 to 4 points on the day.

Meanwhile, it was "much ado about nothing" for J.C. Penney Co. Inc.'s debt, even as the company reported dismal second-quarter results. A trader said the bonds were essentially unchanged.

ATP slips, filing looms

Houston-based offshore oil exploration company ATP Oil & Gas has reportedly lined up DIP financing ahead of a bankruptcy filing expected by the end of the weekend.

The new weighed on the company's debt, according to traders.

One trader called the 11 7/8% notes due 2015 down 1½ points at 351/4.

Another trader said the bonds were down 3 to 4 points, given that they were now trading flat, or without accrued interest.

He quoted the notes at 35 bid, 36 offered, adding that the paper had "initially dipped lower."

The second trader was not surprised by the news, noting that the rumor mill thought a Chapter 11 filing would happen last weekend.

Bloomberg, citing "two people with direct knowledge of the matter," reported that ATP had secured a $600 million DIP facility from Credit Suisse Group AG.

The article said that the filing could occur as soon as late Friday.

The filing comes ahead of an $89 million coupon payment in November.

ATP has struggled to meet production targets for the past few years. The turmoil began April 20, 2010, when the Deepwater Horizon offshore oil rig exploded in the Gulf of Mexico. ATP's bonds plummeted at that point.

The issue had priced the day before at par.

A subsequent moratorium on offshore drilling in the gulf further fueled ATP's problems.

Once the moratorium was lifted, things seemed to be slowly improving for the company. But despite its best attempts, production targets were just out of reach.

On June 1 of this year, ATP's founder and chief executive, Paul Bulmahn, stepped down from his post, hiring Matt McCarroll as the new top executive. However, by June 7, McCarroll had resigned, citing an inability to come to terms on his employment contract.

But market sources thought the explanation to be fishy. One source wondered why the company would have announced the hiring before a contract had been inked.

Earlier this month, bondholders were reported to be interviewing potential advisors ahead of an expected restructuring.

Other sources have also pointed out that ATP's value could not sustain its high debt load.

J.C. Penney recovers post-earnings

J.C. Penney paper "had dipped" early on in Friday's session, a trader said.

"But it seemed like then there were better buyers around," he said, calling the 7.4% notes due 2037 "down a little bit but not that much" at 79 bid, 80 offered.

The issue hit a low around 78, he added.

The 5.65% notes due 2020 meantime closed at 83 bid, 84 offered, up from the intraday low around 82 but down a touch from the previous session's close around 84.

Another trader said the bonds' performance was "much ado about nothing," deeming the securities unchanged on the day.

He pegged the 5.65% notes at 84, the 7.4% notes at 78 and the 6 7/8% notes due 2015 at 971/4.

The Plano, Texas-based retailer reported second-quarter results Friday, which showed a 21.7% decline in same-store sales.

Analysts polled by Thomson Reuters were expecting a decline of just 17.4%.

Revenues declined 22.6% to $3.02 billion, also missing expectations.

Net loss widened to $147 million, or 67 cents per share, versus a profit of $14 million, or 7 cents per share, the year before.

The company said it was not likely to hit its full-year guidance, but did not provide an updated forecast.

On the news, Moody's Investors Service downgraded J.C. Penney to Ba3 from Ba1.

The rating agency based its action on its belief that the retailer would see continued sales declines for the remainder of the year.

"We didn't think it was possible, but this morning [J.C. Penney] reported fiscal second quarter results even worse than its first quarter results, which set a new record in sales implosions," wrote Gimme Credit LLC analyst Carol Levenson in an afternoon comment. "Management, confident as ever in its strategy, dropped all pretense of knowing what is going to happen financially and is no longer offering full year guidance."

Edison unfazed by downgrade

Moody's also downgraded Edison Mission Energy, the money-losing subsidiary of Edison International Inc.

Moody's dropped its ratings on Edison's notes to Ca from Caa3 and its probability of default ratings to Ca from Caa2.

But a trader said the bonds were not much changed, seeing the 7¾% notes due 2016 holding in at 54 bid, 55 offered.

Edison is a Rosemead, Calif.-based power producer.

Coal still rising

A trader said coal names continued to rebound in Friday trading.

He called Alpha Natural Resources Inc.'s 6% notes due 2019 up over 2 points at 90¼ and Arch Coal Inc.'s 7¼% notes due 2021 up nearly a point at 883/4.

Another market source deemed Alpha Natural's 6¼% notes due 2021 nearly a point higher at 89¾ bid.

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