Distressed debt action muted due to holiday; ATP heralds natural gas find, bonds hold steady

By Stephanie N. Rotondo and Paul Deckelman

Phoenix, July 2 - Given that the Fourth of July holiday is smack in the middle of the week this year, distressed debt traders were not surprised that trading activity was lackluster on Monday.

"There's zippo volume," a trader said. "Prices are sitting right where they were.

"Nobody is anxious to add on or take away risk," he added. "I think it will be like this all week."

"It's been a tough day," said another trader, who noted that total trading volume in the high-yield space was not even at $800 million just barely an hour before the market closed.

ATP Oil & Gas Corp. was one of the more actively traded names, though even there the volume was thin. However, the company's stock got a boost on news the company had found a natural gas deposit in its Shimshon Well in Israel.

ATP said it would provide more details on the discovery during the third quarter.

Meanwhile, health care names like Rotech Healthcare Inc. and K-V Pharmaceutical Co. were seen bouncing up. Rotech's gains were attributed to news of a sector peer's buyout, while K-V was helped by federal clarification on the company's Makena drug.

ATP bonds hold

ATP Oil & Gas' 11 7/8% notes due 2015 were "not much changed," a trader said.

"A lot traded," he remarked, pegging the paper at 48 1/2.

Another trader quoted the issue at 48 bid, 49 offered.

"It's moving up from the lows last Wednesday," he said, when the notes were at 44 bid, 45 offered. "So they're inching their way back up."

The Houston-based oil and natural gas exploration company announced Monday that it had made a natural gas discovery at its Shimshon well in the Levant Basin of offshore Israel.

The company said it found more than 62 feet, or 19 meters, of the fuel in the Bet Guvrin sands.

ATP has a 40% interest in the well. Isramco Negev 2 LP holds a 39% stake, Naphtha Exploration LP and INOC Dead Sea LP each owns 10% and I.O.C.-Israel has 1%.

More details about the discovery will come during the third quarter, ATP said in a press release.

Though the news didn't do much for the bonds, ATP's stock (Nasdaq: ATPG) jumped 65 cents, or 19.35%, to $4.01, in well above-average trading.

Rotech gets boost

A trader said that Rotech Healthcare's 10½% second-lien senior secured notes due 2018 were up as much as 10½ points on Monday, to the mid-50s, on the news that a competitor of the Orlando, Fla.-based health care products and services provider, Lincare Holdings Inc., has agreed to be bought by German industrial-gas supplier Linde AG in an all-stock $3.8 billion deal.

He said "that got people excited about Rotech," which, like Lincare, is a provider of oxygen and respiratory therapy services delivered to patients at their homes.

He said that the bonds had previously been in the mid-to-upper 40s.

A second trader said that "a couple of million" of the 10½% notes had traded around 55 bid, versus 50 on Thursday and 43 in mid-June, "so they've moved up quite nicely."

He also saw the company's 10¾% senior secured first-lien notes due 2015 move up to 97¼ bid from 96½ last Thursday, also on "a couple million" of volume.

KV bounces up

A trader said that K-V Pharmaceutical's 12% notes due 2015 had moved up to around 35-36 bid, up from previous levels around 32-33, after the Food and Drug Administration issued some additional guidance about the St. Louis-based pharmaceutical company's Makena drug, which is used to reduce the risk of preterm birth in women with a singleton pregnancy who have a history of singleton spontaneous preterm birth.

A second trader saw the 12% notes at 35, although he said there was only one trade for more than $1 million, in a 35-35¼ context.

He noted that a little more than a week ago, the bonds had been at 32-32¼ on June 22

He said that going back further "they were in the 40s, so they got some horrible news on the 22nd, when investors were digesting some earlier guidance the FDA had put out on Makena, "but they bounced back today" as the agency apparently clarified its earlier statements to remove certain ambiguities.

But he said that "as you can tell by the size of all of those [trades] there's not a lot of activity going on in these."

K-V said Monday that the government regulator put out a questions-and-answers document to clarify its June 15 statement on whether physicians should proscribe another medication, compounded versions of hydroxyprogesterone caproate, instead of Makena.

K-V said that in the new federal statement, the FDA made it clear that the preferred option should be FDA-approved Makena - the only such FDA-approved medication for that condition - rather than other, non-approved medications. The agency also described its enforcement policy towards compounded formulations of hydroxyprogesterone caproate.

ResCap slips, Lucent gains

Elsewhere in the distressed arena, a trader said that Residential Capital LLC's 6½% notes due 2013 were down "almost 2 [points]" at 24.

However, he noted there were not many trades.

The trader also saw Lucent Technologies Inc.'s 6½% notes due 2028 rising a point to 67, though also in light trading.

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