Distressed-debt market sees PDVSA bonds trade actively, DFC Global paper slide on results

By Paul Deckelman

New York, Jan. 31- Participants in the distressed-debt market saw brisk activity Friday in the bonds of Venezuela's state-run oil company, Petroleos de Venezuela SA. PDVSA meantime announced plans for some foreign fuel purchases to offset unscheduled downtime at one of its plants.

Among domestic issuers, casino operator Caesars Entertainment Corp.'s 10% 2018 bonds were seen as fairly active on the day, with prices a little on the downside.

There was more trading in the bonds of Walter Energy Inc., whose bonds have lately been under pressure amid falling prices for metallurgical coal, its main product.

With market conditions heavier than they were on Thursday, participants saw downturns in the bonds of retailers like Bon Ton Department Stores and J.C. Penney Co. Inc. But chemical manufacturer Momentive Performance Materials' bonds were better, while wireless reseller NII Holdings Inc.'s bonds were mixed.

DFC Global Corp.'s junk bonds and its two convertible bond issues traded down in active dealings, in line with a 29% slide in its underlying shares. The financial services provider posted a disappointing earnings miss and lowered guidance for fiscal 2014 earnings.

Also in the convertibles market, InterMune Inc.'s 2.5% converts slipped on an outright basis, but were flat to slightly better on a dollar-neutral, or hedged, basis as shares of the biotechnology company sold off sharply on drug competition concerns, a trader said.

PDVSA trades actively

A trader opined that "in distressed-land, PDVSA is usually the most active - and that's the case today."

He saw busy trading in the Venezuelan oil company's 6% notes due 2026, seeing those bonds trading off almost 2 points to 51 3/8 bid.

He also saw its 9¾% bonds due 2035 down more than 2 points, on over a dozen round-lot trades, ending at 61 3/8 bid.

Caracas-based PDVSA announced Friday that it plans to buy some 300,000 barrels of unleaded 95-octane gas in the open market, for delivery on Feb. 1 and Feb. 10.

The company is trying to compensate for some unscheduled downtime at one of its petroleum refining plants, but it has not yet found a supplier who can meet its conditions.

Caesars seen busy

Back on the domestic scene, Caesars Entertainment's 10% notes due 2018 were seen by a trader as "pretty active," easing by 3/8 point to 50¼ bid.

A market source at another desk said that those legacy bonds issued by the Las Vegas-based gaming giant's corporate predecessor, Harrah's Entertainment Inc., were among the most actively traded junk credits on Friday, with over $14 million having changed hands. He saw those bonds down a little more than ¼ point, ending at 50 3/16.

Coal still in spotlight

Recently busy coal operators continued to trade around on Friday.

Walter Energy's 9½% notes due 2019 were trading at 101½ bid, 102¼ offered, which a trader said "looks like it was up a little bit from [Thursday]."

He said that he didn't really see much dealing in Walter's 9 7/8% notes due 2020, noting only one size trade. He called the bonds up ½ point at 76 bid, versus levels around 75½ to 76 on Thursday.

"The others were quoted a little higher but I didn't see any action" in the 91/2s.

The Birmingham, Ala.-based metallurgical coal producer's bonds have slid into the mid-70s from recent highs about a week ago in the 83-to-84 bid context, in line with weaker prices of metallurgical 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. Wells Fargo Securities and Citigroup were among the financial firms expressing concerns over Walter's perceived weakness.

The trader saw St. Louis-based sector peer Arch Coal Inc.'s 7% notes due 2019 down ½ point to 77¾ bid "on a handful of trades."

Alpha Natural Resources Inc.'s 6¼% notes due 2021 were up ¼ point to 82 bid, though on just a single sizable trade. He said that the Bristol, Va.-based coal producer's bonds "don't seem able to get out of their own way."

Retailers in retreat

In the retailing space, a trader saw "a bunch of trades" in Bon-Ton Department Stores' 8% notes due 2021 "first thing in the morning."

He saw those bonds finishing at 97¼ bid, which he said was only down about ¼ point from Thursday's levels, "but on some decent volume from then on," estimating more than a dozen round-lot trades.

Another trader said the York, Pa.-based department store operator's paper was about unchanged at 97 bid, estimating turnover at more than $13 million.

Fellow retailer JC Penney's 6 7/8% notes due 2015 were off by almost ½ point to around the 88 bid, level, on over a dozen trades, a market participant said.

At another desk, the troubled Plano, Texas-based department store chain owner's 5.65% notes due 2020 were being quoted down ¾ point at 71¼ bid.

Its 5¾% notes due 2018 lost 1 1/8 point to finish at 72½ bid.

Also in the retailing world, Wayne, N.J.-based toy, game and children's products chain operator Toys 'R' Us, Inc.'s 7 3/8% notes due 2018 were seen down ½ point at 75¾ bid.

NII bonds a mixed bag

A trader said that NII Holdings' bonds were down a point, "on a handful of trades."

He saw its 7 5/8% notes due 2021 dip to 42½ bid.

But he also saw the Reston, Va.-based company's NII Capital Corp. 10% notes due 2016 "rebounding" by 1½ points from their recent levels, ending at 623/4, on nearly $10 million of turnover, "so I guess that's a decent bid for them."

NII markets the Nextel wireless service to customers in Central and South America.

Momentive moves up

A trader said that Momentive Performance's bonds "has been active" over the last several sessions.

He saw its 9% notes up around 1 point on Friday at 91 bid, 91½ offered.

He also saw the Columbus, Ohio-based specialty manufacturer's 11½% notes due 2016 down ¾ point to 77¼ bid, although he noted that this was on just one round-lot trade.

Dollar drops sharply

The disaster of the day, market participants agreed, was likely Dollar Financial's junk bonds, convertible notes and shares after the company reported poor financial results.

A trader saw Dollar's 10 3/8% notes due 2016 having slid by 5 points to close at 98 bid, with over $9 million of the bonds having changed hands.

A second trader saw the bonds down 5¼ points on the day around that same 98 bid level.

The Dollar 3.25% convertibles due 2017, which priced in April 2012, tumbled more than 10 points to about 78.

The Dollar 3% convertibles due 2028 dropped to about 91 offered from about 95.

Dollar's Nasdaq-traded shares plunged, closing at their lows for the day, at $7.52, which represented a drop of $3.05, or 29%.

"It missed pretty big, and guided lower," a Connecticut-based trader said of the company's results and why the 3.25% bonds tumbled.

A second trading source said that the bonds "came in for sure, with obvious widening of the credit. There are issues there with the credit."

Both traders said the Berwyn, Pa.-based financial services company was a primary focus of the convertibles market on Friday.

"That's definitely the big name of the day," one trader said.

The company, which provides financial services to unbanked and under-banked consumers, reported net income excluding items of 6 cents per share, which was down from 46 cents a year earlier.

Revenue fell 10.4% to $262.3 million for the latest quarter, compared to the year earlier period.

Looking ahead, the company lowered its EBITDA guidance to $170 million to $200 million from $200 million to $240 million.

Operating earnings were revised lower to 35 cents per share to 80 cents per share, from 65 cents per share to $1.27 per share for fiscal 2014.

The company cited a decrease in commodity gold prices, regulatory transition issues in the United Kingdom and increasing weakness in the Canadian dollar for its weak performance.

InterMune firm on hedge

InterMune's 2.5% convertibles slipped 2 or 3 points on an outright basis to 89 bid, 90 offered, from about 92.

The underlying shares of the Brisbane, Calif.-based biotechnology company ended down $2.90, or 18%, to $13.35, although it did pare losses slightly by the day's end.

Compared to the shares, the bonds didn't look too bad, a Chicago-based trader said.

"They are barely down or slightly better on delta," the trader said. The bonds would be held on a delta of 30% to 40%.

Earlier this month, the InterMune bonds had made the reverse move, adding to the 92 mark, from 89, and rising on a 40% to 45% delta when the company, which focuses on treatments for pulmonary, infectious and hepatic diseases, said fourth-quarter revenue for its lung disease drug Esbriet was better than expected and it guided full-year 2014 revenue in line with consensus.

Responsible for Friday's move were investor worries over drug competition, the trader said.

Rebecca Melvin contributed to this review

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