Distressed credits mostly lower, including oil, coal; Puerto Rico slips; LiqhtSquared lines up loan

By Paul Deckelman

New York, May 11 – The distressed debt space was seen generally easier on Monday, in line with a mostly lower junk bond market.

Among the notable losers were such coal-space names as Alpha Natural Resources Inc. and Arch Coal Inc., as well as Walter Energy Inc.

Iron ore producer Cliffs Natural Resources Inc.’s notes were holding steady at recent lower levels.

Traders saw oil names such as SandRidge Energy Inc. and Energy XXI also lower.

In the municipal bond market, traders noted the recent erosion of Puerto Rico’s general obligation bonds, as the troubled island commonwealth’s legislators continue their wrangling over a tax-overhaul proposal.

In the bank loan market, traders said that LightSquared Inc. has a bank meeting coming up this week to launch a big new bond deal that will be used to fund the bankrupt wireless communications company’s exit from Chapter 11 and refinance its debtor-in-possession facilities.

Coal in a hole

Traders said that coal names continued to be a difficult spot for the overall market.

“Coal is the problem black rock of this market,” one said.

For instance, he said that Birmingham, Ala.-based metallurgical coal producer Walter Energy’s 9½% first mortgage bonds due 2019 had dropped to around a 60 to 61 context, while the company’s unsecured bonds “are in the single digits,” such as its 9 7/8% notes due 2020, which he said were quoted in a 3 to 5 bid context.

He saw the company’s 11% notes between 10 and 12.

“They’re definitely lower this week than they were last week.” While he did not see much activity in the bonds, he warned that “these quotes don’t look encouraging.”

He saw St. Louis-based Arch’s 7% notes due 2019 trading around 19-20, which he said was “down a couple of points from their levels around 20 at the end of last week,” though the erosion occurred on “not a lot of volume.”

Another trader pegged Arch’s 8% notes due 2019 at around 35½ bid, down more than 2 points.

And he saw Bristol, Va.-based Alpha Natural Resources’ 6¼% notes due 2021 down marginally, at 16¾ bid.

The first trader meantime saw Cleveland-based coal and iron ore producer Cliffs Natural Resources’ paper moderately busy, with its 3.95% notes due 2018 ending in an 83 to 85 context on volume of about $7 million.

He said that 84 “was the mid-market, about where they closed last week.”

Oils’ struggle continues

Among the oil names, a trader saw SandRidge Energy’s 7½% notes due 2023 trading around 70 bid, 71, which he called “down a couple of points – it looks like there was a lot of activity across their whole structure.”

The Oklahoma City-based energy provider’s 7½% notes due 2021 had drifted down to 72¾ bid.

Houston-based Energy XXI’s 11% notes due 2020 fell 1¼ points on the day to 95 bid, with $13 million of the bonds changing hands.

Puerto Rico gets punished

In the municipal space, a trader said that Puerto Rico’s bonds “are now trading at distressed levels,” having fallen below the psychologically significant 80 level.

He said the troubled island commonwealth’s 8% general obligation bonds of 2035 “have been down the last few sessions,” quoting them on Monday in 78 to 79½ context.

He said the day’s low was around 78, but the bonds were going home around 79½ bid on volume of over $13 million.

He noted that the $3.5 billion bond deal had come to market just a little more than a year ago.

“They’ve just been drifting lower,” he said.

He declared that “this is a pretty big deal – the whole country is going to be restructured, especially now that they’re below 80.”

With less than two months to go in the fiscal year and the government facing a cash crunch, legislators were seen far from agreement on making changes in the tax code that could facilitate a planned $2.9 billion bond sale and bring some temporary relief.

LightsSquared sets meeting

In the bank-debt market, a source said that LightSquared Inc. set a bank meeting for 12:30 p.m. ET in New York on Wednesday to launch a $1.75 billion five-year first-lien term loan.

Commitments are due on May 27, the source continued.

Credit Suisse Securities (USA) LLC, Jefferies Finance LLC and Morgan Stanley Senior Funding Inc. are leading the deal that will be used to fund the company’s exit from Chapter 11 and refinance debtor-in-possession facilities.

LightSquared is a Reston, Va.-based wireless communications company. The company filed for bankruptcy on May 14, 2012 under Chapter 11 case number 12-12080.

Sara Rosenberg contributed to this review

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