Distressed bonds gain strength, follow stocks' lead; Edison Mission pops as NRG to buy assets

By Stephanie N. Rotondo

Phoenix, Oct. 18 - Distressed debt finished out the week with a firm tone, according to traders.

"Everything looks stronger," one trader said. "The stock market is pushing everything up."

Gains in Edison Mission Energy bonds, however, were not due to rising equities, but to news that NRG Energy Inc. planned to buy the bankrupt power producer's assets for $2.64 billion.

Sources said Edison's debt was up anywhere from 5 to 9 points on the day.

Meanwhile, a trader said AMR Corp.'s benchmark 6¼% convertible senior notes due 2014 moving up a point to 112.

Another trader said Endeavour International's 12% notes due 2018 slipped half a point to 98.

There also continued to be some focus on J.C. Penney Co. Inc. A trader called the bonds lower, with the 5.65% notes due 2020 dropping 4 points in a single trade to 67½ and the 7 5/8% notes due 2097 losing half a point to end at 641/2.

NRG to buy Edison

Edison Mission paper popped 5 to 9 points on the day on news NRG Energy had made a $2.64 billion bid for the company's assets.

"There are a lot of bonds going through the system," a trader said of the name. He pegged the notes - which all tend to trade in line with one another - at 72, which he deemed up 9 points.

Another trader said the 7% notes due 2017 opened in a 66 to 68 context and eventually moved up to 72 bid, 73 offered. That was up 5 points intraday, he said, but 8 points from the previous session when the debt ended around 63 bid, 65 offered.

NRG is offering the Santa Ana, Calif.-based company $350 million of NRG common stock and the remainder in cash. NRG will also assume over $1.5 billion of Edison's non-resource debt.

The deal still has to be approved by the bankruptcy court. If approved, closing is expected to take place in the first quarter of 2014.

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