Distressed market action subdued due to holiday, stocks; AMR rise continues; PDVSA debt gains

By Stephanie N. Rotondo and Paul Deckelman

Phoenix, Feb. 19 - A long weekend plus a rising stock market took focus away from the high-yield bond arena Tuesday, including distressed issues.

"It was a very abridged bond-trading scheme today," a trader said.

"It's been slow," said another trader. "There's no sellers in the distressed end of the market, so it's very difficult."

However, there continued to be "strong buyers" of AMR Corp.'s debt, according to a trader. Investors are reacting - positively - to news out last week regarding a now-official merger between the bankrupt airline and U.S. Airways.

"They keep buying up whatever is out there, which isn't much," he said.

The benchmark 6¼% convertible notes due 2014 rose to "107-ish."

The trader also saw buyers of Overseas Shipholding Group Inc.'s bonds. He called the 8 1/8% notes due 2018 "up a tiny bit" at 37½ bid, 38 offered.

PDVSA up on Chavez return

Petroleos de Venezuela SA's bonds were moving up in Tuesday trading, as Venezuelan president Hugo Chavez returned to his country after spending over two months in Cuba receiving cancer treatments.

A trader said the 8½% notes due 2017 saw "probably the biggest volume" of any name in the high-yield space, as the notes rose almost a point to 993/4. The 5¼% notes due 2017 were similarly up, closing at 891/2.

Chavez began his stay in Cuba in December. After receiving surgery to remove an unspecified type of cancer, he came down with respiratory issues that required him to have a breathing tube.

The long-time leader's return to the nation - he is reportedly still hospitalized in Caracas - has spurred speculation that he might be considering relinquishing his post, though he was reelected in October.

Recent polls show that if a new election is held, Vice President Nicolas Maduro would win over opposition leader Henrique Capriles. Late last year, Chavez unofficially called for Maduro to be his successor.

Reader's Digest files again

A trader said that Reader's Digest Association Inc.'s floating-rate notes due 2017 had "just a couple of trades" on Tuesday following the news that the Pleasantville, N.Y.-based publisher of the iconic Reader's Digest monthly magazine and other titles had filed for Chapter 11 in order to restructure its finances - the company's second trip to the bankruptcy courts in four years, having originally restructured between August 2009 and February 2010.

The trader said he saw "two or three transactions" in the notes down around the 30-30½ range.

However, he noted that while the bonds were down 20 points from their previous recent trading levels.

"In the last three months, these things have traded maybe six times. So it's not very active."

A second trader said that "they've almost stopped trading this, to see where it comes out - it's very sensitive."

A market source at another desk said that the bonds had most recently traded in small pieces last week at levels just under 50 cents on the dollar- but swooned to around the 31 mark, and then 30, on Tuesday on the bankruptcy news. Round-lot volume topped more than $3 million, with the bonds down at least 10 points on that basis from previous round-lot levels seen at the end of January.

Exide's "busy" day

The trader said that "it's a high-yield world" - meaning that by and large most of the activity he saw involved regular junk bonds trading at somewhat weaker levels compared to junk generally, rather than really distressed credits such as Readers Digest or OSG.

For instance, he noted that among the mid-afternoon actives on Trace, most credits were quoted at or in some cases well above par, and a few in the upper 90s. Only one - Exide Technologies' 8 5/8% notes due 2018 - was down as low as the lower 80s. He saw the bonds trading between 82-and-83 bid.

He saw no news out on the Milton, Ga.-based maker of lead-acid storage batteries for automotive and other industrial applications, but noted that "well, they did trade over $10 million today," putting the bonds high up on the list of most-active purely junk-rated credits.

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