Joy Global takes attention away from distressed bonds; Avaya, Odebrecht make surprise appearances

By Stephanie N. Rotondo

Seattle, July 21 – The distressed debt market again took a backseat to the broader high-yield space on Thursday, as trading in Joy Global Inc. dominated the session.

“There were tons and tons of trades [in the name],” a trader said. “That’s where all the activity was.”

The action came as it was announced that Komatsu Ltd. would acquire Joy for $2.9 billion. The news sent Joy’s debt up at least 17 points on the day.

As for distressed dealings, there were a couple of off-the-run names that were making moves.

Avaya Inc., for instance, was trading more actively, though without any news to act as a catalyst.

A trader said the 7% notes due 2019 added 1½ points to close at 75½.

Odebrecht Finance Ltd. was another rarely seen name that traded during the session.

A trader saw the 7 1/8% notes due 2042 slipping a deuce to 34½.

On Tuesday, it was reported that a sale for the company’s 55% stake in a natural gas pipeline in Peru was not going well, as banks were refusing to finance the project if Odebrecht stayed involved.

The company is currently embroiled in a corruption scandal in Brazil, which is why the banks are hesitant to pony up.

Among the more typical distressed names, California Resources Corp.’s 8% second-lien notes due 2022 drifted off a point to 69, according to a trader.

In Chesapeake Energy Corp. bonds, a trader said the 6 1/8% notes due 2021 were steady at 70½. Another market source deemed the 6 5/8% notes due 2020 half a point higher at 74 bid.

And, Intelsat SA’s 5¼% notes due 2023 ticked up a quarter-point to 63¾.

Fannie, Freddie decline

Fannie Mae and Freddie Mac preferreds were among the more active securities of the day, trending lower in line with the market.

Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) dipped 4 cents to $4.31. Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) closed at the same price, off 2 cents.

There was no real news out to cause the surge in trading volume, but a market source noted that activist investor Bill Ackman – “He’s the one that has made a lot of bad investments over the last year and a half, including this one,” the source said – recently made some comments about the GSEs during a Pershing Square investor call. Ackman touted the mortgage giants as positive areas of his firm’s portfolio, even as some of his other investments – such as Valeant and Herbalife – have gone negative.

But the source said Ackman’s comments were not to be entirely believed.

“Despite what Ackman says, their numbers only look good if the government continues to guarantee their debt.” If that guarantee is taken away, costs at the agencies would skyrocket.

“They would be a non-investment grade bank,” he said. “They have no equity capital and are almost purely debt-financed.”

© 2015 Prospect News.
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