Pre-holiday session lackluster; OGX bonds stay in focus, inch higher after hitting recent lows

By Stephanie N. Rotondo

Phoenix, July 3 - The distressed debt market was subdued on Wednesday, given that it was an early close due to the Fourth of July holiday.

However, distressed and emerging market investors continued to focus on OGX Petroleo & Gas Participacoes SA as a restructuring of the Brazilian oil and gas company seemed imminent.

Cengage Learning Acquisitions Inc.'s debt was also "moving higher," a trader said.

The company filed for bankruptcy on Tuesday.

OGX climbs back up

OGX bonds remained in focus during the half-day session, as investors speculated what a restructuring of the company owned by Eike Batista might look like.

However, the bonds began to rally some after falling to record lows earlier in the week.

A trader called the 8 3/8% notes due 2022 up "over a point" at 211/2, while the 8½% notes due 2018 closed 1½ points higher at 223/4.

Another trader said the debt was "relatively unchanged," trading in the low-20s.

On Monday, OGX said it was canceling new platform orders from its sister company, OSX Brasil SA, and that it was considering shutting down some of its producing wells due to geological issues.

OSX will receive $449 million from OGX for the nixed order, which is equal to about 39% of OGX's cash on hand as of the end of the first quarter. Analysts from Barclays to Credit Suisse are predicting that the cash-drain will continue throughout the year, with the latter forecasting a paltry $13 million left by year's end.

Additionally, the company missed a coupon payment on the 8½% notes on June 1.

Social protests in Brazil also have investors doubting any sort of government intervention.

Should OGX officially default, it could lose its government-issued drilling license as well. That could result in a transfer of certain assets back to the government, which would leave little to nothing left for bondholders to recover.

It is also unclear if Batista will be willing to put up more cash to save the company or not. Batista has been divesting some of his assets, as his overall net worth has dropped precipitously in the last year.

Cengage rises post-filing

Cengage Learning's debt was on the firm side during the shortened pre-holiday session.

A trader said the 10½% notes due 2015 were "straddling 20," while the 12% second-lien notes due 2019 were in a 17 to 19 context.

The 11½% notes due 2020 were pegged around 74.

However, the extended term loan, non-extended term loan and incremental term loan all dropped during Wednesday's session to 70½ bid, 72½ offered from 73½ bid, 76½ offered, according to a trader.

Prior to the bankruptcy filing, the term loans were all quoted at 74 bid, 75 offered.

The company is not planning on getting a debtor-in-possession financing facility as it maintains substantial cash balances and expects to generate positive cash flow, a news release said. Secured lenders have agreed to let the company use its use cash flow from operations to continue to fund the business and meet obligations in the normal course during the restructuring process.

The Stamford, Conn.-based education company sought Chapter 11 protections on Tuesday as it looks to deal with $5.8 billion of debt. The company said it had inked a deal with first-lien debtholders holding about $2 billion in debt to cancel about $4 billion of the total debtload.

Sara Rosenberg contributed to this article

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