Distressed bonds mostly up as junk gains at quarter’s end, but Quicksilver, PDVSA punished

By Paul Deckelman

New York, Sept 30 – Distressed-debt debt names were seen mostly better on Tuesday – a far cry from Monday and from the previous few sessions, when the whole sphere had been dragged lower as the larger high-yield bond market struggled.

But with junk seen better on Tuesday – helped by some judicious quarter’s-end window dressing, a trader said – the distressed credits came along for the ride.

Many natural resources names – a sector which seemed to have taken the brunt of the market’s weakness in recent days and weeks – were seen on the rebound on Tuesday, including Samson Investment Co., Molycorp. Inc., and coal operators Cliffs Natural Resources Inc., Walter Energy, Inc., Arch Coal, Inc. and Alpha Natural Resources, Inc.

But that good fortune was by no means universal, as some hard-hit energy names continued to get knocked around, including Quicksilver Resources Inc. and Venezuela’s state oil monopoly, Petroleos de Venezuela SA, the latter name in heavy trading.

Away from the energy and mining names, better levels were seen in Toys “R” Us, Inc., West Corp. and NII Holdings, Inc.

Junk market brings distressed along

A market source saw distressed bonds mostly higher, attributing the strength to gains in the larger junk bond market, which was seen rebounding from lows seen over the past few sessions, culminating in its weakness early Monday, before trimming those losses later in that session.

That late upside momentum was seen continuing into Tuesday.

A trader – even as he called the overall activity level “pretty boring” – said that “the market was up maybe 3/8 to ½ point today, off of yesterday’s [Monday’s] selloff.”

Another trader said that “most of the market seemed like it was up ½ to ¾ [point] and it kind of oscillated.”

At another shop, a market source opined that “it looks like there was a major effort to mark things up today for the quarter’s end.

“It will be interesting to see how much these marks give in the sessions ahead.”

Many resources names better

The hard-hit natural resources segment – including energy and mining names – has travelled a rocky road over the past few weeks, reflecting the overall weakness in the world markets for such commodities as oil, coal and metals.

But on Tuesday, many of those names were seen having bounced off their near-term bottoms, some of them firming smartly from their lows.

A trader said that Birmingham, Ala.-based metallurgical coal producer Walter Energy’s bonds “have been active over the last few sessions.” On Tuesday he said, its 8½% notes due 2021 traded up 2¼ points to 30 bid, although there were just “a couple of [round-lot] trades.”

He also saw its 9 7/8% notes due 2020 trading up by 4½ points to 33½ bid.

Another trader saw the latter bonds having gained 3 points on the day to end at 33½.

Elsewhere in the coal space, one of the traders said that Arch Coal’s issues “were active.” He saw the St. Louis-based coal company’s 7¼% notes due 2021 up 1 point on the day to end at 48 3/8, while its 7¼% notes due 2020 rose by 3¾ points to 54¼.

“So it looks like the stuff that got hit the hardest rebounded the most,” he declared, also seeing Arch’s 7% notes due 2019 up a little more than 2 points at 55½.

However, a market source at another desk meanwhile pegged Arch’s 8% notes due 2019 off ¼ point on the day to end at 86¼ bid. Volume of over $12 million put that paper high up on the Most Actives list.

Bristol, Va.-based Alpha Natural Resources’ 6% notes due 2019 traded up to 60½, which a trader called up 1¼. He said that its 6¼% notes due 2021 traded at 59, calling that “unchanged – which is hard to believe.”

He also said that Cliffs Natural Resources “has had a double whammy – coal and steel, so they have really been getting whacked.”

But on Tuesday, the Cleveland-based company’s 6¼% notes due of 2040 rebounded by 2¼ points, rising to 71¾, although he acknowledged that it was just on one large-sized trade.

Outside of the coal space, the trader saw “a pretty big move’ for Molycorp.’s 10% notes due 2020, which were up by 2¾ points on $6 million of activity, ending at 69½.

On Monday, the Greenwood Village, Colo.-based rare earths and rare metals producer’s bonds were seen ending at 66¾ bid, down 2¾ points on the day.

A trader said that Tulsa, Okla.-based independent oil and natural gas exploration and production company Samson Investment’s 9¾% due 2020 “finally stopped heading down.”

Those bonds had been trading above par as recently as Sept. 18, but then began to slide, “going down by points per day,” before bottoming around 88 bid late last week.

After languishing down there for a couple of sessions, he said that “they rebounded smartly today with the market,” adding 2 3/8 points to 91.

Quicksilver still struggles

But not all energy names were enjoying that kind of a rebound.

A trader noted that Quicksilver Resources’ 7 1/8% notes due 2016 “have just been bludgeoned over the last month or so.” He saw the Denver-based exploration and production company’s paper down another 2 points on Tuesday to 40½ on just a single large trade.

PDVSA punished

A trader said that in the emerging markets space Venezuela’s sovereign bonds and those of its state-run oil monopoly Petroleos de Venezuela SA (PDVSA) “continued their August sell-off into September,” as the Latin American nation continues to cope with a currency crisis that has decimated the value of its currency unit, the bolivar. At the beginning of 2013, the bolivar was worth just under 6 cents, with 17 of the notes exchangeable for a dollar on the black market. It currently has deteriorated to the point that the bolivar is worth about a penny, with slightly over 100 needed to buy a dollar.

The trader cited market talk of “a heavy October payment schedule” and the lack of any buying interest in those bonds, although he said there had been some “bottom-fishing” recently.

A trader at another shop said Tuesday that the PDVSA bonds were solidly lower, with between $100 and $200 million having traded.

Among its four most active issues, he saw the 6% notes due 2024 “heavily traded,” down 2 points to 51½, on $75 million of volume.

Its 8½% notes due 2017 were down “2-and-change” to 78½, and volume was $30 million.

PDVSA’s 6% notes due 2026 were down 1 point to 50¾, on $25 million in trading and its 5 3/8% notes due 2027 were down 2 points to 49¾, with over $25 million having changed hands.

West Corp bounces back.

A trader said that at his shop, “we’ve been trying to get our hands around West Corp.’s 5 3/8% notes due 2022 that just kept trading down points every day.”

He called the Omaha-based provider of teleconferencing services, webconferencing services and internet protocol solutions “a good, solid credit.”

But yet, he said, “it got down 7 or 8 points, finally, [Monday], it seemed like a lot traded.”

He continued that “they finally took a big seller out of the bonds, at 91¼, and they traded once there today and then back up to 92½. So that was kind of indicative of the market – some bonds were hitting their lows yesterday and bounced up a little bit.”

He said the West Corp. bonds “only had two [round-lot] trades, at 91¼, and then up to 92½ – so some bonds like that kind of gapped a little bit, but then faded into the afternoon.”

Other names gain

Elsewhere, Wayne, N.J.-based specialty retailer Toy “R” Us’ 7 3/8% notes due 2018 finished the day at 70¼ bid, up 1¾ points, a market source said.

And he said that “there’s always been a little activity in Nextel International,” as NII Holdings was formerly known.

The 7 5/8% notes due 2021 issued by the Reston, Va.-based provider of wireless service to Latin American markets – currently restructuring under Chapter 11 - traded up ½ point on Tuesday to 19½ on about $12 million of volume.

Christine Van Dusen contributed to this review

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