Edison gains after CDS auction; Ameren steadies after plunge; little MBIA missed coupon impact

By Paul Deckelman

New York, Jan. 16 - With a busy new-issue calendar dominating the high-yield market on Wednesday, traders said that distressed issues mostly took a back seat.

Among the names that were actually moving around, market participants saw Edison Mission Energy's bonds better, following the conclusion of the auction that was held to settle the power generating company's credit derivative trades.

Ameren Energy's bonds were being quoted near the lows to which they tumbled on Tuesday in the wake of the company's decision to get out of the merchant power business.

Away from the power generation business, there was little real market response seen to the decision by New York State insurance regulators to not allow MBIA Inc. to make a scheduled interest payment that was due on Tuesday.

In the convertibles market, video game publisher THQ Inc.'s battered paper pushed higher as buyers bet on a positive outcome of next week's bankruptcy auction.

New deals overshadow distressed

A distressed debt trader, when asked what was going on, replied "new issues" - an indicator that even in the distressed-debt precincts, the junk bond market's heavy new deal calendar of nearly $4 billion principal amount, the heaviest so far this year, had captured investors' attention.

In contrast, he said even a very familiar distressed bond like ATP Oil & Gas Corp.'s 11 7/8% second lien notes due 2015 had "not much really" going on.

He said that the bankrupt Houston-based offshore energy operator's bonds were "pretty much the same," down around 7 bid.

Edison up on auction results

But he did see Edison Mission Energy's 7% notes due 2017 firm up to around a 48 to 48½ bid context, from prior levels around 47.

He cited the impact of the auction to settle the bankrupt Irvine, Calif.-based company's credit derivative trades; that process set a final price of 48.5, with the bonds then moving up correspondingly.

"That was the most notable" movement "as far as the distressed stuff goes," he said.

A market source at another desk also saw the bonds up about a point to 48, on volume of about $6 million.

The developer of wind energy projects sought protection from its bondholders and other creditors via a Dec. 17 Chapter 11 filing with the U.S. Bankruptcy Court in Chicago.

Ameren holds at lower levels

In that same power-generation space, Ameren Energy's 7% notes due 2018 were seen continuing to trade Wednesday around a 60-61 bid context.

That was the level to which those bonds fell on Tuesday, cascading down from previous levels around 77 bid. It was their lowest close ever.

The bonds slid amid renewed investor angst about the St. Louis-based company's plans to get out of the merchant power generating business. It revealed those intentions in a regulatory filing last month, in which it also said it would take a $1.5 billion to $2 billion non-cash fourth-quarter earnings charge.

Last Thursday, Moody's Investors Service cut the company's senior unsecured rating two levels to B2 from Ba3, and put it under scrutiny for a possible further reduction, causing the bond investors this week to vote with their feet.

Genworth up on separation plan

Away from the power generating sphere, traders said that Genworth Financial Inc.'s bonds were better after the company said it would take steps to distance itself from its troubled mortgage insurance business.

Genworth's 6.15% notes due 2016 jumped by 6 points, a market source said, finishing at 86 1/8 bid.

The company moved to segregate the money-losing mortgage business after large shareholders said it should consider spinning the unit off or taking other steps to insulate itself from its problem child.

MBIA seen steady

Out of that same problem-plagued mortgage insurance sector, a trader said there wasn't much activity in the 14% surplus notes due 2033 of MBIA Inc. He saw the Armonk, N.Y.-based mortgage insurer's paper steady, "straddling 20" bid.

Those bonds had gyrated last week on speculation about whether New York State insurance authorities would allow it to make a scheduled interest payment on those notes.

The New York State Department of Financial Services denied a request by MBIA'S wholly owned subsidiary MBIA Insurance Corp. to make that Jan. 15 payment, according to an 8-k report filed Tuesday with the Securities and Exchange Commission.

However, since the payment does not become due without the department's approval, MBIA Insurance is not required to make the Jan. 15 payment, and non-payment does not constitute an event of default.

"I think people were doing some jockeying ahead of that," the trader said, so the decision by the regulators to not permit the payment was largely anticlimactic.

THQ converts gain

In the convertibles market, failed video game publisher THQ's notes traded up through 20 after having recently languished in the teens.

A market source said that buyers were betting on a positive outcome of the bankruptcy auction set for next Tuesday.

The Agoura Hills, Calif.-based company sought protection from its creditors via a Dec. 19 Chapter 11 filing with the U.S. Bankruptcy Court in Wilmington, Del.

It announced at that time that it had entered into an Asset Purchase Agreement with a "stalking horse bidder" - affiliates of Clearlake Capital Group, LP - to acquire substantially all of the assets of THQ's operating business, including the company's four owned studios and games in development. It said that sale would allow THQ to shed certain legacy obligations and "emerge with the strong financial backing of a new owner with substantial experience in software and technology."

The company's foreign operations, including those in Canada, were not included in the Delaware filing. The company has obtained commitments from Wells Fargo and Clearlake for debtor-in possession financing of approximately $37.5 million, subject to court approval.

-Rebecca Melvin contributed to this report

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