Cengage Learning bonds, bank debt rise on earnings; AMR ticks up as merger news expected soon

By Stephanie N. Rotond, Paul Deckelman and Sara Rosenberg

Phoenix, Feb. 13 - Cengage Learning Acquisitions Inc. was the notable name in Wednesday's distressed debt arena, according to a trader.

The company put out earnings late Tuesday and though the numbers were weaker year-over-year, the bonds and bank debt rallied due to one piece of positive news.

Meanwhile, AMR Corp.'s debt continued to tick up as the company's board met to vote on a proposed merger with U.S. Airways, Inc.

Cengage rallies post-earnings

A trader said Cengage Learning's bonds and bank debt "did rally," despite an overall weak showing in its second-quarter results.

The trader pegged the 11½% notes due 2020 at 80 bid, 81 offered, down from an intraday high around 83, but up from previous levels around 77.

The 10½% notes due 2015 meantime rose up to close in the mid-20s. Again, that was down from an intraday high around 30, but better than Tuesday's levels in the "very low" 20s.

Cengage's term loans were also stronger on the back of earnings that showed a year-over-year improvement in net income, but a decline in revenue and adjusted EBITDA, according to a trader.

The company's extended term loan was quoted at 75½ bid, 76½ offered, up from 72 bid, 73 offered, the non-extended term loan was quoted at 78 bid, 79 offered, up from 76 bid, 77 offered, and the incremental term loan was quoted at 78¼ bid, 79¼ offered, up from 76 bid, 77 offered, the trader said.

Another trader saw the extended term loan around 76, up from the low-70s.

For the 2013 fiscal second quarter, Cengage reported net income of $24.2 million, compared to a $3.7 million loss in the prior year.

Revenues for the quarter were $406.9 million, down 10.8% from $456.2 million in the 2012 fiscal second quarter.

And, adjusted EBITDA was $145.1 million, down 17.1% from $175 million in the previous year.

According to a trader, the bonds and bank debt improved because of the fact that the company had done some debt buybacks, which will help interest expense going forward.

Cengage is a Stamford, Conn.-based provider of teaching, learning and research services for the academic, professional and library markets.

AMR merger news coming

AMR's board of directors met Wednesday to vote on a proposed merger with U.S. Airways.

U.S. Airways was also set to vote on the plan on Wednesday.

The bankrupt Fort Worth-based company's bonds have been moving up of late, recently hitting par. The gains have been based on hopes the merger would go through, which would result in a recovery of par plus accrued.

A market source quoted the benchmark 6¼% convertible notes due 2014 at par ½ bid, 101½ offered, up from par bid, 101 offered.

A Bloomberg report, citing "people familiar with the matter," said that terms of the merger were hammered out in time for the scheduled votes. An announcement is expected as early as Thursday.

According to the article, the merger agreement would give 72% of equity in the new company to AMR creditors, while U.S. Airways stockholders would receive the remaining 28%. U.S. Airways' chief executive, Doug Parker, would be appointed CEO of the merged entity and AMR's CEO Tom Horton would stay on as non-executive chairman.

Overseas Shipholding gets hit

A trader said that Overseas Shipholding Group Inc. "was worth talking about today."

He said that the company's 8 1/8% notes due 2018 "traded down to 30 cents on the dollar right out of the chute, and then kind of rallied back to the mid-30s. That's still down 3 to 5 [points] on the day, however."

He noted news reports about the Internal Revenue Service going after the largest U.S. tanker operator, claiming the bankrupt New York-based company owes Uncle Sam $463 million in back taxes. Details of the alleged debt weren't immediately available from Kurtzman Carson Consultants LLC, the agent processing claims for Overseas - other than that the IRS labeled the claim a priority, meaning that the tax regulators believe they should be paid ahead of other unsecured and lower-ranking debts.

OSG's over-the-counter-traded shares plunged 14 cents, or 13.46%, to end at 90 cents, though volume of 593,000 shares was about 18% below normal.

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