Alpha Natural bonds firm; Colt debt gives up recent gains; Chilean-based SMU paper takes dive

By Stephanie N. Rotondo

Phoenix, July 19 - Distressed bonds remained positive in Friday trading, though high-yield issues were taking the bulk of investors' attention.

Specifically, Charter Communications Inc. paper was busy, though mostly weaker, on reports the company was considering making a bid for Time Warner.

A trader said gold names, such as Anglo Gold, were busy and better yet again.

But as for distressed securities, Alpha Natural Resources Inc.'s debt was grinding higher.

A trader said the coal sector in general was firming after getting beaten down recently.

On the downside were Colt Defense LLC's bonds. A trader said the debt "gave back some of the gains" recently incurred following news of a merger with Colt's Manufacturing Co.

Alpha Natural rises

A trader called Alpha Natural Resources' bonds up a deuce on the day.

He pegged the 6% notes due 2019 at 89¼ and the 6¼% notes due 2021 at 88.

"They continue to tick up," another trader said, seeing the 6¼% notes finish up in an 87 to 88 context.

He called that better by "almost 2 points."

Alpha Natural is a Bristol, Va.-based coal producer.

Colt gives back gains

Colt Defense's 8¾% notes due 2017 were "down a little bit," a trader said, seeing the issue at 80.

Earlier in the week, the Hartford, Conn.-based firearms manufacturer said it had completed a $60.5 million merger with Colt's Manufacturing. The two had previously split up in 2002.

Colt took on a $50 million non-rated term loan to fund the merger.

But rating agencies like Standard & Poor's were not too excited about the deal, though the bonds initially gained ground. S&P said that interest expense would rise due to the additional debt and that earnings might not be enough to handle the increase in spending.

S&P said the company could decide to deal with its debt by launching a distressed exchange, but that would constitute a default in the agency's eyes.

SMU takes a dive

Chilean supermarket chain SMU has seen its bonds gyrating over the last week, following a July 11 news report that said the company had to restate some quarterly earnings.

A trader said the 7¾% notes due 2020 dropped a massive 8¾ points on Friday, trading around 701/2.

Another market source saw the issue in a 70 to 71 range, versus Thursday levels around 79.

The $300 million bond issue was sold in February.

Since the company opened in 2007, it has undertaken about 70 acquisitions, which have been difficult to integrate into the company as a whole.

Last week, SMU said in a regulatory filing that it had uncovered some accounting errors in its first-quarter results. As such, the company had to revise liabilities to $2.2 billion. It also reduced EBITDA by 4.4% as of March 31.

Because of the revisions, the company's debt ratios did not comply with bond covenants, though SMU said it would not result in accelerated payments.

Following that news, the company also announced that it had done a $500 million capital raise, which would be used to reduce debt and finance investments.

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