Distressed space firms as Treasuries gain; OGX debt up 5 points after $1 billion put exercised

By Stephanie N. Rotondo

Phoenix, Sept. 6 - Distressed debt was firming Friday, which traders attributed to a rebound in Treasury bonds.

Volume remained thin, however, given Rosh Hashana and a continued focus on recently priced high-yield deals.

But OGX Petroleo & Gas Participacoes SA paper jumped during the day's session. The gains came as it was reported that the company had elected to exercise a $1 billion put option with its majority owner, Eike Batista.

OGX pops

OGX bonds got a 5-point boost on the day after it was reported that the company's management had unanimously decided to exercise majority owner Eike Batista's $1 billion put option.

"They were all over the place," a trader said. He saw the 8 ½% notes due 2018 trading around 23, up from "18 and change" the day before.

"So they popped a good bit," he said.

Another trader said the 8½% notes were the "big trader" on the day, with at least $25 million in bonds changing hands. He deemed the issue up over 4½ points at 23 1/4.

The second trader also saw the 8 3/8% notes due 2022 rising 5 points, ending at 23.

However, the 2022 paper was not nearly as active, the trader noted.

The cash-strapped company elected to exercise the option, which will require Batista to buy more stock at 6.3 reais per share. Batista has recently been selling off his stake to raise money and recently sold stock for 50 centavos per share.

Under the terms of the exercise, OGX is asking for $100 million upfront with an option for more dispersals in the future.

The cash injection won't be enough to stave off a restructuring, some believe.

"Fundamentally, a $3.6 billion debt is higher than OGX's asset value, which in theory leaves zero value left for the equity," said Credit Suisse AG analysts Vinicius Canheu and Andre Sobreirain in a note to clients.

"The outlook remains grim."

James River sinking

A trader said James River Coal Co.'s 7 7/8% notes due 2019 "keep drifting lower."

He pegged the issue around 33.

"They are slowly leaking," he commented.

In early August, the coal producer reported a profit of $52.6 million, or $1.16 per share. The company had reported a loss the year before.

However, revenues fell 42% to $160.1 million.

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