Momentive posts narrower loss, bonds retreat; YRC's future in jeopardy; NII debt softens more

By Stephanie N. Rotondo

Phoenix, Nov. 13 - The distressed debt market ended the midweek session with a softer tone, spurred in part by earnings.

Momentive Performance Materials Inc.'s bonds dropped as much as 3 points on the day after the company put out its third quarter results. The debt fell despite a narrower loss and improved net sales.

YRC Worldwide Inc.'s convertible debt meantime declined and one trader noted that the "stock got clobbered." The trucking company released its earnings late Tuesday and said that its ability to continue as a going concern was in question.

And, a trader said that an ongoing slump in NII Holdings Inc. paper was based on its earnings report, which came out at the end of October. He said there was "tremendous selling pressure" on the name as investors were "bailing."

Momentive earnings disappoint

Momentive Performance put out its third quarter earnings early Wednesday and despite a narrower loss, the bonds did not react positively.

One trader said the 11½% notes due 2016 lost 2¾ points to end at 711/4. The 8 7/8% notes due 2020 dipped 1½ points to 1043/4.

The trader also saw the 9% notes due 2021 falling over a point to 861/2, while the 10% notes due 2020 slipped over half a point to 105.

Another trader deemed the 11½% notes 3 points lower at 71. Another trader echoed that, seeing over $30 million of the bonds changing hands.

For the quarter, Momentive posted a net loss of $67 million, which compared to a loss of $81 million the year before.

The improved loss was due in part to better operating income - $7 million versus a loss of $7 million the previous year. The swing to the black was based on improved gross margins and a $10 million decline in SG&A.

Net sales increased to $604 million from $571 million.

As of Sept. 30, the company had $3.2 billion in debt, which compared to $3.1 billion as of Dec. 31. Cash and equivalents was $245 million, including $92 million of unrestricted cash and $153 million of available borrowings under a secured revolving credit facility.

YRC future in question

YRC Worldwide said a shortage of truck drivers was to blame for its swing to a loss for its most recent quarter.

The company also said that its ability to continue as a going concern was in question.

The news didn't bode well for the 10% convertible notes due 2015. One market source placed the issue at 72 bid, 72¼ offered, which compared to previous trades in a 75 to 75 ¼ context.

Other traders placed the notes in a 72 to 72¼ range as well.

Meanwhile, the company's stock (Nasdaq: YRCW) "got clobbered," according to one trader. The equity fell $2.01, or 20.68%, to $7.72.

The Overland Park, Kan.-based company reported a net loss of $44.4 million, which compared to a $3 million profit a year earlier. The company said fewer drivers were the cause, which resulted in higher overtime pay and lower productivity.

YRC is currently engaged in talks with labor unions to extend a contract that continues a 15% wage cut as the company looks to cut costs.

The worse-than-expected performance resulted in management lowering its future financial expectations. In doing so, it sought to amend certain credit facility covenants.

But the amendments might not be enough, as one amendment requires that the 6% convertible notes coming due Feb. 1 be repaid, refinance, replaced, restructured or extended. If the company cannot accomplish that, and if it cannot get a waiver or another amendment from its bank lenders, then the credit facility will be in default and will be due and payable immediately.

YRC said it will not have enough cash to make such a payment. Nor does it expect to have enough money to retire debt maturing in September 2014 or March 2015.

NII slump rolls on

NII Holdings downward spiral continued into Wednesday trading.

"There's no stopping these things," one trader said, seeing the 8 7/8% notes due 2019 off "2 and change" points at 541/4.

He also saw the 10% notes due 2016 at 67, down 4½ points.

Another trader placed the 10% notes in a 67 to 68 context, while the 7 5/8% notes due 2021 were pegged around 57.

"They were all a few points lower," the second trader said.

The trader then blamed the recent losses on the "horrible numbers" the Reston, Va.-based provider of Nextel mobile phone service in Latin America posted on Oct. 31.

"People really absorbed the numbers and then reassessed what they wanted to do," he said. "People are bailing."

For the quarter, the company posted a wider net loss of $299.9 million, or $1.74 per share. That compared to a loss of $82.4 million, or 48 cents per share, the year before.

Operating revenue fell 22% to $1.1 billion.

Also during the quarter, NII had net subscriber losses of 178,400. The company warned that more losses were expected in the fourth quarter.

NII then said that its full-year adjusted operating income was likely to come in about $200 million below previous forecasts of $600 million to $650 million.

The company attributed its wider loss and subscriber losses to its attempts to upgrade its network to 4G. In doing so, NII was unable to migrate some of its Sprint Corp.'s iDEN network customers, which caused some of those customers to defect.

PDVSA adds more debt

Petroleos de Venezuela SA added $4.5 billion to its debt load on Wednesday, announcing a private offering of 6% notes maturing in 2024 and 2025.

Though the company is already laboring under a heavy debt burden, the Venezuelan oil producer's existing bonds moved up.

A trader saw the 5 3/8% notes due 2027 at 53, up half a point. The 9¾% notes due 2035 increased by 2½ points, closing at 69 3/4. And, the 5¼% notes due 2017 improved by "almost a point" to 721/4.

Of the total offering amount, $1.5 billion will be offered through a private placement through the Central Bank of Venezuela and $3 billion will be offered to PDVSA providers.

Proceeds will be used to finance investment projects, including investment for social and comprehensive development in Venezuela.

PDVSA currently has $39.2 billion in debt. However, that does not necessarily take into account the over $10 billion in debt the company has taken on in 2013 alone, as that is considered debts with service providers or financing for joint ventures.

Freddie, Fannie rise

Freddie Mac and Fannie Mae preferreds popped in midweek trading on the back of a news article that claimed private investors were putting together a proposal to take the agencies private.

Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) closed up 76 cents, or 9.44%, to $8.81. Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) ended 83 cents, or 10.35%, higher at $8.85.

According to the article, private equity investors and hedge funds invested in the agencies want to convert their $34.6 billion of preferreds and to underwrite a $17.3 billion rights offering in order to take the firms private.

But one market source said he was not so sure how good a deal that would be.

"I don't know why anybody would think that is a good deal for the Treasury and for taxpayers," he said.

"There were a lot of details missing from that article," the source added. Without more details, he said, it was difficult to assess on its own merit.

The source further remarked that there are currently about four proposals on the table for how to move forward with the agencies that went under the U.S. government's conservatorship in 2008. Of those plans, three of them liquidate or wind down the agencies.

With Congress unable to make up its mind how to proceed with Fannie and Freddie - both of which have either completely repaid or are "this close" to repaying the bailout funds they received - the source opined that "volatility will remain" in the agencies' preferreds.

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