Distressed market stays firm despite stock pullback; AMR rises with US Air earnings; OGX falls

By Stephanie N. Rotondo

Phoenix, Oct. 23 - Distressed bonds continued to gain ground Wednesday, even as equities retreated.

However, "we didn't have anybody breaking any records today," a trader said. "Nobody really took off."

Still, AMR Corp.'s bonds did gain altitude, according to a trader. He said the gains could have been due to US Airways earnings release.

In the emerging market space, OGX Petroleo e Gas Pariticipacoes SA debt dipped during the session, even as it was reported that the company's Tubarao Martelo offshore oil field could start producing by the end of November.

Among distressed retailers, RadioShack Corp. remained under pressure, just one day after the company reported dismal earnings. For its part, J.C. Penney Co. Inc.'s recent decline came to a halt Wednesday.

AMR on the rise

A trader saw AMR's benchmark 6¼% convertible notes due 2014 putting on "2 points and change" in midweek trading.

He opined that the rise might have been due to US Airways' earnings release.

He pegged the issue in a 116 to 116½ context.

Tempe, Ariz.-based US Air posted a net profit of $216 million for the third quarter. That was down from the previous year, but the company said that before taxes and special items, profit would have been record-breaking at $367 million.

Revenues increased 9.1% to $3.86 billion.

The numbers came on the heels of AMR's own release last week. The bankrupt Fort Worth, Texas-based airline reported net income of $289 million.

Additionally, US Airways said it remained committed to its planned merger with AMR, despite an ongoing battle with the Justice Department. The company also said that with both US Air and AMR seeing improving financials, it only encouraged them that the merger would create a very strong company.

OGX stumbles

OGX debt fell Wednesday, despite reports the flailing Brazilian oil producer could see oil output as soon as next month.

A trader said both the 8 3/8% notes due 2022 and the 8½% notes due 2018 lost over a point, ending around 101/2.

Reuters reported Wednesday that OGX's Tubarao Martelo field could begin producing oil as soon as the end of November. Already the company has linked up producing wells to its floating production platform.

The field is the only one the company has that is able to produce at this time, leaving the company in a bad position as it looks to restructure its overwhelming debt.

RadioShack declines

RadioShack's 6¾% notes due 2019 lost 1½ points, a trader said, seeing the paper close around 66.

Another trader also placed the debt around the 66 mark.

The bonds had run up on Monday on news GE Capital had extended an $835 million asset-backed loan to the struggling retailer. But on Tuesday, the company reported its third-quarter results and all of those gains were lost.

RadioShack posted a net loss of $112 million, or $1.11 per share, for the third quarter, which compared to a $47 million loss for the same quarter of 2012. Revenues dropped 11% to $805 million versus $898 million the year before.

Comparable store sales declined 8.4%.

According to one Forbes poll, analysts had been expecting a loss of 35 cents per share on revenues of $891 million.

Meanwhile, J.C. Penney's recent retreat came to a halt on Wednesday, as traders saw the bonds inching back upward.

One trader deemed the 7.4% notes due 2037 up a point at 631/4, while the 6 3/8% notes due 2037 rose over half a point to 621/4.

But another trader said the 2037 paper was only "a smidge better" around 63.

"The stock rallied," he commented. "But I didn't see a tremendous amount of follow-through in the bonds."

The stock (NYSE: JCP) rose 49 cents, or 7.48%, to $7.04.

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