Distressed market softens post-FOMC; Kodak rises on rights offering; Alcatel-Lucent bonds gain

By Stephanie N. Rotondo

Phoenix, June 19 - The distressed debt market was "uneventful" leading up to the FOMC announcement on Wednesday, a trader said.

The Federal Reserve chairman, Ben Bernanke, said in a press conference that the central bank's bond-buying program could begin to taper off in the next year, with a goal of ending completely in 2014. News of the tapering was largely expected, but the timeline details were new, sending the overall market into a tailspin.

As the equity markets and Treasuries pulled back, so did the distressed space.

Still, a trader said there were "no big movers" to the downside.

Eastman Kodak Co.'s second-lien bonds were "a bunch better," one trader noted, after it was reported that the bankrupt company was looking to hold a rights offering for certain creditors. The proceeds of the offering would be used to repay second-lien holders in cash.

They had previously been slated to receive equity in the reorganized company.

Meanwhile, Alcatel-Lucent paper was firming as the company unveiled a new cost-cutting plan aimed at raising $2.7 billion by the end of 2015.

And, recently, topical Exide Technologies Inc. continued to gyrate in Wednesday trading. But traders gave mixed reviews as to how the company's bonds fared, though most placed the debt toward the down side.

Kodak's new plan helps bonds

Eastman Kodak's second-lien bonds rose 4 to 7 points on the day after the company said it had reached a deal with creditors to hold a $406 million common stock rights offering.

One trader saw the 9¾% notes due 2018 putting on 4 points to close around 103 bid, 104 offered. The 10 5/8% notes due 2019 ended around 109, which he said was up 6 to 7 points.

Another trader also placed the 9¾% notes around "103-ish" and the 10 5/8% notes around 109.

Under the agreement, creditors GSO Capital Partners, BlueMountain Capital, George Karfunkel, United Equities Group and Contrarian Capital would backstop the rights offering that would give creditors an option to purchase up to 34 million common shares at $11.94 apiece, equaling about 85% of the equity in the new reorganized company.

Proceeds raised from the offering would be used to pay off second-lien noteholders in cash, instead of giving them equity.

The agreement still needs bankruptcy court approval, however, and a hearing has been scheduled for June 25.

Eastman Kodak is a Rochester, N.Y.-based digital imaging company.

Alcatel-Lucent gains

Alcatel-Lucent bonds were faring better in midweek trading following the unveiling of a new cost-cutting plan at the struggling French telecommunications company.

One trader deemed the 6.45% notes due 2029 up a point around 781/2. Another market source pegged the issue at 79¾ bid, up over 2 points.

At a press conference in Paris on Wednesday, Michel Combes, chief executive officer, said he intended to cut operating expenses by €1 billion per year by 2015, though he declined to give details as to where the cuts would come. He did say that the cuts would likely include another reduction in the company's work force.

Additionally, Combes said he would raise another €1 billion by selling off assets. Again, the CEO did not state specifically which assets he would divest, but one possibility is the company's submarine optical cable unit.

Exide 'all over the place'

Exide Technologies' 8 5/8% notes due 2018 were "kind of all over the place," a trader said, seeing the bonds trading lower in a 64-65 context.

Another trader also called the paper lower, placing the debt at 63.

"That's down another couple [of points]," he said.

But a third trader said the paper was better by over 2 points, pegging it at 671/2.

Earlier this week, the bankrupt Milton, Ga.-based battery maker was granted approval to restart its Vernon, Calif.-based recycling plant, which had been closed in April by state environmental regulators due to a hazardous waste leak.

Coal names suffer

The coal sector remained under pressure, as it has been for the last few sessions.

A trader said Arch Coal Inc.'s 7¼% notes due 2021 were active, finishing around 85 bid, 85½ offered.

"That's about in line to maybe a smidge lower," he said.

Another market source deemed Alpha Natural Resources Inc.'s 6¼% notes due 2021 off a point at 83¼ bid.

Bloomberg reported Wednesday that Alpha Natural's Kevin Crutchfield, chairman and CEO, believed that prices for metallurgical coal would continue to decline, causing more U.S. coal mines to be closed down.

Also reported on Wednesday was news that bankrupt Patriot Coal Corp. was working with two hedge funds on a rights offering.

But the news didn't do much to spur activity in the name, a trader said.

He said the 8¼% notes due 2018 were "still quoted" at 46 bid, 48 offered.

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