Distressed market seen quiet heading into holiday, Abengoa falls, Vantage seen quiet

By Paul Deckelman

New York, Sept. 4 – Distressed-debt traders saw little going on Friday in most names, given the overall quiet conditions in the larger high yield market ahead of the three-day Labor Day holiday weekend.

Bonds experienced a mostly quiet and abbreviated session, with trading desks lightly staffed and many market participants making an early day of it.

Fixed-income markets in the United States, including the high-yield and distressed market, will be closed on Monday.

Spanish renewable energy provider Abengoa SA’s bonds were seen off sharply on the news the company has retained Lazard Ltd. in an advisory capacity, with some investors fearing that it may ultimately embark upon a debt restructuring.

Back among the domestic issues, with crude prices seen lower for the first time in several sessions, the traders reported slightly softer prices in names such as SandRidge Energy, Inc. and Linn Energy LLC, but volume was not convincing.

They reported no fresh activity in Vantage Drilling Co. paper, which had fallen sharply at mid-week on the news that Brazil’s state oil company had abruptly terminated a long-term contract to lease one of Vantage’s maritime energy drilling vessels.

In the convertibles market, Vipshop Holdings Ltd.’s notes sold off sharply as investors eyed the potential for more pain ahead for China, the world’s second largest economy.

Abengoa bonds dive

The bonds of Spain-based renewable energy company Abengoa took a sharp dive on Friday on news that the company has retained Lazard Ltd. in an advisory capacity ahead of a possible share sale.

Abengoa bonds, which had actually shown strength in recent days, were down between 10 points and 20 points on Friday, a trader said.

The Abengoa dollar-denominated 8 7/8% notes due 2017 traded on Friday at 40, according to a trader, who added that the last previous real trades were in the context of 68 to 69.

Later on in the session, a trader saw those bonds going home at 43 bid – still down a full 9 points on the day.

Although Abengoa’s stated purpose for retaining Lazard is to raise capital, investors are apprehensive that the company might also be seeking advice on a possible restructuring, the trader

Vantage bonds fall silent

A trader said that he had “not seen one Street quote today” in Vantage Drilling’s notes, which had plunged precipitously around mid-week and had been fairly active again on Thursday. After all that, “and there’s not been a trade at all in the name.”

Another trader said that he saw a few lower bids – but no prints.

He said there were bids as low as 38½ “but no trades.”

He estimated that the company’s 7½% notes were still around the same 40-41 context at which they had finished on Thursday.

Vantage’s bonds had plunged on Wednesday on its late-Tuesday announcement that two Petrobras subsidiaries, Petrobras America, Inc.and Petrobras Venezuela Investments & Services BV were terminating the agreement under which they had leased Titanium Explorerv since 2009.

Vantage said that the notice it had gotten from Petrobras alleged that Vantage has breached its obligations under the contract between the two companies, but did not offer any kind of an explanation for that claim.

Vantage “strongly disagrees with the allegations of contractual breaches made by PAI and PVIS in the Notice,” and has filed for arbitration to challenge the Petrobras assertions; it calls the allegations “a wrongful attempt to terminate the Drilling Contract,” and insists that it is in compliance with all of its obligations under the contract.

Energy credits ease

Also in the energy arena a trader said that SandRidge Energy’s 7½% notes due 2021 ended at 29½ bid, which he called unchanged on “a fair amount of trading.”

He said that the Oklahoma City-based exploration and production company’s 8¾% notes due 2020 were down ¾ point to 30 bid, on just “a single trade there.”

He said that Houston-based Energy XXI Ltd.’s 7¾% notes due 2021 gained 5/8 point, again on just a single trade, to finish at 21½ bid.

Beyond that, he said, “there was not much else – just a smattering of single trades here and there – nothing to shake a stick at.”

Houston-based Linn Energy LLC’s 8 5/8% notes due 2020 were off ½ point at 37 bid on just one trade.

Market-watchers noted that crude oil prices – which had begun the week on a sharp upside tear – were lower on Friday, with the October contract for West Texas Intermediate seen down 70 cents per barrel at $46.05 on the New York Mercantile Exchange.

In the coal space, a trader said that “there’s been some volume in BTUs [Peabody Energy Corp.] this week – the 10s have been trading around 43.” But he said that “there was not much else in the other coal names today.

Another trader saw St. Louis-based Peabody’s 6% notes due 2018 off ¼ point to 35¾ on “a couple of trades.”

He saw “just a smattering” of activity in coal, with Consol Energy’s 5 7/8% notes due 2022 off ½ point at 72¼ bid.

Vipshop converts dive

Convertibles market sources said that Vipshop Holdings’ paper sold off sharply as investors eyed the potential for more pain ahead for China, the world’s second largest economy.

Vipshop’s 1.5% convertibles due 2019 crossed the Trace tape last at about 106.3, which was down from 112 on Thursday.

The American Depositary Shares of the Guangzhou, China-based online discount retailer also came off sharply. The common stock closed down $1.34, or 7.5%, to $16.44.

China’s stock markets were closed on Thursday and Friday for a national holiday. But they will be open on Monday when the U.S. markets are closed. Uncertainty regarding how the China markets will act on Monday after a long weekend hiatus was also behind some of the weakness in U.S. markets on Friday, as investors looked to lighten up on risk heading into the long weekend.

-Rebecca Melvin and Paul A. Harris contributed to this review

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