Edison Energy gets downgraded, bonds fall; Hawker delays 10-K, bank debt suffers; Exide fades

By Stephanie N. Rotondo, Paul Deckelman and Sara Rosenberg

Portland, Ore., April 2 - The first trading day of April was off to a subdued start for the distressed debt market, according to a trader.

"There wasn't a lot of action," he said.

Overall, names were seen ending the day generally mixed.

Edison Mission Energy's debt got downgraded by Moody's Investors Service Monday, due to a severe margin squeeze and weakened cash flow. On the news, the power producer's debt slipped slightly.

There continued to be more negative news out on Hawker Beechcraft Acquisition Co., the aircraft manufacturer that was reported to be nearing a bankruptcy filing last week. On Monday, the company said it was delaying filing its latest 10-K due to ongoing debt negotiations. Still, the bonds were holding relatively steady.

Edison downgraded, bonds soften

Edison Mission's credit rating was dropped to Caa3 from Caa1 by Moody's on Monday.

Edison's Midwest Generation Co. LLC was also included in the rating change.

On the back of the rating alteration, Edison's debt was on the decline, a trader said.

He called the 7½% notes due 2013 down a deuce at 801/2. That level was echoed at another desk as well.

The second source also saw the 7½% notes due 2017 falling slightly to 62¾ bid, 63 offered from 63 bid, 63½ offered on Friday.

"The downgrade for EME and MWG considers the severe margin squeeze and drop in cash flow expected in 2012 and 2013 caused by declines in capacity and energy revenues as well as substantially higher fuel costs," Moody's senior vice president A.J. Sabatelle said in a news release.

Moody's also said that Edison's "default prospects have increased," citing "compromised" liquidity sources and a hefty debt maturity in June 2013.

Edison is a Rosemead, Calif.-based power producer.

More bad news for Hawker

Hawker Beechcraft suffered another blow Monday as the company said it was delaying filing its 10-K due to ongoing negotiations with creditors and Standard & poor's followed suit with a downgrade.

As reported last week, the Wichita, Kan.-based aircraft manufacturer and reseller is said to be preparing a bankruptcy filing.

One trader called the 8½% notes due 2015 "pretty much unchanged," however, around the 14 mark. Another trader quoted the notes at 13 bid, 14 offered.

The strip of institutional bank debt meantime dropped to 70 bid, 72 offered from 73½ bid, 75 offered, according to a trader.

The company said in a NT 10-K filed with the Securities and Exchange Commission that it was unable to file its year-end 2011 report by the March 30 deadline because it has been devoting substantial resources to negotiations with senior lenders and other creditors, and because of delays in producing financial information resulting from its recent implementation of an upgraded enterprise resource planning system.

It is expected that the 10-K will be filed on or before April 16.

Losses from operations for fiscal 2011 are expected at around $481.8 million, compared to losses from operations of about $173.9 million in the prior year.

Additionally, the company anticipates that the 10-K will include a going concern warning.

Regarding the ratings, Standard & Poor's cut Hawker Beechcraft's corporate rating to SD and the secured credit facility to D based on the belief that the company missed a March 30 interest payment. Although some lenders opted to not receive the scheduled payment, the rating agency said it considers this a default.

As was previously reported, the company reached a forbearance agreement through June 29 with about 70% of its lenders to defer interest payments on the revolver and term loans and get covenant relief.

With the forbearance, the company got a new $124.5 million senior tranche term loan due June 29 that is priced at Libor plus 1,200 bps with a 2% Libor floor, the proceeds of which will be used to fund ongoing operations.

Exide debt slips

A trader said Exide Technologies Inc.'s 8 5/8% note due 2018 were down half a point to 831/4, though on no news.

But another trader also saw the issue at that level, calling it "not too much different."

Exide is a Milton, Ga.-based battery maker.

Coal remains weak

Coal names continued to get some play following news out last week regarding the Environmental Protection Agency's proposed new rules on carbon dioxide.

Patriot Coal Corp.'s 8¼% notes due 2018 trading at lower levels, versus where they had been before the EPA news, although they were little changed on the day.

A trader said that he saw "a bunch of trades" in a 761/4-to-76½ context. He later modified that initial assessment, stating there were "not a lot of [round-lot] trades, just four, five or six [million dollars].

He said they were unchanged to "maybe" down one-quarter point from Friday, "but they're down from middle-last week," when the bonds traded in a 79 to 81 bid range before that EPA announcement last Tuesday.

A market source said about $7 million of the bonds changed hands on a round-lot basis, leaving them little changed from Friday - but said that late in the day, there was a flurry of smallish transactions that pushed the bonds up to around the 79½ bid level near the close.

Another trader said the 8¼% notes were "sort of active" and nearly half a point lower at 76. Another trader said the paper was "maybe a quarter weaker or so" at 761/2.

Sector peer Alpha Natural Resources Inc.'s 6¼% notes due 2021 traded a half-point lower, around 90 bid, down a half point, although the Abingdon, Va.-based coal operator's 6% notes due 2019 were quoted up nearly 1½ points, at 92¾ bid.

Arch Coal, Inc., yet another St. Louis-based coal company, was also better on the day, its 7¼% notes due 2020 quoted up about 1½ points, at 92¾ bid.

Dynegy, Bon-Ton gain

Among other distressed credits, a trader said Dynegy Holdings LLC's 8 3/8% notes due 2016 were 2 points higher at 67. He also saw Bon-Ton Stores Inc.'s 10¼% notes due 2014 rising a point to 881/4.

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