NewPage notes seen 'cratering'; Local Insight Regatta recovering losses; broad market declines

By Stephanie N. Rotondo

Portland, Ore., Aug. 19 - Trading in the secondary world "started off great, then it got subdued," a trader reported Thursday.

The trader said the weaker tone of the market was "exacerbated by the stock market getting beat up so bad."

For distressed bonds, that meant there was general market pressure and for those that succumbed to it, they got "beat up," the trader added.

Case in point was NewPage Corp., which continued to be one of the more actively traded credits. The bonds lost another 3 or so points on the day, in addition to the approximately 3 points lost on Wednesday. There was no news out on the company, but market players agreed that something was causing the declines.

Meanwhile, Local Insight Regatta Holdings Inc.'s debt continued to try to regain the 40-ish points it lost earlier in the week. Sources saw the bonds improving by 1 to almost 4 points, depending on whom you asked, adding to the 3 points incurred on Wednesday.

NewPage notes seen 'cratering'

NewPage debt was "still getting smacked," a trader told Prospect News.

The trader said the 11 3/8% notes due 2014 "lost a little more ground," ending around 80, with $40 million to $50 million trading.

The trader also saw the 10% notes due 2012 "down another couple points" to 341/2, while the "really sub stuff," the 12% notes due 2013, were "offered as cheaply as 18."

A second trader said the 11 3/8% notes were "down another almost 3 points," also around the 80 mark.

Yet another market source quoted the notes at 80 bid, 80½ offered, down from 83 bid, 84 offered.

"Those things started cratering yesterday," the trader said.

There hasn't been any news out on the Miamisburg, Ohio-based coated papermaker. But market sources agree that something is up.

"It's a little ugly out there right now for them," a trader said. "It's been brewing for awhile.

"It's definitely causing some angst," he added.

Earlier this month, the company posted a net loss of $174 million, a significant increase from the prior year's net loss. This resulted in a CreditSights research note, which said the company's "very thin" liquidity cushion could be its undoing come 2011.

Local Insight recovering losses

Local Insight Regatta Holdings' bonds regained more ground in Thursday trading, sources reported.

One trader called the 11% notes due 2017 up almost 4 points around 31. Another, however, said the bonds had only firmed by a point to about 303/4.

The second trader added that activity in the credit had died down from the previous session, with only about $12 million of the bonds changing hands.

On Tuesday, the Denver-based company announced its earnings, in which it warned that "the continued effects of the economic downturn, [the company's] declining revenue and its continued expenditures in connection with the rollout of Berry Leads have increased pressure on [the company's] ability to maintain compliance with its financial covenants.

"This pressure has further increased because the financial covenants contained in the company's credit facilities will become more stringent for the period July 1, 2010 through June 30, 2011," the company said. "As a result of these factors, it is likely the company will breach the covenants under its credit facilities at September 30, 2010 and at December 31, 2010."

The warning resulted in an approximately 40-point loss in the bonds, sending them from the 60s to the 20s.

On Wednesday, the bonds began to make a comeback, gaining about 3 points on the day. Thursday continued that rally and one trader opined that the two-day improvement was a function of the debt falling too far too fast.

The trader said that it was typical of late for investors to have that "knee jerk reaction" to bad news. "We're seeing that a lot."

But once the initial decline is done, "it takes some time to realize [the bonds] are probably worth more than 20 cents on the dollar."

Local Insight is evaluating its options as to how to deal with the expected covenant breaches. At the end of the second quarter, the company had a total of $537.4 million of debt on its books.

Broad market declines

Among other goings-on in the distressed debt realm, General Motors Corp.'s benchmark 8 3/8% notes due 2033 fell in sympathy with the wider market, dipping to 341/2, a trader said.

Another trader said that Mohegan Tribal Gaming Authority's 6 1/8% notes due 2013 had fallen about a point to around 793/4. He noted that the bonds had lost about 4 points since Tuesday.

Transocean Inc. meantime slipped slightly in Thursday trading, The 7½% notes due 2013 were seen at 98 3/4, and the 6.80% notes due 2038 at 953/4.

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