Distressed debt falls with market on concerns about Banco Espirito; Walter Energy stays busy

By Stephanie N. Rotondo

Phoenix, July 10 – With the broader market hitting the skids, a distressed debt trader said there was “a lot of stuff down with stocks” on Thursday.

Driving the day’s losses, according to a market source, was “concerns about a European contagion, specifically out of Portugal,” referring to the recent debacle of Banco Espirito Santo SA.

From a volume standpoint, “most of the activity was still focused on new issues.”

For instance, Walter Energy Inc.’s 9½% notes due 2019 “continued to be pretty active,” after the company priced a $320 million add-on to the issue on Tuesday.

The add-on was priced at the discounted price of 99, with a 9.741% yield. The new issue comes on top of the original $450 million, which came September 2013 at 99.425, and a $200 million add-on priced at 101.5 on March 19.

However, the trader noted that “the rest of the structure was pretty quiet” and that even sector peers Alpha Natural Resources Inc. and Arch Coal Inc. were subdued, though perhaps quoted lower on the day.

Away from new or recent deals, another market source saw Toys “R” Us Inc.’s 7 3/8% notes due half a point off at 77 bid.

And, in a “higher-beta” name that often flirts with distressed status, Clear Channel Communications Inc.’s 10% notes due 2018 came in half a point to a point to close around 95½, according to a trader.

Espirito concerns spook market

Banco Espirito, Portugal’s second largest lender, said on Tuesday that it had missed a payment on some of its commercial paper. That then led to the company’s stock – as well as the stock of its affiliates, including parent company Espirito Santo International – being suspended on the Portugal exchange, “pending an announcement. And no announcement has been made,” the source said.

In late 2013, the bank and its entities were hit with allegations of accounting irregularities. That resulted in Portugal’s central bank calling for an audit, which not only found accounting issues at the parent organization, but also that the company was in a “serious financial condition.”

Though the Bank of Portugal has stated that the bank itself is protected from the default and other issue, fears are mounting and spreading into Europe. Several European securities sales have been postponed in the wake of the news.

“Investors are concerned about whether or not the crisis can be contained,” the source said.

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