Coupon concerns hurt Edison; James River adds more losses; AMR examiner request withdrawn

By Stephanie N. Rotondo

Phoenix, Nov. 8 - The distressed debt market continued to have a negative tone on Thursday, and investors remained focused on new issues, according to a trader.

Edison International Inc.'s paper was "continuing to drop off," a trader said. The rumor mill has been buzzing that the company might forgo an upcoming coupon payment and that it could end up filing for bankruptcy instead.

After reporting dismal earnings on Wednesday, James River Coal Co.'s debt was losing more ground. The sector as a whole also continued to be soft, as concerns about stricter environmental regulations abound.

But on the upside, AMR Corp.'s bonds were moving higher. The gains came as hedge fund Marathon Asset Management withdrew its request for an independent examiner to look into the bankrupt airline's books.

Edison paper weakens

A trader said that there was "chatter" that Edison International might not be able to make an upcoming coupon payment on Nov. 15 and that "it might possibly file" instead.

As such, the Rosemead, Calif.-based company's Edison Mission Energy linked bonds were on the decline.

The trader said issues like the 7% notes due 2017 and the 7¾% notes due 2016 were slipping to levels around 45.

Another trader also pegged the bonds around 45 but stated that all the bonds were trading in that context.

More losses for James River

James River Coal's 7 7/8% notes due 2019 were "under a little more pressure again," a trader said, just one day after the coal producer reported a wider quarterly loss.

The trader deemed the debt down nearly 3 points to 601/2.

Another trader said the issue was "down a little bit more" at 60½ bid, 61 offered.

The rest of the coal sector was also weaker, for the most part. Alpha Natural Resources Inc.'s 6¼% notes due 2021 dropped almost 2 points to 883/4, but Patriot Coal Corp.'s 8¼% notes due 2018 were a point higher at 52½ bid.

In its third-quarter earnings release posted on Wednesday, James River reported a net loss of $20.6 million, or 59 cents per share. That compared to a loss of $3.7 million, or 11 cents per share, the year before.

Revenues declined 5% to $288.1 million.

The coal producer also said that it had repurchased $61.4 million in debt at a discounted price of $23.9 million, or 39 cents on the dollar. Some in the market saw that as a positive for the company's bottom line, while others lamented the resulting decline in liquidity.

Liquidity was $172 million at the end of the quarter, versus $191.9 million the previous quarter.

James River's management also remarked that a potential for increased environmental regulations under Obama could negatively impact its balance sheet.

Still, the bigger issue at hand could be the price of natural gas.

AMR rises

A trader called AMR's 6¼% convertible notes due 2014 "stronger" on the day after Marathon Asset Management withdrew its request to investigate intercompany transactions that took place in the weeks before the company's Chapter 11 filing.

The trader placed the issue at 681/2.

"Maybe that signals that people are stepping in line" and working to come up with a reorganization plan, "instead of these delay tactics."

Marathon, which holds more than $100 million of the airline's debt, had put forth the request last month, alleging that the transactions at the parent company left AMR with $2.26 billion in debt.

The hedge fund withdrew its request after AMR agreed to hold to potential clawback claims relating to the debt deals.

Other distressed dealings

Elsewhere in the world of distressed, a trader said Dex One Corp.'s 12% PIK notes due 2017 traded around 30.

The trader also saw Overseas Shipholding Group Inc.'s 8 1/8% notes due 2018 trading in a 29 to 30 context.

Another trader said that ATP Oil & Gas Corp.'s 11 7/8% note issue due 2015 "continues to dip," seeing the paper in a 14½ to 15 context.

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