American Axle debt falls; Park Ohio gets momentum; NRG numbers help notes; Level 3 disappoints

By Stephanie N. Rotondo

Portland, Ore., July 30 - The distressed debt market remained strong Thursday, further helped by a boost in the equity markets.

"The market still continues to trade up," a trader said. However, he noted that while buyers were around, there was a "scarcity of offers."

Of the few names that traded lower, American Axle & Manufacutring Inc. saw its bonds drop 1 to 2 points. The declines came despite word that the company had secured an extension on its credit facility waiver, allowing it more time to restructure its debt.

Park-Ohio Holdings Corp.'s bonds moved higher during the session. One trader was surprised as he said after the company had released earnings Wednesday, "we couldn't give them away" at levels lower than Thursday's close.

Both NRG Energy Inc. and Level 3 Communications Inc. released earnings Thursday. As names that often fluctuate between distressed and high-yield, traders on both sides were quick to point to them.

NRG posted better numbers, which resulted in improvement in the bonds. Level 3, however, reported disappointing results, which caused its debt to soften.

American Axle debt falls

American Axle and Manufacturing saw its debt decline 1 to 2 points on the day, traders reported, despite news that the company had secured an extension on its covenant waiver.

A trader called the notes "down a few points" at 31 bid, 32 offered, generically speaking. That market was echoed at another desk and deemed as much as 2 points weaker.

Another trader called the 5¼% notes due 2014 down only slightly, however, at 31.5 bid, 32.5 offered.

"It's maybe down a half [a point]," he said. "It's basically unchanged."

The Detroit-based manufacturer of driveline and drive train systems said Thursday it had secured an extension to a waiver obtained on its revolving credit facility. The company has until Aug. 20 to figure out a way to restructure, while maintaining $100 million of minimum liquidity.

The company has reportedly been considering its restructuring options, including a bankruptcy filing. Along with the economic downturn, the company was further pressured by General Motors Corp.'s bankruptcy.

Park Ohio gains momentum

Park Ohio Holdings, a Cleveland, Ohio-based provider of supply management services, saw its bonds moving upward, much to the dismay of one market source.

"We couldn't give them away yesterday at 50," he said of the 8 3/8% notes due 2014. On Thursday, the issue ended at 52 bid, 54 offered.

"There was nothing but buyers around for them," he added.

The gains came after the company posted its second-quarter results on Wednesday.

"The numbers were OK," the source said. "Sales were way off."

For the quarter ending June 30, Park Ohio posted net sales of $163.4 million, compared with sales of $285.9 million the year before. Net income declined to $3.3 million, or $0.29 per share, versus income of $5.7 million, or $0.49 per share, in the second quarter of 2008.

"Although revenues declined in the second quarter of 2009, we are pleased the company returned to profitability in the quarter," said Edward F. Crawford, chairman and chief executive, in the earnings release. "We continue to make adjustments in operations as we prepare the company for the future."

NRG numbers help notes

NRG Energy reported its second-quarter results Thursday and the company's debt ended "generally all better," according to a trader.

The trader called the bonds up half a point to three-quarters of a point in "pretty active trading." The 7¼% notes due 2014 finished at 97.75 bid, 98.75 offered and the 7 3/8% notes due 2016 at 96 bid, 97 offered. The 8½% notes due 2019 closed the session at 98 bid, 98.5 offered.

The Princeton, N.J.-based company reported earnings of $433 million, or $1.56 per share, for the three months ending June 30. That compared with income of $127 million, or $0.48 per share, in 2008.

The company said the increase in income was due to its May 1 acquisition of Reliant Energy, which as responsible for $233 million in after tax income within the first two months of ownership. The company also posted an after-tax gain of $128 million related to its sale of Mibrag.

"Exceptional execution across all phases of the company's business enabled us to overcome economic headwinds and achieve both record first half financial results and significant enhancements to NRG's business platform," commented David Crane, NRG president and CEO in a press release. "We are now focused intently on achieving an even stronger financial result in the second half of 2009."

Level 3 dips on earnings

In other earnings news, Level 3 Communications reported disappointing numbers, resulting in 1- to 2-points losses in the bonds.

A trader placed the 8¾% notes due 2017 around 83, down 1.5 points. The 9¼% notes due 2014 were seen at 87, compared with 89 previously.

Another market source deemed the 9¼% notes down more than 2 points at 87.25 bid.

"The numbers weren't very good," the first trader remarked.

For the quarter, the Broomfield, Colo.-based company saw consolidated revenues of $942 million, compared with revenues of $1.09 billion in 2008. Net loss came to $134 million, or $0.08 per share, versus a loss of $42 million, or $0.03 per share, the year before.

The 2008 loss also included a gain of $96 million from the sale of the company's Vyvx advertising distribution unit.

"The economy continued to be challenging in the second quarter for wireline service providers," said James Crowe, CEO of Level 3, in the news release announcing the results. "As expected, sequential revenue pressure continued in the second quarter, although at a significantly moderated rate.

"We did see improvements in sales and churn, however, they were not as much as we expected," Crowe continued. "We continue to manage our costs aggressively, and for the fifth consecutive quarter, we were able to reduce our operating expenses, and year over year, we improved both our gross margin and adjusted EBITDA margin percentages. In addition, we completed several liability management transactions, which further strengthened our balance sheet."

Broad market gains strength

Among other distressed issuers, Bon-Ton Stores Inc.'s 10¼% notes due 2014 were "better" at 48 bid, 48.5, according to a trader.

The trader also said that Neiman Marcus Group Inc.'s 9% notes due 2015 "continued to rip," hitting a high of 74.

Among casinos, Station Casinos Inc.'s 6% senior notes due 2012 lost more than 3 points on the session, to end around 30, a day after the Las Vegas-based operator of locally-oriented casinos filed for Chapter 11 to carry out its previously agreed-upon restructuring plan.

Meanwhile, Station's subordinated debt, like its 6 7/8% notes due 2016, continued to languish in the low single-digits.

Also in the gaming sector, Harrah's Operating Co. Inc. 5¾% notes due 2017 firmed around a point to the 44 level, while its 10¾% notes due 2016 gained nearly 3 points to end at 64.

Smurfit-Stone Container Corp.'s 8¼% notes due 2012 firmed slightly to above the 50 mark, up about a point on the day.

Paul Deckelman contributed to this article.

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