OGX bonds up as company seeks bankruptcy protections; TXU stays strong as coupon payment looms

By Stephanie N. Rotondo

Phoenix, Oct. 30 - There continued to be strength in the distressed debt market during midweek trading.

Even OGX Petroleo e Gas Participacoes SA, which filed for bankruptcy in Brazil late in the day, moved up a bit. The filing came as no surprise, coming after a missed $44.5 million interest payment on Oct. 1 and a failure to get its fields producing enough to deal with a $5.1 billion debt load.

With its $270 million interest payment looming on Friday, Energy Future Holdings Corp. debt remained topical. Traders said the company's bonds were better on the day, following news that the company had added new directors to its board.

Despite posting a quarterly loss on Tuesday, Caesars Entertainment Corp.'s notes were also on the firm side.

Also on the rise were AMR Corp.'s benchmark 6¼% convertible notes due 2014. A trader said the issue rose to 125 on "jaw-boning" regarding a potential settlement with the Justice Department, which had previously filed an anti-trust lawsuit against the bankrupt airline and its merger partner, U.S. Airways.

OGX enters bankruptcy

OGX's 8½% notes due 2018 ended the day up half a point, according to a trader.

The trader pegged the debt at 83/4. He noted, "I think they have been trading flat [or without accrued interest] for awhile."

But another trader said there was "no real change" in the bonds, seeing them in an 8 to 9 context.

The slight gain in the debt came as the company officially filed for bankruptcy protections in Brazil. OGX had previously been in talks with bondholders holding $3.6 billion of its $5.1 billion in debt, but those fell apart on Tuesday.

Under Brazil's bankruptcy laws, OGX will have 60 days to come up with a corporate restructuring plan. The company's creditors - which include Pacific Investment Management Co. and BlackRock Inc., among others - will then have 30 days to reject or approve the plan.

If no plan can be agreed on, the case will convert to a total liquidation.

Investors are now wondering, however, if OSX Brazil - the shipbuilding sister company of OGX - will also have to file for bankruptcy.

Time ticking for TXU

Energy Future Holdings is also staring down the barrel of a bankruptcy, as the company engages in talks with creditors ahead of a $270 million interest payment due on Friday.

Word is that the creditors want either a restructuring deal or a full-on bankruptcy filing before the payment comes due.

Still, the company's bonds have held up as the talks have been ongoing.

A trader said the 10% notes due 2020 finished Wednesday's session up almost a point at 1041/4. Another trader also placed the issue at that level.

The second trader noted that the 10¼% notes due 2015 linked to Texas Competitive Electric Holdings Co. LLC, however, moved down to trade with a 2 handle.

At another desk, a trader saw the 10% notes gaining a point to 1041/2.

The unit is one of at least two subsidiaries that could be placed under Chapter 11 protections.

On Wednesday, the Dallas-based energy producer said that it had added two new directors to its board - one of which is an independent - ahead of a vote on whether to make Friday's coupon payment.

Caesars posts wider loss

Caesars Entertainment's 10% notes due 2018 were steady to better on the day, despite reporting a quarterly loss on Tuesday.

One trader called the issue unchanged at 50, while another said the debt had put on almost 2 points to end at 50½ bid.

A second trader saw the notes in a 50 to 50½ range.

The Las Vegas-based casino operator posted a third-quarter net loss of $761.4 million, or $6.03 per share. That compared to a loss of $505.5 million, or $4.03 per share, the year before.

Revenues were also down for the quarter, due in large part to fewer visitors. Total revenue came to $2.18 billion, down from $2.2 billion.

Analysts polled by FactSet had expected revenue of $2.24 billion.

Meanwhile, analysts at CreditSights are saying that Caesars will need to persuade investors to participate in a distressed debt exchange in order to avoid bankruptcy and to lower borrowing costs.

The analysts noted that the company has not had a profitable quarter since 2010.

"Our base case is that an exchange occurs, which will free up cash flow" and "stabilize the bleed," the analysts wrote. "An inability to execute an exchange will potentially increase the odds of a filing."

NII numbers to come

NII Holdings Inc. is scheduled to release its latest financial results on Thursday.

Ahead of the release, a trader saw the 10% notes due 2016 falling nearly a point to 85.

Another trader pegged the issue at 85 as well, but he called that down only half a point. He also saw the 7 5/8% notes due 2021 around 64, which he said was "down over a point."

NII Holdings is based in Reston, Va., and provides Nextel mobile phone service in Latin America.

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