Distressed market subdued in post-holiday session; Navistar bonds jump in active trading; Oi slumps

By Stephanie N. Rotondo

Seattle, Sept. 6 – News-driven names were active in distressed debt trading on Tuesday, though overall activity was muted in the wake of the long holiday weekend.

One trader said players were “trickling back in” post-Labor Day – the unofficial end of summer. But as many desks were empty for the bulk of the previous week, another trader said most were just getting back into gear.

The first trader also commented that he “heard there was a monster calendar building up in investment grade,” which could have also diverted attention from riskier credits.

But as for the day’s notables, Navistar International Corp.’s debt popped on word Volkswagen Trust & Bus was planning on taking a stake in the Lisle, Ill.-based truck manufacturer. Funds from the transaction could be used to help ease Navistar’s $5 billion debt burden, which gave the bonds a 15-point boost on the day.

Meanwhile, Oi SA, the struggling Brazilian telecommunications company, filed on Monday its recovery plan. Under the proposed plan, bondholders will receive only 30 cents on the dollar for their debt holdings.

That news put pressure on the company’s debt, though a trader said the paper was down only “about a point.”

Navistar gets a reprieve

Navistar International’s 8¼% notes due 2021 got a hefty pop on Tuesday, as it was announced that Volkswagen was taking a stake in the company.

One trader said the bonds were up 15 points from pre-Labor Day levels, trading at 98. Another trader said the name was “obviously the most notable,” trading as high as par before settling in around 98.

The first trader noted that there were “tons of trades” in the issue and that after that, activity “tailed off a bit.”

Under the terms of deal, Volkswagen will take a 16.6% equity stake in Navistar, which has operated on the brink of bankruptcy for the last four years. Volkswagen will pay $15.76 a share for its stake, for a total of about $256 million.

The price per share represents a 10.7% premium over Friday’s closing share price.

Navistar will also benefit from a joint procurement agreement, allowing the company to clean up its supply chain and potentially save a fair bit of cash – cash that can be used to fix the diesel engines it has struggled to get into compliance.

In fact, Navistar is estimating that the agreement will result in $500 million in synergies over the next five years. The company is also forecasting cost savings of $200 million a year by 2021, with potential to increase after that.

Oi’s plan not stellar

Brazilian telecom company Oi filed a bankruptcy recovery plan on Monday. Come Tuesday, investors appeared nonplussed.

A trader said the 5¾% notes due 2022 dipped “about a point,” ending the day “close to 24.”

Under the proposed plan, Oi bondholders will receive new debt for old, at 30 cents on the dollar. Said new bonds can be converted to equity for up to 85% of the company’s shares, assuming the debt is not redeemed within three years.

Oi also said that it was considering asset sales, some of which shareholders do not agree with.

Additionally, the company reportedly did not discuss its plan with bondholders. That group could put the kibosh on the plan, which Oi rushed to file ahead of a court deadline.

Oi and six of its subsidiaries filed for bankruptcy protection in June. Listing about $19.7 billion equivalent in assets, the filing was the largest in Brazil’s history. Prior to filing, Oi had tried to reach a restructuring deal with shareholders and bondholders, but to no avail.

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