Affinion jumps on debt-for-equity swap; Fannie, Freddie preferreds rise; Energy XXI sinks

By Stephanie N. Rotondo

Phoenix, Sept. 30 – Distressed bonds were on the rise with the broader markets, stemming two days of losses.

Affinion Group Holdings Inc. gained a good bit on Wednesday following news the company is swapping debt for equity. The exchange is aimed at reducing its cash interest payments by $50 million a year.

Among distressed preferred stock issues, Fannie Mae and Freddie Mac paper was also recuperating with the wider marketplace.

Fannie’s 8¼% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose a dime, or 2.11%, to $4.85, as Freddie’s 8 3/8% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) gained 11 cents, or 2.3%, to $4.90.

There was no fresh news out on the mortgage giants, though there has been ongoing speculation about legislative action in regards to reforming the GSEs.

But while most of the market moved into higher territory, Energy XXI Ltd.’s bonds were weaker following the company’s earnings results, which came out late Tuesday.

In addition to releasing the numbers, the oil and gas producer said it has been repurchasing bonds in an effort to reduce its annual interest expense.

Affinion pops on exchange

Affinion Group announced on Wednesday a debt-for-equity exchange and, as a result, its bonds got a hefty boost.

A market source placed the 7 7/8% notes due 2018 at 74 bid, 75 offered, up from trades with a 67 handle on Tuesday.

The Stamford, Conn.-based marketing company intends to exchange about $260.5 million of its 13¾%/14½% senior secured PIK toggle notes due 2018 and approximately $360 million of 13½% senior subordinated notes due 2018.

Additionally, holders of those notes will be able to participate in a rights offering for up to $110 million of 7½% cash/PIK senior notes due 2018 and 2.48 million shares of common stock.

Under the terms of the exchange, the PIK notes can tender their holdings for 7.15066 shares if tendered before the consent deadline – 11:59 p.m. ET on Oct. 13 – or 6.15066 if tendered after the deadline.

Holders of the 13½% notes will get 15.52274 shares if tendered before the consent deadline or 14.52274 if tendered after.

The offer expires 11:59 p.m. ET on Oct. 27.

As of Tuesday, 86% of holders had agreed to tender their holdings. The exchange is contingent upon holders agreeing to amend certain consents and that at least 95% of each series of notes are tendered.

The deal is also contingent on the rights offering being completed.

Energy XXI down post-earnings

Energy XXI paper was drifting downward on Wednesday after the company announced its fiscal fourth-quarter and year-end results.

At one desk, the 8¼% notes due 2018 were seen at 24½ bid, 25½ offered. That compared to round lot trades around 32 over a week ago.

The 9¼% notes due 2017 were meantime pegged at 21¾ bid, 22¾ offered, down from 25.

The 3% convertible notes due 2018 were also a touch softer, according to a source.

The source placed the bonds in a 9¼ to 9½ context, a level that was echoed at another desk.

The equity improved, however, rising a dime, or 10.31%, to $1.05.

For the quarter, Energy XXI reported adjusted EBITDA of $121.8 million on revenue of $219.5 million. That compared to adjusted EBITDA of $184.1 million on revenues of $301.3 million the year before.

For the year, adjusted EBITDA came to $760.5 million, versus $729.7 million the previous year. Net loss was $2.4 billion, or $25.97 per share.

The company had posted a profit the year before.

Revenue for the year was $1.4 billion, up from $1.2 billion.

The company noted that its production rates were stable and cost control efforts appeared to be having a positive impact.

One such effort was the repurchasing of bonds. To date, Energy XXI has bought back over $425 million of debt, the company said in a press release, reducing annual interest expense by over $32 million.

In its conference call, management said it was aiming to buy back up to $1 billion of bonds.

Available liquidity at the end of the year was $679 million.

Going into fiscal 2016, the company said it expected its capital expenditure costs to be between $130 million and $150 million.

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