Momentive, TXU busy amid filing delays, bankruptcy talk; Arch, Forest Oil up; Claire's slides

By Paul Deckelman

New York, April 1 - Momentive Performance Materials Inc.'s bonds were among the most actively traded issues on Tuesday, as the embattled Albany, N.Y.-based manufacturer of specialty materials for high-tech applications announced that it would be unable to file its annual 10-K report with the Securities and Exchange Commission and was in talks with its stakeholders on modifying its capital structure and reducing its leverage, raising the possibility that a Chapter 11 filing might be the best way to get that done.

Energy Future Intermediate Holding Co. LLC's bonds were also high up on the Most-Actives list for pretty much the same reasons, as its parent company announced a delay in filing its annual report with the SEC and said it would skip a scheduled debt interest payment; the beleaguered Dallas-based utility operator and merchant power generator formerly known as TXU Corp. is expected to reorganize via a pre-packaged Chapter 11process once it reaches agreement with all of its major creditors and other stakeholders on such a plan.

Away from the anticipated future bankruptcies, traders saw Arch Coal Inc.'s bonds up solidly in busy dealings, though on no apparent news.

They said that Forest Oil Corp.'s bonds were better after the energy exploration and production company announced an agreement with its senior lenders on amending its credit facility.

Claire's Stores, Inc.'s bonds, on the other hand, slid badly after the specialty retailer reported weaker fiscal fourth-quarter numbers versus its year-earlier results, as well as the abrupt departure of its chief executive officer.

Momentive moves on filing delay

A trader said Tuesday that there was "not a ton of stuff going on - a lot of the focus has been on new issues."

But he did see some trading in Momentive Performance Materials late in the session, noting that the company had "just filed" a non-timely 10-Q, saying that there were "substantial concerns, they might have to file" for Chapter 11.

"We'll see how everything reacts. It hasn't quite hit the market yet," the trader added.

However, at another desk, a trader said there had been heavy trading in the company's 9% second-lien senior secured notes due 2021 and busy dealings in its 11½% senior subordinated notes due 2016, with much of that activity coming late in the day.

He saw the 9s ending unchanged at 80 bid, on round-lot volume of well over $18 million, while seeing the 111/2s likewise unchanged at 33 bid on volume of over $6 million.

Momentive said in an SEC filing that it had been unable to file its 10-K annual report, citing the fact that it "is currently in active discussions with various stakeholders regarding alternatives to modify its capital structure and reduce the company's leverage. The company has been required to devote key personnel and administrative resources, including the personnel and resources of its accounting and financial reporting organization, to matters relating to these discussions. The company believes these discussions will be concluded shortly. As part of this process, a filing under Chapter 11 of the U.S. Bankruptcy Code may provide the most expeditious manner in which to effect a plan of reorganization that may be proposed by the company."

It also warned that "although the company is currently in compliance with the indentures governing its outstanding notes and its credit agreements, the company has concluded there is substantial doubt about its ability to continue as a going concern for the next 12 months."

TXU trades around

Energy Future Holding finds itself in a similar situation, and the Texas utility operator and merchant power generator likewise announced a delay in its 10-K filing as well as its decision not to make a scheduled debt interest payment, instead invoking the standard 30-day grace period.

However, a trader said that "really, the only active bonds were the 10% notes due 2020." He saw the bonds down 3/8 point with over $17 million traded, as they went home at 105 5/8 bid.

A second trader said that TXU's 10s were trading between 105½ and 105 5/8. He said that "maybe $20 million traded, maybe more." He said the bonds seemed little changed to him. "They were flat. They had been 105½ on the 28th," he asserted.

Another trader said that TXU's 11¼% notes were trading around 72 bid, which he called "up a little bit," with the notes having traded around 70 previously.

An industry analyst told Prospect News on Tuesday that by not making the debt payment - which starts the clock on the 30-day grace period - and by delaying the SEC filing, "I think they've bought some time here. This really gives them some more time" with which to negotiate with its creditors on a pre-packaged Chapter 11restructuring. Had it filed with the SEC as scheduled, its filing would surely have included the auditors' "going concern" warning, which in turn would likely have triggered an immediate default declaration on at least some of its debt.

Armed with that extra time, he suggested that the company could now remove the last roadblocks to a smooth pre-packaged filing.

"What we were hearing was that they were talking about coming to terms with Fidelity [Investments], which is a large holder of some of the bonds. It was kind of the last holdout. It was rumored that they were almost in agreement. I think that was kind of the issue that was holding everything up."

Assuming any remaining objections can be resolved during the grace period, clearing the way for a Chapter 11 filing, the analyst declared that "what needs to happen is the company needs just a lot less debt on the balance sheet. That's really the issue here."

He said that "this company generated about $1.4 billion in EBITDA [last year]. That's down over 25% from what was being generated back in '07 [the year the company was acquired in a giant-sized leveraged buyout]. In '07, it was $2.4 billion, and then it got as high as $4 billion. We've seen a large erosion of EBITDA in this company," mostly triggered by low natural gas prices, which held down revenues at its unregulated merchant power operation.

That, in turn, sharply boosted the company's leverage ratio of debt as a multiple of EBITDA, which he said came out to 28 times.

In contrast, "most of your peer group out there is maybe 5 times, 6 times debt to EBITDA. [TXU] is an unsustainable capital structure."

He noted that because of the mostly debt-funded LBO, "they went from $12.6 billion of debt [pre-LBO] to $40.8 billion."

"On a pro-forma basis, debt-to-EBITDA was about 9.6 times out of the box when the deal was done," which he agreed was a little high - but not totally ridiculous.

He pointed out that among TXU's competitors, "First Energy is at 5 times debt to EBITDA. NRG has been as high as 10 times also, a year ago, when cash flow started to dry up for them, but currently, NRG is at about 7-ish times. Calpine has actually done very well since [their reorganization], they're at 7 times.

"So if I'm a restructuring guy, you can see that 6-to-7 for a junk credit is a somewhat sustainable cap structure - but 28 times EBITDA is not."

Arch Coal up

Elsewhere, a trader said that Arch Coal's 7¼% notes due 2021 were up 3½ points on the session, last trading at 78¼ on volume of about $6 million.

He saw Arch Coal's 7¼% notes due 2020 up about 2 points, last trading at 78¾ bid, also on volume of about $6 million.

He saw no fresh news out about the St. Louis-based coal producer that might explain the rise.

Forest firms on credit facility

Also in the energy sphere, a trader said that Forest Oil announced a new credit facility, giving a boost to the Denver-based energy exploration and production company's 7¼% notes due 2019. "It looks like that one traded up a little bit, between ½ and 1 point," he said.

More than $15 million of those bonds changed hands, a market participant said, pegging them around 88½ bid.

Those bonds had been trading at or near par as recently as mid-February - but they plunged, first to 90 bid on Feb. 26 after Forest reported bad fourth-quarter numbers and indicated it would reduce its operations in the lucrative Eagle Ford Shale geologic formation in southern Texas.

The bonds ultimately fell as low as just under 82 bid in early March before making a partial recovery later in the month to around current levels.

Forest disclosed in a regulatory filing on Tuesday that it had entered into a new credit facility amendment.

The amendment decreases total commitments under the credit facility to $500 million from $1.5 billion, which may be increased by up to $300 million total, and reduces the borrowing base to $300 million until the next regularly scheduled borrowing base redetermination date on Nov. 1, 2014.

The lenders also agreed to amend the facility to provide for an increase in the permitted maximum total leverage ratio of debt as a multiple of EBITDA, setting a 5.75 times ratio at the end of the calendar quarters ending March 31, June 30 and Sept. 30, 2014. That will drop to 5.5 times at the end of the calendar quarter ending this coming Dec. 31 and will continue to ratchet downward next year to 4.5 times at the end of any calendar quarter ending after Sept. 30, 2015.

Claire's Stores gets clobbered

A trader said that Claire's Stores reported earnings "and they were kind of ugly - they replaced the CEO, that sort of thing."

He didn't see any immediate trading in the company's bonds in the wake of that late-session report.

However, another trader, who called the number "weak," said the retailer's 9% notes "are probably down a couple of points - probably in the neighborhood of about 3 points" to end at 101 bid.

He said its 8 7/8% notes "are probably going to shake out on either side of 90," which he called down 3 to 5 points on the day.

A market source at another desk saw the latter bonds finishing at 87½ bid, down 5½ points from their late Monday levels, on volume of over $4 million. The bonds had actually risen to an intraday high of 943/4, up 1¾ points on the day, but slid badly in the late afternoon after the news was announced.

The Hoffman Estates, Ill.-based specialty retailer said that for the 2013 fiscal fourth quarter ended Feb. 1, net sales fell by $57.9 million, or 11.7%, to $435.5 million.

Claire's said the slide was partially attributable to having 14 weeks in the year-ago quarter versus just 13 in the latest period - but it acknowledged that even adjusting for that discrepancy, sales still would have fallen by some 7.3% year over year.

Consolidated same-store sales - the retailing industry's key performance metric - fell by 10.7% from a year ago.

Adjusted EBITDA slid to $93.3 million in the quarter from $129.6 million a year earlier.

Claire's also announced that James D. Fielding, the Company's chief executive officer, had resigned. The board of directors appointed Beatrice Lafon, up till now the president of Claire's European operation, as the company's new CEO, effective Wednesday.

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