SemGroup files for bankruptcy, debt dips; numbers hurt NXP, boost Freescale bonds

By Stephanie N. Rotondo

Portland, Ore., July 22 - While it came as no big shock, SemGroup LP announced it filed for bankruptcy Tuesday, and some distressed market source were speculating litigation could follow.

The company's bonds began spiraling downward Thursday, losing about 60 points in just one day. Though the market was not surprised by the news, both bonds and bank debt fell a little more after the announcement.

Elsewhere, second-quarter earnings began to churn out Tuesday, which gave investors a reason to pay attention.

NXP Semiconductor released disappointing figures before the market open. The lackluster performance sent the chipmaker's debt down about 10 points on the day.

But Freescale Semiconductor, which released numbers after the market closed, saw its bonds gain at least a point. The Texas company's financials showed a better quarter than the one before.

Overall, there seemed to be some relief for certain names. However, casinos, which had gotten lucky the last few sessions, might have experienced a reversal of fortune.

SemGroup filing no surprise

In a move that surprised no one, SemGroup filed for Chapter 11 protection, citing liquidity issues.

While the news was not unexpected, traders saw the bonds going even lower, with one trader quoting the 8¾% notes due 2015 at 10 bid, 13 offered, flat.

SemGroup's term loan B levels were quoted pretty wide, although there was not a whole lot of a change from Monday's levels, according to a trader.

The term loan B was seen quoted anywhere between the 50 to 60 context, the trader said. On Monday, the paper was around 55 bid, 59 offered, so all in all, levels were not affected too much, the trader said.

"I don't think it was a shock to anybody that it did file," the trader added.

On Tuesday, SemGroup announced that it filed for bankruptcy. The company's debt began to fall on Thursday, though at that time, there was no explanation. Later that day, the company said that it was experiencing liquidity issues and was exploring alternatives, including raising additional equity, debt capital or the filing for Chapter 11. From there, the company's debt - especially its bonds - went into a nosedive.

"Bonds [are] worth zero at this point," said one trader. "I imagine litigation will be in the future. Bonds don't go from 95 to 10 without some group filing against someone."

"Litigation can be assured when the bonds go from 90 to 10," said another trader.

"Our core business in energy distribution and storage remains strong, and we are taking aggressive steps to address our financial challenge," said Terry Ronan, acting president and chief executive officer, in a news release.

"We have determined that the best way to maximize value for our creditors is to undertake a sales process that will transition our valuable businesses to well-established companies that can carry forward the mission we undertook. We believe there will be significant interest in our assets because of our talented and experienced employees, unique industry position, expansive customer base and premiere service capabilities," Ronan added in the release.

SemGroup is in negotiations with lenders to secure sufficient debtor-in-possession financing.

The company anticipates obtaining a DIP facility within a week.

In the mean time, the company is working with its existing bank lenders to use cash collateral, which, upon court approval, will enable it to use existing cash and cash generated through normal business operations to fund trade and employee obligations after the Chapter 11 filing.

The company expects to continue negotiations with its banks regarding the terms on which the banks' interest will be adequately protected during the proceedings.

According to one market source, Bank of America was the issuer for $2 billion in bank debt, as well as $600 million in bonds. The bank issued a "no comment" to Prospect News Tuesday.

Post-filing news, Fitch Ratings slashed SemGroup's rating to D from B-.

SemGroup is a Tulsa, Okla.-based oil storage and transportation company.

NXP slips, Freescale skips

The tech sector ended mixed Tuesday after NXP released disappointing quarterly earnings, while Freescale Semiconductor's were not so bad.

NXP's bonds fell about 10 points, traders reported. One trader pegged the 9½% notes due 2015 at 73.25 bid, 74.25 offered and the 7 7/8% notes due 2014 at 85 5/8 bid, 86 1/8 offered.

That trader called Freescale's debt stronger, its 8 7/8% notes due 2014 at 81.25 bid, 82.25 offered, up from 79 bid, 81 offered earlier in the session. The 10 1/8% notes due 2016 inched up to 75.75 bid, 76.75 offered from 73 bid, 76 offered previously and the 9 1/8% notes due 2014 closed at 76.5 bid, 77.5 offered.

At another desk, a trader placed NXP's 9½% notes at 73.5 bid, 75 offered and Freescale's 8 7/8% notes at 83 bid, 84.5 offered, noting that better bids were coming after the market closed.

Another source deemed Freescale's senior issue a point better at 82.5 bid, 83 offered.

NXP, a Dutch chip maker, posted a 2% decline in sales from the comparable period a year ago. Sales fell to $1.52 billion, while EBITDA dropped to $114 million from $190 million. The company cited a weakening chip market.

Meanwhile, Freescale's numbers, which were released as the market closed, were slightly better. The Austin, Texas-based company reported net sales of $1.47 billion, compared to $1.41 billion the previous quarter and $1.38 billion in the second quarter of 2007. Net loss improved to $184 million.

Broad market sees 'relief rally'

In other earnings news, E*Trade Financial Corp.'s net loss for the second quarter increased, but the company said it was focused on its turnaround plan.

The success of the plan might have accounted for a 1-point gain in the company's debt. A trader quoted the 7 3/8% notes due 2013 at 84.5 bid and the 8% notes due 2011 at 86 bid.

Swift Transportation Co. Inc.'s 12½% notes due 2017 have also continued to improve post-financials. The trader pegged the issue at 39 bid, 40 offered, noting that the debt was trading in the mid-20s just two weeks ago.

According to the trader, the numbers - which are not released to the public - "were pretty good" and fell in line with the company's previous estimates. As part of its plan to reduce costs amid rising gas prices, Swift reportedly cut its fleet by almost 1,000 trucks.

"They were painting a pretty rosy picture, which you would expect them to do," the trader said. "But it was a better call than they had before."

Meanwhile, the gaming sector was "somewhat busy." Station Casinos' paper ended mixed, with the 7¾% notes due 2016 coming back down to around 74 from 75.5 bid, 76.5 offered previously and the 6 7/8% notes due 2016 closing half a point better at 52.5.

Harrah's Entertainment LLC's 10¾% notes due 2016 hovered around 75.5 bid, 76.5 offered, while Trump Entertainment Resorts Inc.'s 8½% notes due 2015 were unchanged at 53.5 bid, 54.5 offered.

Idearc Inc.'s 8% notes due 2016 fell to the 60 level from 61 bid, 62 offered.

Quebecor Inc.'s bonds were "up a solid couple points on the bid," a trader said. He said the 4 7/8% notes due 2008 and the 6 1/8% notes due 2013 were at 34 bid.

"I think there was some relief rally in some of these names," he said.

Sara Rosenberg contributed to this article.

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