Distressed debt trading slowing down as year-end nears; PDVSA bonds fall as country struggles

By Stephanie N. Rotondo

Phoenix, Dec. 17 - A bond trader said activity among distressed credits was dying down as the end of the year quickly approached.

"We're getting towards the end of the line," he said.

Investors were staying focused on new high-yield issues, but there was little attention left over for the distressed world. Many of the "usual suspects" - NII Holdings Inc., Arch Coal Inc. and Caesars Entertainment Corp. - were continuing to see some action, however.

A trader said NII Holdings' 7 5/8% notes due 2021 fell a point during Tuesday trading to end at 371/2.

The trader also saw Caesars' 10% notes due 2018 rising nearly a point to 441/4.

As for Arch Coal, its bonds finished the session weak. The 7¼% notes due 2021 were down 1½ points to 75, while the 7% notes due 2019 dipped almost a point to 791/2.

Another trader said Nortel Networks Inc.'s 10¾% notes due 2016 were up a deuce at 116½ on news the company had settled some of its European claims relating to its bankruptcy case.

In the emerging market space, Petroleos de Venezuela SA debt saw a lot of activity, as per usual. But trading in the credit has been spurred the last few days by news, both about the company specifically and the cash-strapped country of Venezuela. Both Standard & Poor's and Moody's Investors Service had cut the country's rating in the last couple of days, citing fears of skyrocketing inflation.

PDVSA ends softer

PDVSA bonds were active and softer on Tuesday, following a round of bad news for the company and its home country.

A trader said the 8½% notes due 2017 saw trading of at least $75 million, with the bonds falling almost a point to 841/2. The 5 3/8% notes due 2027 declined over 1½ points to 551/2, as the 5¼% notes due 2017 dropped a point to 741/4.

The 9¾% notes due 2035 ended the day down a point at 71¾ and the rarely seen 6% notes due 2026 dipped just about half a point to 56 5/8.

On Monday, Venezuela devalued its currency, as was largely predicted. Another devaluation is expected by March, as the country fights to curb inflation, boost revenue and narrow its budget gap.

The country has been riddled with poverty and despite an uptick in social spending, such crises continue. Given the high level of spending on social programs - a large portion of which comes directly from PDVSA - the government is running out of money fast.

In its downgrade report, Moody's said Venezuela's newly assigned Caa1 rating was due to "increasingly unsustainable macroeconomic imbalances and materially higher risk of an economic and financial collapse."

Also on Monday, PDVSA reported half-year results that showed a boost to the bottom line, due in part to the currency devaluation and in part to a reduction in social spending after the 2012 election year.

Total revenue declined 5.5% to $59.1 billion, due a decline in oil prices and fewer barrels exported. However, net income spiked up 518% to $12.9 billion.

Crude oil production meantime dropped to 2.48 million barrels per day at an average export price of $97.50 per barrel. That compared to 2012's figures of 2.52 million bpd at $105.41 per barrel.

The state-owned oil producer warned that it did not expect to see such results in the last half of 2013.

On Tuesday, the Venezuelan government said PDVSA was considering a 41-cent per gallon hike on gas prices, as current subsidies have resulted in losses of up to $12.5 billion a year.

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