Navistar drops on truck engine transition; Dynegy bonds radio silent on parent bankruptcy news

By Stephanie N. Rotondo and Sara Rosenberg

Phoenix, July 6 - Navistar International Corp. was Friday's nom du jour following a conference call in which the company said it was switching direction on its engines.

The company has struggled to create an engine that meets federal regulations and said Friday that it had decided to develop a whole new model instead of attempting to fix the old one.

But investors were not impressed, sending the bonds - and the stock - downward.

Meanwhile, there was little movement in Dynegy Holdings LLC paper on news the parent company, Dynegy Inc. had filed for Chapter 11 protections in order to facilitate a merger with the subsidiary.

"Guess that was already baked in," a trader opined.

Overall, trading in the distressed realm remained muted, given that many players remained out. A trader did note, however, that there continued to be "lots of offer-wanteds" circulating.

No luck for Navistar

Navistar's 8¼% notes due 2021 lost over 1½ points on the day following a conference call regarding its engines, a trader reported.

The trader placed the bonds at 95.

"It was the top trader," he said, seeing "nearly $30 million" bonds changing hands.

Another trader pegged the debt at 951/2, down from 96½ bid, 97 offered.

The stock (NYSE: NAV) meantime fell $4.38, or 15.21%, to $24.41, in well above average trading volume.

Navistar has struggled to gain approval for its next generation of diesel engines, which has weighed on the company's overall profile. On Friday, the company said it was switching gears, so to speak, and instead was looking to develop a new model that should roll out early in 2013.

Though the new engine might have a better shot at gaining federal approval - the engine will use liquid urea to help cut emissions - investors grew concerned about the costs associated with the transition and thus reacted negatively to the news.

Lisle, Ill.-based Navistar manufactures and sells commercial and military trucks, buses, diesel engines, recreational vehicles and chassis, as well as provides service parts for trucks and trailers.

Dynegy radio silent

Dynegy Holdings' parent company filed for bankruptcy protections Friday in order to facilitate a restructuring that includes the parent merging with the subsidiary.

The move did little for the bonds however.

"Almost nothing traded," a trader said. "I don't even see any quotes. I guess [the news] was already baked in."

The subsidiary filed for bankruptcy in November. Its plan of reorganization was approved Thursday.

Under the plan, creditors will receive between 59 cents and 89 cents on the dollar in cash and stock.

Standard & Poor's downgraded the parent company to D following the filing.

Dynegy is based in Houston.

PDVSA slips, Patriot holds on

Among other energy-related names, Petroleos de Venezuela SA's 9% notes due 2021 were seen down 3 points at 73, while the 8½% notes due 2017 lost a deuce to end at 83 3/8.

Patriot Coal Corp.'s 8¼% notes due 2018 were meantime deemed unchanged around 42, according to one trader.

Another trader called the issue "about unchanged," at 42 bid, 43 offered. That compared to 41 bid, 42 offered the day before.

Cengage loan up

Cengage Learning Acquisitions Inc.'s extended and non-extended term loans were stronger in trading on Friday on the back of news that the company completed an exchange offer for some senior notes, according to a trader.

The extended term loan was quoted at 86¾ bid, 87¾ offered, up from 86 bid, 87 offered, and the non-extended term loan was quoted at 93½ bid, 94½ offered, up from 92¾ bid, 93¾ offered, the trader said.

Under the exchange offer, the company exchanged about $710 million of its 10½% senior notes due 2015 for about $710 million of newly issued 12% senior secured second-lien notes due 2019.

The company also repurchased roughly $29 million of the 2015 notes from holders, leaving around $477 million of the debt outstanding after giving effect to the exchange.

A trader said the "leftover" 10½% notes fell to 72 bid, 74 offered, while the new 12% notes were trading in the low-90s.

In addition, Cengage disclosed late Thursday that its chief executive officer, Ronald G. Dunn, is retiring and assuming the role of executive chairman, and its chairman, David Shaffer, is retiring as well.

The company is in the advanced stages of a search to identify Dunn's successor.

Dunn's retirement will be effective upon his successor joining the company and Shaffer's retirement will be effective on Sept. 30.

Cengage is a Stamford, Conn.-based provider of teaching, learning and research services for the academic, professional and library markets.

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