Kodak bonds sink ahead of patent auction results; ATP hangs in as filing looms; Alcatel mixed

By Stephanie N. Rotondo

Phoenix, Aug. 13 - The distressed debt market was on the muted side Monday, as market players began to take advantage of the last remaining weeks of summer.

"There are a lot of vacations" for the next couple of weeks, a trader said. He opined that the market would stay quiet until at least Labor Day.

However, names with news - or at the very least, pending news - were seeing some action.

Eastman Kodak Co. was a notable one for the day, as the company's bonds dropped as much as 8 points. The losses came as investors awaited results from the company's auction of its patent portfolio.

The results were not expected to be good.

ATP Oil & Gas Corp. meantime was holding its ground after falling Friday on news the company had secured a debtor-in-possession loan. A bankruptcy filing was expected over the weekend, but had not come as of Monday's close.

Elsewhere, Alcatel-Lucent SA's bonds were either down or unchanged, following a downward outlook revision from Standard & Poor's.

Kodak plummets

Eastman Kodak debt was down a good chunk, as investors were not optimistic about the results of the company's patent portfolio auction.

A trader saw the 9¾% second-lien notes due 2018 open at 72 bid, 73 offered - down from Friday's close in the mid- to upper-70s - and eventually close much lower at 69 bid, 71 offered. The 7¼% notes due 2013 were pegged at 12 bid, 14 offered.

Kodak's 7% convertible notes due 2017 fell to levels around 11, a trader said.

"They were down 7 points on the open," he said.

Another market source pegged the convertible debt around 12.5.

Another trader said the bonds were "obviously down a lot," seeing the second-liens lose 7 to 8 points, closing at 69 bid, 70 offered.

The 7¼% notes were deemed down 8 points, trading around 12.

The company's equity dropped 11 cents, or 34.34%, to 21 cents.

The huge loss came ahead of the company's official closure of an auction of patents, which was slated to end at 5 p.m. ET on Monday.

The bankrupt Rochester, N.Y.-based company had previously stated that the portfolio containing over 1,000 patents was valued at around $2.6 billion. However, initial bids were seen between $150 million and $250 million.

"All along, we thought the patents were kind of questionable and kind of questionable ownership," said one trader. With the initial bids coming it at one-tenth or less than the previously estimated value, "it hurts the credibility of the management team," the trader said.

The trader also speculated that the bonds' losses were tied to increasing concerns that "maybe there's a liquidation in store. Maybe there isn't any value except in the cash on the books and [anything received in a liquidation]."

ATP steady, no filing yet

ATP Oil & Gas' 11 7/8% notes due 2015 were either down slightly or unchanged, depending upon whom you asked.

One trader called the issue half a point weaker at 343/4. Another said the bonds were "kind of the same" around 35.

The second traded noted that the paper was trading flat, or without accrued interest.

The Houston-based offshore oil exploration company's debt began to drift Friday on news the company had lined up a $600 million DIP facility from Credit Suisse Group AG.

A Bloomberg article published Friday said that the filing could occur as soon as late Friday. However, no filing had come as of Monday's close.

The looming 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.

Alcatel outlook altered

Standard & Poor's revised its outlook on Alcatel-Lucent Monday, changing it to negative from stable.

The revision was attributed to concerns about the company's expected cash flow losses in the next year or so. The agency said the new outlook could result in the company losing its "B" rating in the next six to 12 months.

Traders, however, gave mixed accounts of how the company's bonds performed.

One trader said the 6.45% notes due 2029 were up a point at 61. But another market source called the issue down half a point at 601/2.

Alcatel, the French wireless telecommunications equipment provider, said last month that it will likely miss its 2012 projections, due to weak demand in Europe.

RadioShack improves

RadioShack Corp.'s 2.5% convertible senior notes due Aug. 1, 2013 were inching higher, according to a trader.

He placed the issue at 90.75 on the bid side. The stock closed down a nickel, or 1.65%, to $2.98.

"Those are getting better every day," the trader said of the bonds, attributing the gains to "either yield chasing" or to an increasing belief that the company will be able to refinance at least a portion of the debt before its maturity next year.

"It's under one-year paper now," the trader noted. "Maybe people think they will [complete a refinancing] sooner than later.

"That would definitely boost the bonds," he said.

With the maturity on the horizon, the trader said that it really comes down to whether or not investor believe the company will be able to refinance the issue or pay it off.

RadioShack is a Fort Worth-based electronics retailer.

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