MBIA gains as Puerto Rico improves; OGX gyrates after CEO ouster; TXU issues off

By Paul Deckelman

New York, Oct. 16 - MBIA Insurance Corp. bonds were better on Wednesday, traders said, helped by the perception that the economy in Puerto Rico is improving. Hence, bonds issued by the government entities there, many of which are insured by MBIA, are less risky than previously thought.

Elsewhere in the distressed-debt world, bonds of Brazilian energy company OGX Petroleo e Gas Participacoes SA were gyrating around mostly at higher levels following Tuesday's announcement that the company's chief executive officer had been ousted, a development seen as clearing a hurdle in efforts to restructure its finances, either in or out of court.

Another company looking to restructure its finances is Energy Future Holdings Corp. - the successor company to the former TXU Corp. The various bonds in its complex capital structure were seen lower, though on not much volume, as the company and its creditors try to set values on its assets to facilitate a restructuring.

Traders also saw some activity in underperforming names such as Molycorp, Verso Paper Corp. and Alcatel-Lucent USA.

MBIA moves up

A trader said that his main focus of interest during Wednesday's session was the 14% surplus notes due 2033 of MBIA Inc.

He saw the Armonk, N.Y. -based bond insurer's MBIA Insurance Corp. paper "a few points better today."

He remarked that the notes "seemed to be catching a bid on the back of improving prospects out of Puerto Rico," calling the '33s up 3 or 4 points on the day, trading in a bid range of 66 to 681/2, versus 63 bid, 65 offered on Tuesday and recent levels as low as the mid-to-upper 50s.

He said that "MBIA has a lot of exposure to Puerto Rico," explaining that it insures a good chunk of the debt issued by governmental entities on the island U.S. commonwealth, which has been beset by economic weakness, causing some players in the municipals market to worry about the soundness of that debt. That, in turn, has unsettled investors in MBIA paper, "so these bonds were down over the past few weeks, as Puerto Rico has been under increasing pressure," the trader said.

But now, he continued, "there's positive commentary coming out of the island," calming some of those investor fears.

On Monday, Standard & Poor's said in a research note that MBIA's National Public Finance Guarantee Corp. unit, which insures that debt, is sufficiently capitalized for any losses on municipal debt from Puerto Rico or Detroit.

S&P said that the MBIA unit has a capital cushion of $350 million to $400 million versus exposure of $5.3 billion - solid enough to justify a BBB rating.

On the back of such recent positive commentary, the trader said of the notes that "they're slowly grinding higher" from recent lows.

A second trader also saw the MBIA surplus notes a little better, having moved up to 66 from prior level.

But a market source cautioned that while the 14% notes have firmed smartly from their recent mid-50s levels that coincided with the market's Puerto Rico worries, they remain well below their 77 to 78 levels seen in mid-August, before the latest Puerto Rico-related jitters.

OGX gyrates after CEO ouster

Elsewhere, a trader said that the bonds of Brazilian energy company OGX Petroleo e Gas Participacoes SA "were doing better" on Wednesday, a day after it ousted its chief executive - reportedly as part of a restructuring plan to avert bankruptcy.

The trader said the bonds had "been under pressure recently," and quoted them trading around 11 bid, up from around 9 bid.

A market source said that the company's OGX Austria GmbH entity's 8 3/8% notes due 2022 gained 1¼ points on the session, moving up to around 10¼ bid at the close, and at one point had gotten as good as 11 5/8 bid. Volume was over $16 million.

However, those bonds were well down from the levels around 15 to 16 at which they had traded prior to Oct. 1, when OGX skipped a scheduled interest payment - a move which had been widely expected in the market.

Meanwhile, the parent company's 8½% notes due 2018, which had traded on Tuesday around the 9½ bid level, gyrated wildly on Wednesday, on volume of over $22 million. The bonds got as good as 12½ bid but retreated late in the day to a final round-lot level just above 7 bid. Several smaller trades before the close lifted them back up to around 101/2.

But OGX's embattled shares surged in trading on the Sao Paolo exchange in Brazil in apparent reaction to the news developments.

Those roller-coaster-like bond and stock movements came a day after the board of Rio de Janeiro-based OGX dismissed its chief executive officer, Luiz Carneiro, replacing him with chief financial officer Paulo Simoes Amaral.

Another top executive, Jose Roberto Faveret, the company's head of legal affairs, was also forced to walk the plank, according to news reports.

The ouster of Carniero reportedly clears the way for OGX's key stockholder, Brazilian tycoon Eike Batista, to relinquish control of the troubled company in favor of its bondholders. The corporate shakeup puts more power into the hands of Angra Partners, the Brazilian financial adviser hired by Batista to restructure the company's liabilities. Angara is currently seeking between $150 million and $200 million of emergency capital from the bondholders, the news reports said.

However, the reports indicated that Agara was at the same time also preparing for a possible bankruptcy filing in the Brazilian courts.

OGX is also being advised by U.S. financial firms Blackstone Group LP and Lazard Ltd.

TXU quietly lower

Back in the U.S., a trader said that he didn't think "that anything was all that active" in the bonds of Energy Future Holdings Corp., which has been in talks with groups of its creditors on a possible restructuring of the Dallas-based electric utility operator and merchant power-generation company's more than $40 billion of debt.

He quoted its Energy Future Intermediate Holding Co. LLC's 10% notes due 2020 trading around 106 bid, "which is pretty much in line with where they've been," trading between 106 and 1061/4.

At another desk, a market source said that those 10% notes were ending down around ½ point, at 105 3/4, on volume of over $8 million.

Its 11% notes due 2021 were seen down ¾ point, at 107¼ bid. However, there had only been an anemic $1 million of the bonds traded.

Energy Future unit Texas Competitive Electric Holdings Co.'s 10¼% notes due 2015 were seen down 5/8 point at 2¾ bid, although volume was a brisk more than $3 million.

Molycorp stays busy

A trader said that Molycorp, Inc.'s bonds "have been active the last couple of days, seeing its 10% notes due 2020 in a 99½ to par bid context.

The Greenwood, Village, Colo.-based mining company said on Tuesday that it was running short of cash, despite a $414 million stock offering in January. Those funds were expected to continue funding operations through the year but have started to deplete, causing the company to look to a $200 million stock offering to stay open.

That revelation caused its bonds to fall into the upper 90s from prior levels above 101 bid.

In the convertibles market, Molycorp's 6% notes were "still in trade," a market source said, pegging those converts at 76, which was inside the range of 74 to 78 seen on Tuesday.

Distressed market seen quiet

Among other names, Alcatel-Lucent USA's 6½% notes due 2028 were seen by a market source up nearly 3 points, at 86¼ bid, although a second source said the Paris-based telecommunications equipment manufacturer's issue was actually little changed if you throw out the smallish odd-lot trades.

Its 6.45% notes due 2029 were up ½ of a point at 87 bid, though volume was low.

A trader meanwhile quoted troubled Memphis-based papermaker Verso's 11 3/8% notes due 2016 at around 40½ bid, unchanged on the day.

Overall, though, a trader said that "not so much was going on" in the distressed world.

He said that "the high-yield world feels better," with the strong performance of the big new issue from Dallas-based luxury retailer Neiman Marcus Group, Ltd.

He also noted that "the whole market feels better, obviously, with what's going on with both stocks and [Treasury] bonds and the government looking like it's going to resolve its shutdown issues."

Rebecca Melvin contributed to this review.

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