Distressed space falters with Treasury decline; OGX plan expected soon; Sorenson paper weakens

By Stephanie N. Rotondo

Phoenix, Sept. 5 - Distressed bonds were trading heavy Thursday, as the Treasury market sold off on the back of better-than-expected jobs numbers.

However, even without the Treasury pullback, there was enough news out to act as a catalyst.

In the emerging market space, OGX Petroleo & Gas Participacoes SA's debt dipped on word a restructuring plan could be unveiled as early as next week. As has previously been reported, the plan is expected to include a debt-for-equity swap.

Meanwhile, a trader said Sorenson Communications Inc.'s debt was under pressure on concerns a restructuring was imminent.

After reporting a swing to a loss on Wednesday, Navistar International Inc. continued to lose ground in Thursday trading. However, the losses were modest.

In news from Europe, Alcatel-Lucent SA paper was driving higher after the French company said it had won a contract to build out Telefonica's wireless network in Spain.

And, J.C. Penney Co. Inc. was in the news again, as the New York Post reported the troubled retailer planned to dump its Martha Stewart brand due to disappointing sales.

OGX plan could come soon

OGX Petroleo & Gas Participacoes' 8½% notes due 2018 were falling Thursday on reports a restructuring plan would be released by next week.

A trader said the notes were down over half a point at 18 5/8. Another trader said the issue was lower, trading with an 18 handle.

According to the Brazilian newspaper Folha de S.Paulo, majority owner Eike Batista is planning to unveil the plan in New York on Tuesday. The news outlet reported that Batista intends to ask creditors to swap their debt for equity and to inject new cash.

Folha said an OGX spokesperson denied that any meeting was planned.

It was also reported on Thursday that BlackRock Inc. has been buying up shares of the struggling oil producer. Batista has been divesting his stake in order to raise cash to inject into the company.

Sorenson slipping

A trader said concerns about a potential restructuring weighed on Sorenson Communications' 10½% notes due 2015.

"They were drifting lower," he said, seeing the paper in a 74 to 75 context.

"I think the bonds have come under pressure because of concern that a restructuring will have to occur and earnings have been trending negatively," he said.

The bonds mature on Feb. 1, 2015. A $550 million term loan that came earlier this year comes due Oct. 31, 2014.

Sorenson is a Salt Lake City-based provider of video relay telecommunications services for the deaf and hard of hearing.

Navistar weaker

Navistar International's 8¼% notes due 2021 were soft again Thursday after reporting dismal earnings on Wednesday.

Still, a trader said the paper was off just a touch to 99 1/8.

For the quarter, the Lisle, Ill.-based heavy-truck manufacturer reported a loss of $247 million, or $3.06 per share. That compared to a profit of $84 million, or $1.22 per share, for the same quarter of 2012.

Revenues dropped 12% to $2.86 billion as demand for heavy-duty trucks declined.

"We clearly need to accelerate progress with our financial results, and we are already implementing additional cost reduction and business improvement actions to counter our near-term volume challenges," said Troy Clarke, chief executive officer. "This includes resizing our company to match our current business environment."

As such, the company said it would cut about 500 jobs.

Lucent debt drives up

Alcatel-Lucent saw its bonds improving on news the company had won a contract to build out Telefonica's wireless network in Spain.

One trader said the 6.45% notes due 2029 put on over a point to close at 803/4. Another market source pegged the issue at 80¼ bid, up a point.

The Paris-based telecommunications company did not disclose how much the contract was worth, but the Wall Street Journal, citing "people familiar with the multi-year contract," said it was valued at about €300 million, or $396.2 million.

J.C. Penney drops Stewart

J.C. Penney was in the news again Thursday, as news outlets reported that the struggling retailer was dropping its Martha Stewart brand.

However, even on the back of that news, the bonds "continued to grind higher," a trader said.

He said the 7.95% notes due 2017 were up half a point at 89 and the 5¾% notes due 2018 were "a few points higher" at 831/2.

At another desk, a trader saw the 7.4% notes due 2037 at 73, up almost 3 points.

The second trader also saw the 5¾% notes at 831/2, which he deemed up 2 5/8 points.

J.C. Penney and Stewart inked a deal in 2011. Macy's, however, soon put up a fight, alleging that its agreement with Martha Stewart Living Omnimedia gave it the exclusive right to carry the brand's home goods. Now it seems that the Plano, Texas-based retailer is throwing in the towel, choosing instead to discontinue carrying the items.

Chatter is that J.C. Penney's top dog, Mike Ullman, was not impressed with the line and that sales had been disappointing.

Fannie, Freddie stay firm

Fannie Mae and Freddie Mac preferreds were boosted on Wednesday after Fairholme Capital's Bruce Berkowitz went on CNBC stating that the securities were attractive and calling for the government to return the entities to private hands.

Come Thursday, the securities remained firm as Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) rose a dime, 0r 1.88%, to $5.42. Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) increased 14 cents, or 2.63%, to $5.47.

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