TXU bonds active amid court fight over loan plan; iPayment rebound continues; OSG tweaks exit funding

By Paul Deckelman

New York, June 30 – The distressed-debt market was seen mostly quiet on the last day of June, which also marked the end of the year’s second quarter and its first half. Traders said that with the books on those periods already closed, investors mostly hugged the sidelines.

Here and there, though, some distressed names were fairly busy.

The company formerly known as TXU Corp. was the center of more courtroom drama on Monday, as Energy Future Holdings Corp. outlined the details of its planned $1.9 billion loan and various groups of creditors asked a bankruptcy judge to hold off on approving the plan, citing their claims that it treats them unfairly.

Bonds issued by Energy Future’s Texas Competitive Electric Holdings Co. LLC gyrated in active dealings.

iPayment, Inc.’s bonds were seen up by several points in fairly active trading, continuing a recent trend that has seen the New York-based credit- and debit-card transaction processing provider’s levels firm up from the lows seen in recent weeks after disappointing earnings and ratings-agency fears about weak liquidity.

In the bank-debt market, Overseas Shipholding Group Inc. was heard by sources to have cut the pricing on two tranches of term loan debt that are part of $1.35 billion of financing that the New York-based petroleum tanker operator has lined up to help it emerge from Chapter 11. It also upsized one of those term loan tranches by $25 million, while downsizing a planned revolving credit line by the same amount.

TXU trades around

Several issues of Texas Competitive Electric’s paper were seen among the most active junk bond market credits on Monday, as investors tracked the latest news developments coming out of the U.S. Bankruptcy Court in Wilmington, Del.

A trader said that the company’s 10¼% notes due 2015 “were up a good bit,” about 1 point to 1½ point, with the bonds recently trading in a 114 to 115 context and seen on Monday “just north of 16.”

At another desk, a market source saw those bonds finishing just a shade below 16 bid, at 15 15/16. He said that was up a little more than 1 point, with volume in the credit over $11 million.

Texas Competitive’s 15% notes due 2021 were even busier, ending at 46¼ bid, about unchanged but with over $18 million having changed hands.

Trader said that Energy Future Intermediate Holding Corp.’s11¼% notes due 2018 “dipped some from where they had been,” going home “straddling 120” versus previous levels in the low 120s.

The activity in the TXU bonds came against the backdrop of renewed arguments in the Dallas-based utility operator and merchant power producer’s bankruptcy restructuring case.

On Monday, the company, which last week rejected a $2.3 billion strategic financing and restructuring proposal from investor NextEra, Inc. and a group of second-lien noteholders, outlined some changes to its previously announced $1.9 billion debtor-in-possession financing plan.

The changes included lower interest costs and other improved terms from its original plan, with hope of convincing creditors and the court to go along with the plan.

The company said that it had managed to negotiate a 1.75% lower interest rate than when it initially put its proposal to lenders on the table and cut fees it would have to bay by some $437 million, helped by intense lender competition to get a piece of what is expected to be a lucrative financing.

The plan was developed with input from some of the company’s unsecured senior toggle noteholders.

However, those accomplishments failed to impress some of the other creditors, who asked bankruptcy judge Christopher Sontchi to hold off on approving the company’s plan. They charge that the plan would unfairly give control of the crown jewel among Energy Future’s assets, its profitable Oncor power transmission business, to certain favored lenders, leaving other creditors on the outside looking in.

The company – acquired in a $46 billion leveraged buyout in 2007 – was forced into bankruptcy at the end of April, staggering under that giant debt load and hurt by weaker-than-expected revenues from its power-generation business.

iPayment rebound continues

iPayment’s 10¼% notes due 2018 gained 2¾ points on Monday on round-lot volume of over $10 million, as well as brisk activity in smaller odd-lot pieces, even though there was no fresh news heard out on the company, which provides credit and debit card payment processing services to small merchants across the United States.

A trader saw those bonds going out at 91¼ bid, versus Friday’s levels around 88½.

A second trader pegged the bonds around 90¾, calling it a nearly 2-point rise on the session. He noted that just a week ago, the bonds had been trading at 83 bid.

That was about where the bonds had opened the year, but they were eventually hammered down to lows around 68 bid in May, following the release of first-quarter numbers showing a new loss of over $11.5 million, more than triple the year-earlier red ink of $ 3.6 million.

That deterioration in operating performance and concerns about the company’s liquidity caused Moody’s Investors Service in May and then Standard & Poor’s in June to downgrade its ratings.

However, the bonds began rising even after the ratings cuts, rising to their current levels from their recent lows just under $73 on June 11, despite a lack of fresh news about the company.

Mixed results in quiet market

Elsewhere, a trader said that “there wasn’t a lot going on in the retailers,” quoting RadioShack Corp.’s 6¾% notes due 2019 as having “backed down” to around a 41-42 context. He said that the Fort Worth. Texas-based consumer electronics retailer’s bonds had risen as high as 44 bid on Friday.

“There was not a lot of volume, but they’re definitely trading down a little bit.”

He also saw Nortel Networks Corp.’s bonds a little weaker, quoting the 10 1/8% notes that were to have come due last year and the 10¾% notes due 2016 both trading around a 114 to 115 context, after having recently been as high as the 116 bid area.

The Brampton, Ont.-based maker of telecommunications networking equipment is currently under protection from its creditors from concurrent filings under the U.S. Bankruptcy Code and Canada’s equivalent, the Companies’ Creditors Arrangement Act. It is in talks with the creditors over how to divvy up about $7.3 billion of assets.

OSG tweaks exit funding

From the bank-debt market came word that Overseas Shipholding Group Inc. – currently restructuring under Chapter 11 – was tinkering around on Monday with the term loan tranches on the planned $1.35 billion of new financing that will help the Tanker company emerge from bankruptcy.

A market source said that it had upsized the five-year covenant-light term loan (B1) at its OSG International unit to $625 million from $600 million, while pricing was trimmed to Libor plus 475 bps from Libor plus 525 bps, the source said.

At the same time, the source said that the company had lowered the pricing on the $600 million five-year covenant-light term loan (B1) at its domestic OSG Bulk Ships unit to Libor plus 425 basis points from Libor plus 475 bps.

The source also said that the original issue discount on both term loans firmed at 99, the wide end of the 99 to 99½ talk, and the 101 soft call protection on both loans was shortened to six months from one year.

As before, both term loans have a 1% Libor floor.

With the international term loan upsizing, the 4½-year cash-flow revolving credit facility at OSG International was downsized to $50 million from $75 million. Pricing on the cash-flow revolver remains Libor plus 450 bps with a 1% Libor floor.

The company’s planned $1.35 billion credit facility also includes a $75 million 4½-year asset-based revolver at OSG Bulk Ships with pricing that can range from Libor plus 225 bps to Libor plus 275 bps based on availability.

Jefferies Finance LLC is the lead lender on the deal.

OSG sought protection from its bondholders and other creditors via Chapter 11 filing with the U.S. Bankruptcy Court for the District of Delaware in November of 2012.

Sara Rosenberg contributed to this review

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