Energy Future gets more active as investors digest DIP news; Caesars, NII Holdings remain weak

By Stephanie N. Rotondo

Phoenix, March 14 - The distressed debt market finished the week with a softer tone.

Friday dealings saw a little bit of an uptick in activity in Energy Future Holdings Corp.'s bonds. On Thursday, news outlets reported that the company was lining up as much as $7.2 billion of debtor-in-possession financing.

Its subsidiary, Texas Competitive Electric Holdings Co. LLC, is said to be seeking about $4 billion of DIP loans.

While Energy Future debt was slightly more active than it was on Thursday, the rest of the distressed space was quieting down.

Caesars Entertainment Corp.'s bonds continued to weaken, just a few days after the company reported dismal quarterly earnings.

A trader saw the 10% notes due 2018 falling a quarter point to 421/4.

Another market source called the issue off nearly a point at 42 bid.

NII Holdings Inc. also remained downwardly focused. A trader said the 7 5/8% notes due 2021 dipped half a point to 321/2, while the 10% notes due 2016 lost 1½ points to 461/2.

Though both of those names have been active of late, neither saw much trading in Friday's session, according to a trader.

Among other distressed credits, Forest Oil Corp.'s 7¼% notes due 2019 were holding steady around 861/4.

Energy Future topical

Energy Future Holdings, or TXU as it is more commonly referred to, saw its bonds trade a little more actively on Friday.

A trader quoted the 10% notes due 2020 at 105¼ bid, 106¼ offered, with "a handful of trades" right in the middle at 1053/4.

The energy producer has reportedly lined up as much as $7.2 billion of DIP financing ahead of a bankruptcy filing that has been largely expected by the marketplace.

Of that DIP amount, $5.2 billion is being provided by Citigroup Inc., Morgan Stanley & Co. Inc. and Deutsche Bank AG. Another $2 billion gives the parent company an option to repay existing second-lien debt held by a subsidiary, Energy Future Intermediate Holding Co.

Another subsidiary, Texas Competitive Electric Holdings Co. LLC, is said to have arranged more than $4 billion of DIP financing.

Speculation has been that the parent company might try to spin off the unregulated unit in a bankruptcy.

Fannie, Freddy rebound

Fannie Mae and Freddie Mac preferred stock continued to dominate early Friday trading, a trader reported.

As was the case early Thursday, the agencies' preferreds were rebounding some after getting hammered most of the week.

However, the shares closed Thursday's session weaker again.

Come Friday, though, the preferreds managed to hang onto their gains.

Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were up 57 cents, or 5.36%, to $11.20. Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were up 45 cents, or 4.37%, at $10.75.

The agencies' preferreds initially turned upward on Tuesday following word that a bipartisan Senate group was putting forward a plan to wind down the agencies.

However, as the news was digested, the "market finally got their cup of wake up coffee," a market source said, and the preferreds began to get hit.

The source said there was "high, high volume" in the agencies' preferred shares, which ended the session down 7% to 8.5% on average.

"The rhetoric with [the new proposed legislation] is that there is more bipartisan support [than the previous plans put forth]," the source said. He said that support increased the probability that the plan could get approved, though he would not go so far as to say it was "probable."

Though investors are obviously concerned that they will reap nothing from their investment, there could still be hope. In a letter to Jacob Lew, Treasury Secretary, senator Pat Toomey, a Republican from Pennsylvania and a member of the Senate Banking Committee, said he thought investors should not be shut out.

"While I strongly support GSE reform that protects taxpayers, such efforts should also be mindful of investors in addition to other considerations," Toomey wrote to Lew. "Taxpayers should be fully compensated, but once they are, investors, such as the York County pension fund in Pennsylvania, should not be denied their fair share of any remaining value."

Fannie and Freddie preferreds were then rebounding in early Thursday trading but gave back those gains to end weaker once again.

There was more turmoil for Fannie and Freddie preferreds on Thursday, as one U.S. senator said the fate of shareholders rested with the courts.

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