Distressed market quiet amid Fourth of July hangover; ATP seeks emergency funds; Cengage slips

By Stephanie N. Rotondo and Sara Rosenberg

Phoenix, July 5 - Activity in the distressed debt space was thin during the post-holiday session.

Overall, the market was slightly weaker, following a decline in Treasuries.

ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 briefly fell below a dollar on Friday, following news out Wednesday regarding a pending asset sale.

A market source said the issue was mostly hanging in in a 1 to 1 3/8 context.

The Houston-based bankrupt oil and gas company is asking the court overseeing its case to approve a $15 million sale of a hydrocarbon production payment that would give the cash-light company enough funds to operate until a sale of nearly all of its assets is completed.

ATP said in court papers that without the sale, it would run out of money and would likely be in the red by the end of the month.

Certain DIP lenders agreed to take the payment in exchange for an immediate infusion of cash. A hearing is planned for July 9.

Cengage loan weakens

Cengage Learning Acquisitions Inc.'s term loans headed lower in the secondary market on Friday as investors continue to react to news surrounding the company's recent bankruptcy filing, according to a trader.

The extended term loan, non-extended term loan and incremental term loan were all quoted at 68 bid, 70 offered, down from 70½ bid, 72½ offered on Wednesday.

By comparison, on Tuesday, when the Chapter 11 news came out, the loans were all quoted at 73½ bid, 76½ offered, and on Monday the debt was seen at 74 bid, 75 offered.

With the bankruptcy filing, Cengage said that it entered into a restructuring support agreement with an ad hoc committee of first-lien lenders who hold about $2 billion of its first-lien debt.

The restructuring is expected to eliminate more than $4 billion in debt from the balance sheet and position the company to implement management's strategic business plan.

The company also revealed that it is not planning on getting a debtor-in-possession financing facility as it maintains substantial cash balances and expects to generate positive cash flow. Secured lenders have agreed to let the company use its use cash flow from operations to continue to fund the business and meet obligations in the normal course during the restructuring process.

Cengage's second-lien noteholders said in a filing with the bankruptcy court on Wednesday that some causes of action may be present in the restructuring case, including that the company was likely made insolvent by the massive amount of debt it took on in connection with its leveraged buyout by Apax Partners LP in 2007.

Then, according to the noteholders, Apax bought a large amount of Cengage's debt through open-market transactions in the months prior to the Chapter 11 filing.

The noteholders are claiming that Apax's conduct may support the equitable disallowance of its claims or the equitable subordination of its claims to the claims of other creditors, which could result in substantial additional values for creditors.

Cengage is a Stamford, Conn.-based educational content, software and services company.

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