Navistar rises as cash burn less severe; Verso turns profit, but sales fall; James River firm

By Stephanie N. Rotondo

Phoenix, March 7 - A fresh round of earnings were driving the distressed bond market on Thursday, though a trader noted that most of the day's activity was in new high-yield bond issues.

Navistar International Inc. was the day's "big up mover," a trader said, as the company reported better-than-expected results. However, a turn to profit did little to help Verso Paper Corp.'s debt, which was down about 2 to 3 points in the day.

James River Coal Co. meantime managed to end the day up from the intraday lows, but unchanged day over day, despite weak earnings.

Away from names spurred y quarterly reports, Petroleos de Venezuela SA's debt remained under pressure following the death of Venezuelan president Hugo Chavez on Tuesday.

Navistar cash burn a positive

Navistar International bonds were the day's "big up mover," according to a trader.

The gains came as the company reported weak earnings, but also a cash burn that was "not so bad," the trader said.

"So everything is rosy," he said.

The trader said the 8¼% notes due 2021 rose over 4 points to end around 99.

Another trader called the issue up 4 to 5 points, also around 99.

For its first fiscal quarter, the Lisle, Ill.-based heavy-duty truck manufacturer posted a net loss of $123 million, or $1.53 per share. That compared to a loss of $153 million, or $2.19 per share, the year before.

Revenue was down 12% at $2.64 billion.

Analysts had been expecting a net loss of $126 million on revenues of $2.8 billion.

Still, the company ended the quarter with $1.189 billion in cash, which amounted to a cash burn for the quarter of about $287 million - well below the $600 million forecast previously given by management.

While the earnings were on the weak side, the better-than-expected liquidity was seen as a positive, as was the appointment of Troy Clarke to the position of chief executive officer. Still, concerns about the company's ability to get its new engines certified by the Environmental Protection Agency - and on time - remained, as well as worries about the company's ability to access the markets for new cash.

"This plus Navistar's better than expected cost savings and stronger cash are the three most concrete positives in the quarter, enough to make us more optimistic than we were going into the April quarter but not enough yet to elevate all our concerns - happy market action notwithstanding," wrote Gimme Credit LLC analyst Vicki Bryan in a note put out Thursday afternoon.

Verso profit not good enough

A swing to profit did little to help Verso Paper's debt on Thursday, as the company reported a nearly 20% decline in sales.

A trader saw the 8¾% second-priority notes due 2019 dropping nearly 3 points to 44 3/8. The 11¾% notes due 2019 meantime lost over 2 points, ending around 77, while the 11 3/8% notes due 2016 declined a deuce to around 50.

Another trader said the debt was "a touch weaker," with the 11 3/8% notes trading around 50 and the second-lien issues around 45.

"That's down a few points," he said.

For the fourth quarter ending Dec. 31, the Memphis-based papermaker reported a profit of $25.5 million, or 48 cents per share.

The company had posted a loss of $67.9 million, or $1.29 per share, the year before.

However, net sales were off by 19.8% for the quarter. That amount included a 17% decline in total sales volume, which was due to the shutdown of three paper machines in late 2012, as well as the closure of the Sartel mill in the third quarter.

Still, gross margin was 14%, compared to 12.6% in the same quarter of 2011.

The company attributed the weak sales to "normal seasonal slowdown," noting that prices were stable and that pulp prices were recovering.

Verso's management said it remained "cautious" about 2013, given the "sluggish" U.S. economy.

James River hangs in

James River Coal also reported numbers on Thursday and also announced that it was idling multiple mines in order to reduce production by 3 million tons.

The company said the decision was due to decreased demand.

A trader remarked that the earnings were "weaker," but added, "that's kind of to be expected from them."

The trader saw the 7 7/8% notes due 2019 hit an intraday low around 49 before the issue came back to end at 501/4. He said the level was unchanged from the previous day.

But another trader said the debt was "a little weaker," trading in a 49-50 context.

Richmond, Va.-based James River reported a net loss of $76.9 million, more than double than seen in the same quarter of the previous year. Revenues for the fourth quarter declined over 35% to $232.2 million.

PDVSA losing ground

A trader said PDVSA bonds remained soft as the market continued to react to news out Tuesday regarding the death of Hugo Chavez.

The 8½% notes due 2017 drifted down a point to 961/2, as the 9¾% notes due 2035 dropped 2 points to 94.

The 9% notes due 2021 lost 3½ points, ending at 931/4.

On Tuesday, the Venezuelan president lost his prolonged battle with cancer. New elections are expected to take place later this year, but Vice President Nicolas Maduro will act as interim president in the meantime.

Chavez's death has caused many to wonder what the fate of the state-owned oil company will be, given that Chavez had previously used funds generated by the company to fund massive social programs. While the programs were seen as a positive for the country's poor, the result is that PDVSA has been laden down with debt, as capital projects have been delayed and production targets failed to reach.

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