Distressed bonds stay firm overall; TXU paper drops as DIP facility sought; SMU bonds decline

By Stephanie N. Rotondo

Phoenix, Sept. 17 - It was another upward momentum day for the distressed debt market on Tuesday, according to traders.

"Everything was up again," one trader commented. However, he noted that there was still "a ton of new issue stuff."

Energy Future Holdings Corp.'s Texas Competitive Electric Holdings Co. paper, however, was trading downward. Late in the day, news outlets reported that the parent company - formerly known as TXU Corp. - was shopping for a bankruptcy loan as it readies a filing for the unregulated subsidiary.

Also on the downside was Chilean supermarket operator SMU SA. The bonds dipped as the company said it would seek less in a capital raise than previously planned.

After being deemed the most active trader on Monday, Caesars Entertainment Corp.'s 10% notes due 2018 remained busy, though not nearly as much as they were in the previous session, according to a trader. The bonds dipped over half a point to 63.

Another trader said Overseas Shipholding Group Inc.'s 8 1/8% notes due 2018 were "stronger," ending the session around 931/2.

TXU slips as loan sought

Energy Future's Texas Competitive Electric bonds were slipping Tuesday, as the parent company was reportedly searching for a bankruptcy loan for the unregulated subsidiary.

One trader saw the 15% notes due 2021 holding steady at 17 when compared to the previous day's levels. However, he noted that the paper was down at least 3 points from the end of last week.

The trader also saw the 10% notes due 2020 losing a point to close at 1051/2.

At another shop, a trader said the 15% notes were "somewhat active" and weaker, trading with a 17 handle. The 10% notes, he said, were "also a little bit lower," trading in a 105½ to 106 context.

According to an article published in the Wall Street Journal late in the day, the Dallas-based power producer has spent the last week talking with banks such as Citigroup Inc. and JPMorgan Chase & Co. to provide a debtor-in-possession loan valued at over $2 billion. The loan would be used to continue operating the subsidiary.

Additionally, the company has engaged in negotiations with creditors to try to develop a prepackaged bankruptcy plan. The company is also creating another plan should negotiations fail.

A bankruptcy is expected as soon as November. For its part, Texas Competitive Electric carries about $32 billion of debt.

Elsewhere in the power arena, Edison Mission Energy's debt moved up to around 651/2, a trader said, while Ameren Energy Generating Co.'s 7% notes due 2018 traded as high as 84.

"That's up a couple points," the trader said.

SMU takes a dip

Chile-based SMU saw its bonds dropping nearly 2½ points on news the company was looking to raise less money than originally expected.

A trader pegged the 7¾% notes due 2020 at 62 7/8.

In regulatory filings, the company said it was seeking $251 million via an equity capital raise. That compared to the $300 million originally expected.

Late last month, SMU - which has already breached debt ratio covenants - said it would sell assets and find other ways to raise cash in order to keep operating.

Among other emerging market names, a trader said OGX Petroleo & Gas Participacoes SA's 8½% notes due 2018 were up slightly at 19 7/8, though another trader said the debt was unchanged, trading in a 19 to 20 context.

The Brazilian oil producer majority owned by Eike Batista is said to be seeking more cash from creditors as it attempts to avoid bankruptcy.

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