AMR bonds drift lower on court's 'make-whole' ruling; Edison trades above CDS; Exide declines

By Stephanie N. Rotondo

Phoenix, Jan. 18 - The upcoming holiday weekend was not helping the distressed debt arena get much done on Friday.

Certain AMR Corp. bonds were trading actively after a bankruptcy judge overseeing the case opined that the company did not have to "make whole" the debt due its bankruptcy filing. AMR is voluntarily redeeming the debt, which U.S. Bank NA as trustee has claimed requires the make-whole premium.

Meanwhile, Edison Mission Energy's debt continued to climb higher, edging into the 50s on Friday. The company's credit default swaps were settled at 48½ on Wednesday.

And, Exide Technologies Inc.'s notes fell in Friday trading. A trader posited that the decline was tied to results released by Johnson Controls Inc. Both manufacture batteries and Johnson's results indicated that aftermarket battery demand remained below normal.

AMR knocked down

AMR's 13% notes due 2016 were deemed the day's most actively traded issue within the high-yield space on Friday.

A trader called the issue down 3¼ points at 1033/4.

A second trader said the issue hit lows of 103 around the open, only to move back up to around 105. Still, that was down from 107 on Thursday.

The second trader said the gyration was based on news out of the bankruptcy court overseeing the Fort Worth-based airlines' case. In an opinion posted Thursday, the court ruled that AMR was not required to satisfy a "make-whole" feature of certain notes in which U.S. Bank acts as trustee. The bank had claimed that the voluntary repayment of the debt required the premium to be tacked on.

But the court disagreed, stating that the acceleration of the notes was what prompted the repayment. The acceleration was due to the company filing for bankruptcy.

The trader remarked that the bondholders affected by the ruling intend to appeal.

Some market players expressed concern about the ruling.

"All investors in all high yield debt should be concerned now because this win for AMR may increase the risk of nonperformance of a fundamental agreement written into just about every single high yield bond contract - that could hit bond prices," wrote Gimme Credit LLC analyst Vicki Bryan. "It also could increase costs issuers must pay for call privileges in new issues and might even pave the way for investors to redefine a failure to pay call premiums under terms that could trigger default."

Edison powers up

A trader said Edison Mission Energy's debt climbed up to trade around 51 on Friday.

The bonds - which trade on top of one another - have been steadily climbing since Wednesday, when the bankrupt power producer's CDS was settled at 481/2.

"Sometimes traders or investors push [bond levels] down to have those print at low prices and draw out sellers," the trader explained. But there might not have been enough sellers out there to cover shorts and such, he said, which then results in the prices running higher than the CDS.

Exide loses ground

Exide Technologies' 8 5/8% notes due 2018 dropped 1¾ points, a trader reported Friday.

He placed the issue around 863/4.

Another trader speculated that the dip came on the back of earnings from Johnson Controls, which also makes batteries.

Johnson Controls indicated in its investor presentation for its quarterly conference call that demand for aftermarket batteries was below normal. That could be a harbinger of things to come, as Exide is set to release its own quarterly results on Feb. 7.

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