Colt Defense buoyed by merger news; OGX stays weak; broad market posts gains while stocks slip

By Stephanie N. Rotondo

Phoenix, July 16 - The distressed bond market "still has a good tone to it," a trader said Tuesday.

However, a new two-tranche deal from Ally Financial Inc. took up most of the action in the broader high-yield space.

Despite the Ally focus, Colt Defense LLC's debt jumped 4 to 5 points as the company completed a merger with Colt's Manufacturing Co., a business it had parted ways with in 2002.

"It looks like generally good news," a trader said.

Meanwhile, OGX Petroleo e Gás Participacoes SA drifted further down into the teens, just one day after Moody's Investors Service dropped its rating on the Brazilian oil producer to Ca.

Colt rises on merger

Colt Defense's 8¾% notes due 2017 popped by 4¾ points, a trader said Tuesday.

He placed the bonds around 80.

Another trader said he saw the issue get into an 80 to 81 context, while another also said it was around the 80 mark.

The gains came as the company wrapped up a merger with Colt's Manufacturing Co. The two entities had split in 2002.

Colt Defense paid $60.5 million in cash for the business.

OGX bonds under pressure

OGX's credit rating was cut to Ca on Monday and come Tuesday, the company's bonds were feeling it.

A trader said the 8½% notes due 2018 dropped almost half a point to end in the high-15s. Another trader said the debt was "slightly lower" at 15¾ bid, 16 offered.

Moody's said it dropped OGX's rating from Caa2 given concerns about a $1 billion put option granted to majority owner Eike Batista.

"The rating downgrade of OGX is driven by diminished expectations that OGX will be able to rely on the $1 billion put option that was granted by its controlling shareholder given the recent departure of all of the company's independent board members," Moody's vice president Gretchen French said in a news release.

Batista, for his part, has been selling assets and talking with banks to try to keep his flagship company afloat. But as he has divested some of his stake, the company missed a coupon payment and board members have left en masse, investors are worried that a default is looming.

Broad market stays strong

Among other distressed names, a trader saw Texas Competitive Electric Holdings Co.'s 15% notes due 2021 dropping half a point to go out around 241/2.

Another trader said Edison Mission Energy debt was up again, trading around 61.

Overseas Shipholding Group Inc.'s 8 1/8% notes due 2018 meantime firmed to close around 92.

Another trader said Clear Channel Communications Inc.'s LBO debt "keeps grinding higher," seeing the 11% notes due 2016 up half a point at 94½ and the 10¾% notes due 2016 up about that much to 933/4.

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