Distressed bonds easier; Walter Energy, Alpha still losing ground after analyst's warning

By Paul Deckelman

New York, Jan. 29 - Bonds of distressed and under-performing companies were seen mostly lower on Wednesday, in line with a generally easier high-yield market, traders said. Junk bonds, in turn, had been pushed down in line with a slide in equities after the Federal Reserve elected to cut back further on its quantitative easing bond-buying program.

The traders said that activity was quiet, with not much really standing out.

Among the more active names in the space, Momentive Performance Chemicals Inc.'s paper was seen down by more than 1 point, though on no fresh news.

There was some activity in Texas Competitive Electric Holdings Co. LLC's bonds, although there was no fresh news seen about the utility operator that might explain those dealings.

Among the more familiar names in the space, Caesars Entertainment Corp. and J.C. Penney Co. Inc. were each seen a little softer, on no special news.

But the big losers on the session were found in the coal names, notably Walter Energy, Inc. and Alpha Natural Resources, Inc., which continued to reel from an analyst's warning earlier this week that those companies stood to be hurt by falling prices for metallurgical coal used in the production of steel.

Walter gets whacked

A trader said that the trouble spot of the day was "in coal-land," as he saw Walter Energy's 9 7/8% notes due 2020 trading around 76 bid, "so those continue to slide."

He said that the Birmingham, Ala.-based metallurgical coal producer's bonds had dropped below 75 bid at one point during the session, although they did manage to come off their lows, he said.

Those levels compare with levels around 77½ on Tuesday and north of 80 bid last week.

"A week ago, it was trading at 831/2-84, so it's down 8 to 9 points over the last week."

A trader at another shop meantime saw the bonds on Wednesday at 74¾ bid, calling them down nearly 3 points on the day, on brisk volume of over $9 million.

The bonds, as well as the company's New York Stock Exchange-traded shares, have been on the slide since at least Monday, when Citigroup analyst Brian Yu warned in a research note that Walter and sector peer Alpha Natural Resources stood to be hurt more than most other coal companies by the fall in prices for met coal, which is used in the production of steel and other metals. Those prices, which had already been considered low at $132 per ton, have now slid to $125 per ton, and some analysts think they could come down even further.

Bristol, Va.-based ANR's 6¼% notes due 2021 were meantime down 1 point on Wednesday, going out at 82½ bid.

In his note, Yu said that coal companies like Peabody Energy Corp. were better positioned to ride out the downturn in met coal.

The St. Louis-based coal producer's 7 7/8% bonds due 2026 gained nearly 2 points on the day Wednesday to close just below 105 bid.

TXU trades around

A market source saw some activity in Texas Competitive Electric Holdings Co.'s bonds, although there was no fresh news out on the Dallas-based utility company, a unit of Energy Futures Holdings Corp., the corporate successor to the old TXU Corp.

Its 15% notes due 2021 moved up to 31 bid , a gain of nearly 1 point, on volume of about $5 million. Its 10¼% notes due 2015 rose to 5½ bid, a gain of 3/8 point, on volume of about $3 million.

Momentive moves lower

Momentive Performance Materials' 9% notes due 2021were seen by a trader having lost 1 point on the day, trading between 90¼ and 90½ bid. He saw no fresh news in the Columbus, Ohio-based specialty chemical manufacturer that might explain the activity in the credit.

At another desk, a source quoted the bonds down 1¼ point on the day, at 90¼ bid, with over $11 million having changed hands.

Penney pushed around

A trader said that J.C. Penney's paper "wasn't trading a lot - but it was a little softer."

He saw the troubled Plano, Texas-based department store operator's 6 7/8% notes due 2015 trading around 88 bid.

There was no fresh news out on the company.

Caesars seen busy, lower

A market source saw Caesars Entertainment's 10% notes due 2018 down 1 point on the session, at 50 bid.

He said that volume amounted to $9 million.

There was no fresh news out on the Las Vegas-based casino giant, the corporate successor to the bonds' original issuer, Harrah's Entertainment Inc.

Session a mixed bag

A trader described the overall session as "kind of mixed."

"I guess you could say that in general, the market was a little bit softer, given what equities were doing," he said.

Stocks were lower across the board, reacting to the announcement from the Federal Reserve that it would continue to throttle back on its quantitative easing bond-buying program, reducing the amount of Treasury and mortgage-backed securities it will buy to help keep the economy liquid and interest rates low to $65 billion a month starting in February - down from $75 billion per month currently and well down from the $85 billion per month that it had been buying before the current round of tapering off began this month.

The bellwether Dow Jones Industrial Average slid by 189.77 points, or 1.19%, to end at 15,738.79. The broader Standard & Poor's 500 index lost 18.3 points, or 1.02%, to finish at 1,774.2. The even broader Nasdaq Composite index dropped by 46.53 points, or 1.14%, to go out at 4,051.43.

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