Bid-wanteds weigh on distressed space; 21st Century Oncology debt weaker; TXU volatility calms

By Stephanie N. Rotondo

Phoenix, July 18 – While the broader markets attempted to rally Friday after getting beaten down on news of a Malaysian Airlines crash over the Ukraine on Thursday, the distressed debt market did not appear to recover as well.

“Things are drifting off on a lot of bid-wanted lists,” a trader said.

Though not heavily traded during the final session of the week, 21st Century Oncology Inc.’s bonds continue to nosedive on concerns regarding the company’s revenue streams.

Traders deemed the bonds down at least 8 points on the day. The debt was seen down 10 points on Thursday versus Tuesday levels.

A trader said that volatility in Energy Future Holdings Corp. paper calmed down on Friday, noting that the name had been gyrating as news came out that the company’s restructuring support agreement needed to be modified or canceled.

21st Century Oncology depressed

21st Century Oncology debt suffered more losses Friday, albeit in thin trading, as investors remained concerned about the company’s future prospects.

One trader said the 9 7/8% notes due 2017 were “down another 8 to 10 points” at 57, though he noted it was “just a single trade.

The trader also saw the 8 7/8% notes due 2017 falling 1½ points to 93¾.

Another trader deemed the 9 7/8% notes down 10 points at 57, the 8 7/8% notes “down a couple more” in a 92 to 94 context.

“That name just keeps getting beat up,” the second trader said.

Earlier this month, the Department of Health and Human Services said that it could cut the amount Medicare and Medicaid pays to radiation therapy providers for equipment costs. That added to investors already concerned with 21st Century’s cash burn and the fact that it pulled an $88 million initial public offering earlier this year.

On Monday, Standard & Poor’s dropped its outlook on the Fort Myers, Fla.-based company, citing the Medicare and Medicaid proposals, noting that the company receives about 45% of its patient services revenues from those programs.

TXU calms down

A restructuring plan agreed on prior to Energy Future Holdings’ bankruptcy filing “might get ripped up,” a trader said Friday.

“If changes can’t be made [with creditors] by Aug. 8, the plan will be terminated,” he said. “So there’s a lot of jockeying around, prices have been somewhat volatile on that news.”

However, the trader said most of the gyrations took place Thursday, partly due to the broader market drop that occurred following news of the Malaysian Airlines crash. Come Friday, the bonds had stabilized a bit.

The 10¼% notes due 2015 – linked to Texas Competitive Electric Holding Co. LLC – were pegged in a 15 to 15½ context on Friday. On Thursday, paper traded as low as 14 and as high as 16, ending around 15.

In April, prior to filing for Chapter 11 protections, Energy Future had reached a restructuring plan with creditors that would have divided the company into two parts. One part would get the Oncor Electric Delivery Co. business, while another would get the unprofitable generating unit.

However, since filing for bankruptcy, creditors slated to get a smaller portion of the company have fought the plan, leaving the company with no choice but to modify the existing plan or cancel it altogether.

Verso regains ground

Verso Paper Corp.’s debt sought to recover some of the losses incurred Thursday after the papermaker said that as of the early tender deadline, the company had received less than the 75% needed to move forward with its proposed NewPage merger.

However, bondholders have until July 30 to participate in the exchange offer for the 8¾% second-lien notes due 2019 and 11 3/8% notes due 2016.

One trader called the 8¾% notes up over half a point at 48 3/8, while the 11¾% notes due 2019 rose almost a point to 89 ¾.

Another trader said the 11¾% first-lien notes due 2019 were trading at 105 to 105½.

“There wasn’t much activity in the other ones,” he said.

The early tender deadline was midnight ET at the end of Wednesday. As of that time, $286.9 million of the 8¾% notes had been validly tendered, of which there is a total of $396 million outstanding. But only $17.7 million of the 11 3/8% notes had been tendered, of which there is $142.5 million outstanding.

“Verso continues to believe that the consummation of the exchange offers is in the best interests of all Verso stakeholders and is an important step toward completing our acquisition of NewPage,” said Dave Paterson, Verso’s president and chief executive officer, in a press release. “If we cannot complete the exchange offers, Verso will be forced to consider alternative actions.”

Fannie, Freddie firm again

Fannie Mae and Freddie Mac paper continued to gain momentum in Friday dealings. The mortgage backers have been making headlines this week, as yet another new bill to wind down the agencies was introduced by a trio of House Democrats and a judge overseeing Fairholme Capital’s case against the government in regards to its conservatorship jumped a hurdle.

In regard to the case, the judge granted Fairholme a broader range in the discovery process. Fairholme is attempting to prove that the government’s actions in placing the firms under conservatorship were not lawful.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) finished up a quarter, or 2.26%, at $11.33. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) rose 27 cents, or 2.31%, to $11.95.

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