Brazil's OGX declines amid production slump; PDVSA remains soft; Mexican homebuilders up

By Stephanie N. Rotondo

Phoenix, April 17 - Emerging market names continued to play a big role in the distressed debt market on Wednesday.

One trader said that Brazil's OGX Petroleo e Gas Participacoes SA was on the radar, given the oil and gas producer's recent output slump that has resulted in a decline in the bonds. The paper was down as much as 12 points.

In that same industry, Petroleos de Venezuela SA remained weak amid continued political strife in Venezuela.

Meanwhile, Mexican homebuilders were rebounding - for the most part - during the day's session.

"Mexico seems to be a hot area," said one distressed trader.

With no news on the domestic side of the distressed market, traders reported that there was not much activity in the space.

One trader said that J.C. Penney Co. Inc. debt was "showing a little bit of a rebound," seeing the 7.95% notes due 2017 up 1½ points at 93¾ and the 5¾% notes due 2018 up nearly that much at 853/4.

But another trader deemed the 5.65% notes due 2020 unchanged at 81½ bid, 82 offered.

Another trader saw AMR Corp.'s 9% notes due 2012 moving up to 116 as the company readies to exit bankruptcy.

That trader also said Ameren Energy Generating Co.'s 7% notes due 2018 "leaked a little bit," as did its 6.3% notes due 2020.

He pegged the former around 85 and the latter around 76.

OGX, PDVSA waning

OGX bonds were "down a bunch" on Wednesday, a trader said.

"That's one a lot of distressed guys were playing in," he noted.

The 8½% notes due 2018 dropped to 57 bid, 58 offered versus trading in a 68 to 70 context on Tuesday.

Late Tuesday, the Brazilian oil producer majority owned by Eike Battista said that technical issues had resulted in a slump in output in March. Production fell a third to 8,300 barrels per day.

The troubles at the Tubarao Azul field - the company's sole source of crude-oil production - is expected to cause some money struggles that could lead to asset sales or the exercise of a put option.

If the put is exercised, Battista would have to pay $1 billion for the shares.

For his part, Battista is looking to sell 40% of the Tubarao Martelo oil block for as much as $1 billion. He has reportedly been engaged in talks with Malaysia's Petroliam Nasional Bhd.

Meanwhile, Venezuela's state-owned oil company PDVSA continued to weaken on Wednesday following ongoing strife related to the country's elections held on Sunday.

A trader called the 8½% notes due 2017 down almost half a point at 94, the 9% notes due 2012 off over 2 points at 90 5/8 and the 5½% notes due 2037 slightly lower at 64 7/8.

However, the 9¾% notes due 2035 moved up a point to close around 90.

Homex, Urbi up, GEO falls

After taking a massive hit on Tuesday, the Mexican homebuilding sector was mostly better on Wednesday.

Desarrolladora Homex SAB de CV's 9¾% notes due 2020 rose 1½ points to 541/2, a trader said, while Urbi Desarrollos Urbanos SAB's 9½% notes due 2020 inched up half a point to 32.

However, Corporacion GEO SA de CV's 8 7/8% notes due 2022 dropped "almost 2 points" to 50. The 9¼% notes due 2020 also ended at 50, off over 1½ points.

GEO had managed to hold in on Tuesday while its sector peers declined. Moody's Investors Service downgraded the company on Wednesday, citing news from last week regarding a restructuring.

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