Newly bankrupt Overseas Shipbuilding again busy; J.C. Penney, Cengage drift lower

By Paul Deckelman

New York, Nov. 15 - Overseas Shipholding Group Inc.'s bonds continued to trade actively on Thursday in the wake of the oil tanker operator's Chapter 11 filing.

Cengage Learning Acquisitions Inc.'s bonds were seen continuing to drift lower in the wake of the educational products company's recent disappointing earnings report.

Poor earnings have also been the catalyst behind the slide in department store operator J.C. Penney Co., Inc.'s paper, which continued on Thursday.

Innovation Ventures LLC's bonds were quoted lower - though with no real trading actually seen - on news reports linking its popular 5-Hour Energy drink to several deaths. The reports said the federal Food and Drug Administration was investigating.

Edison Mission Energy's bonds languished in the 40s after the power-generating company missed scheduled coupon payments on some of its bonds, raising the specter of a possible bankruptcy filing.

Overseas Shipholding busy

A trader noted that Overseas Shipbuilding's 8 1/8% notes due 2018 were last trading around 35 bid, although on a more representative round-lot basis, the final trade had taken place at 36¼ bid.

A second trader said that Overseas Shipbuilding's bonds "opened up in the lower 30s and traded up to the high 30s," pegging them around the 36-37 area.

He noted that the New York-based oil tanker operator's bonds had gyrated wildly on Wednesday on news that the company had sought Chapter 11 protection from its bondholders and other creditors.

"They got down to around 20, and then got up to the lower 30s by the end of the day - so they got back to about unchanged on the day, when you look at that price flat" - i.e. without accrued interest - "versus where it was trading the day before.

"So we continue to see some strength in that one, post-filing."

A market source saw the bonds open at 38 bid, dip as low as 35, and then go home a bit above 36 bid - off from the opening but still well up from Wednesday's finish at 23 bid. Some $25 million of the bonds changed hands on a round-lot basis, making it one of the most active junk issues.

On Wednesday, over $50 million of the bonds had traded. The source said that strictly in round lots, they had bounced around between 18 bid and 31, before going home on a low tick at 23.

Cengage seen off again

A trader said Cengage's 11½% notes due 2020 "were probably a little bit lower," in the high 70s.

Its 12% notes due 2019 were in the mid 30s and its 10½% notes due 2015 were in the low 20s, in the vicinity of 22.

He said that there was "not a tremendous amount of activity - but definitely lower" versus Wednesday, when the 12s were seen as high as 38 bid and the 101/2s finished at 24.

The bonds have been losing ground since the Stamford, Conn.-based provider of teaching, learning and research services reported disappointing fiscal first-quarter results last week.

For the fiscal first quarter, Cengage's net income was $13.2 million, down from $131.5 million in the prior year, revenues were $538.3 million, down from $691.9 million, and adjusted EBITDA was $233.1 million, down from $348.8 million in the previous year.

Following those poor results, Moody's Investors Service downgraded the company's corporate family rating on Tuesday to Caa3 from Caa1.

Penney punishment continues

Also on the earnings front, J.C. Penney's bonds continued their recent downward spiral, amid investor dismay over the weak quarterly results that the Plano, Texas-based department store operator reported last week.

"I don't know if you'd call them distressed - but they certainly are on people's radar screens" following those negative results, a trader said.

"It continues to come in," like the 5.65% notes due 2020, which he saw trading down around 83 bid, which he called a loss of "a few more points," for a total of 6 or 7 points on the week.

"It just continues to drift lower."

On Friday, the company reported results that included its worst decline in same-store sales - a key retailing industry performance metric since Penney began its new shopping platform, a move away from coupons and sales events.

Part of its strategy involves the company essentially looking to transform its stores into a conglomeration of mini-boutiques.

Same-store sales were down 26.1% in the third quarter. Analysts had expected a decline of 17.9%.

Total sales were down 26.6% at $2.93 billion.

Still, net loss narrowed to $123 million, or 56 cents per share, from $143 million, or 67 cents per share.

Gross margin was 32.5%, versus 37.4% the year before.

On Tuesday, Standard & Poor's reacted to the release by cutting its ratings on the company to B- from B+.

The outlook is stable.

5-Hour quoted lower on reports

A market source said that Innovation Ventures' 9½% notes due 2019 may have fallen as much as 10 points during the day's trading on news reports that the FDA was investigating whether the Farmington Hills, Mich.-based company's well-known 5-Hour Energy drink may have been a factor in at least 13 deaths across the country and even a reported spontaneous abortion for one woman who had consumed the heavily caffeinated product.

Company officials deny that their popular "energy shot" drink - sold across the country in familiar two-ounce bottles - had anything to do with the reported deaths or other unfortunate side effects.

"With that bad news, I saw them very wide," a trader said. The paper had been in the low 90s before the barrage of bad publicity hit on Thursday, but afterward, he said, the bonds were being offered at 89, with a low-80s bid.

"I don't know if it ever traded, but it certainly seemed as if it had drifted into the 80s, from the lower 90s."

He opined that "the initial reaction to the headlines was that people offered it down [from prior levels] but then it seemed like some bids filled in - but I do not know if it traded at all."

Another trader said that he had seen the news stories about the product - but could find no sign of the bonds on the Trace system. The company had sold an upsized $450 million of the notes at par back in July.

Edison Mission misses payment

A trader said that Edison Mission Energy "was going into the grace period" after having missed a coupon payment, "but I don't know that a lot of its paper traded."

He saw its 7% notes and 7½% notes trading around in the mid-40s, "so there was not much of a reaction."

He said that this really came as no surprise to anybody who has been following the problems of the unregulated power-generation unit of Rosemead, Calif.-based utility giant Edison International.

"I don't think this was at all unexpected."

Edison Mission announced in a Thursday filing with the Securities and Exchange Commission that it had elected not to make the $97 million of interest payments due Nov. 15 on its various unsecured bonds maturing in 2017, 2019 and 2027. The failure to pay triggers a standard 30-day grace period during which the company could cure the default by making the payment; otherwise, should the payment not have been made by the period's Dec. 17 expiration, the entire principal amount of the bonds could be declared immediately due and payable.

The parent company said Edison Mission Energy's failure to pay the unsecured bond debt will likely force it to file for Chapter 11 bankruptcy.

According to the filing, Edison International and Edison Mission are in discussions with the bondholders' financial and legal advisers regarding potential restructuring transactions for the troubled Irvine, Calif.-based developer of wind energy projects.

Published reports say that the company has hired restructuring lawyers from Kirkland & Ellis and financial advisers from Moelis & Co., while the bondholders have retained the law firm of Ropes & Gray and financial adviser Houlihan Lokey.

Stephanie N. Rotondo contributed to this report.

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