Overseas Shipholding takes a beating on bankruptcy warning; Supervalu rises; AMD trending down

By Stephanie N. Rotondo

Phoenix, Oct. 22 - Distressed debt got a shot in the arm Monday, at least in terms of activity, as investors were actively trading such names as Overseas Shipholding Group Inc., Supervalu Inc. and Advanced Micro Devices Inc.

For its part, Overseas Shipholding paper was "bamboozled again," after a rebound in the latter part of the previous week. Traders saw the bonds dropping anywhere from 10 to 17 points on the day as the company warned a bankruptcy filing might be imminent.

Meanwhile, Supervalu bonds continued to gain ground, as it has done since last week when it reported earnings. Though the earnings themselves were not much to speak of, it was the company's claims that it had several potential buyers on the line for its business, whether in whole or in part. On Monday, rumors were circulating that Cerberus Capital Management was one such buyer and that the firm was already in process of lining up financing.

Back on the downside, Advanced Micro Devices remained on a downward spiral. The chipmaker's bonds began declining last week after disappointing quarterly results. That, combined with general weakness in the tech sector, continued to weigh on the debt in Monday trading.

Overseas Shipholding beaten down

A trader said Overseas Shipholding Group's 8 1/8% notes due 2018 were the "bonds du jour" as the company warned of a potential bankruptcy filing.

The trader called the issue down 10 to 13 points around 35.

"Those got slammed," another trader said of the bonds, pegging them in the mid-30s.

"They had rebound" late last week, another trader noted, stating that the debt "got bamboozled again."

He saw the 8 1/8% notes falling almost 18 points to 34, while the 7½% notes due 2024 lost just over 17 points, closing at 323/4.

In an 8-K filed with the Securities and Exchange Commission on Monday, the New York-based oil tanker company first said that it was reviewing tax issues, which may result in the restatement of previous earnings.

The company then said that that it was looking into its strategic options, which includes the viability of a Chapter 11 filing.

OSG has been troubled of late by lower rates for transporting oil, due to a wealth of vessels being available for such trips.

Supervalu run-up continues

Supervalu debt was the "big mover" of the day in terms of volume, a trader said.

He reported that $38 million of the 8% notes due 2016 changed hands, rising nearly 6 points to 951/2.

The rarely traded 7½% notes due 2018 also saw a fair bit of size, with $11 million of the notes trading up a point at 981/2.

"They have been screaming ever since they reported and said they had numerous interested buyers," the trader said. "There's a lot of volume and a lot of upside."

Another trader said Supervalu's 8% notes were "very active," quoting them at 95 bid, 96 offered.

On Thursday, the Minneapolis-based grocery store operator reported a net loss of $111 million, or 52 cents per share, on net sales of $8.04 billion.

That compared to a profit of $60 million, or 26 cents per share, on sales of $8.4 billion, the year before.

Excluding certain one-time charges, Supervalu would have posted flat earnings.

Analysts polled by Thomson Reuters had been expecting a profit of 13 cents per share, on sales of $8.01 billion.

However, a trader pointed out that gross margins were 21.4% of sales and that selling, general and administrative expenses were at 21%, leaving the total at basically zero.

The company also said that it was continuing talks with potential buyers, but gave few details beyond that.

Despite the lack of details, investors have been pushing Supervalu's bonds up higher and higher on optimism that a sale will occur. On Monday, Reuters reported that Cerberus Capital was a potential buyer and that the firm was already speaking with lenders in order to line up as much as $5 billion in financing.

AMD gets hit

Advanced Micro Devices' debt was "getting the bejesus knocked out of it," according to a trader.

"They were getting smoked," he said, seeing the 7¾% notes due 2020 falling 4½ points to 821/4.

The 8 1/8% notes due 2017 - which were at par last week - were down 12 points to 88, he said.

"They continue to drift," another trader said. He called the 7¾% notes down 4 points at 82 bid, 83 offered.

"They're not looking too stellar," said another trader, noting that the debt was "trading up at par back in early September - and now they're in the high-70s. Ouch!"

On Thursday, AMD reported a net loss of $157 million on revenues of $1.27 billion. That compared to a profit of $97 million on revenues of $1.69 billion the year before.

The swing to a loss was due in large part to declining PC sales, as consumers switch to tablets and smartphones.

On the loss, the Sunnyvale, Calif.-based company also said it was cutting about 15% of its workforce or about 1,800 jobs.

AMD also was not so optimistic on its fourth quarter.

Come Friday, Moody's Investors Service responded to the dismal earnings by downgrading the company's rating to B1 from Ba3. The ratings remain on review for a potential further downgrade.

As for Monday's declines, a trader speculated that the continued softening was due to "general weakness in the computer industry and bad numbers from some of the other guys."

ATP, PDVSA fall

In the oil arena, a trader said ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 remained a "distressed focus," as the debt fell to levels around 17.

Another trader echoed that level.

Also, Petroleos de Venezuela SA's 9% notes due 2021 were seen down over 4 points to 811/4, as the 9¾% notes due 2035 slipped marginally to 83 1/8.

Paul Deckelman contributed to this article

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