Tropicana fights for its rights; Vertis slips; Primus lower despite better 4Q; Standard Pacific dips

By Stephanie N. Rotondo

Portland, Ore., Feb. 14 - There was some love lost during Valentine's Day trading, as distressed bonds gave back early morning gains.

"It was generally quiet," said one trader.

"Things were strong in the morning, sliding back in the afternoon," said another.

The strong start and not-so-great finish followed the trend set by the equity side, which lost ground after Federal Reserve chairman Ben Bernanke warned of a worsening economy.

Still, the day could only be categorized as mixed at best.

Tropicana Entertainment LLC is continuing its fight against its bondholders, who are alleging that the company is now in default on its indenture. But as the fight goes on, its bonds have so far been unaffected, and traders reported that the debt closed the session unchanged.

The publishing sector has taken a hit already this year, which started off with Quebecor World Inc.'s default on its bonds. But now Vertis Inc. is the object of attention. That name lost as much as 4 points on the day.

According to a trader, Primus Telecommunications Group Inc.'s fourth-quarter results, released Wednesday, were "not that bad ... I thought they were pretty good." Despite that, the company's bonds remain on the quiet side, though they have been quoted lower.

The market is still trying to figure out what the story is behind Standard Pacific Corp.'s recent increases. According to one trader, there are "drastically opposing views" on the outlook for the homebuilder. Wherever the truth may lie, the company's bonds declined during trading, after posting gains all week.

Tropicana fights for its rights

Tropicana Entertainment's debt went out unchanged, a trader said, as the company went to a judge to settle the default issue with its bondholders.

The trader said the 9 5/8% notes due 2014 were unchanged at 53 bid, 54 offered, while another said there was little to no activity in the name.

The casino operator asked a judge to rule whether the company's loss of its gaming license, and the subsequent turnover to an appointed trustee, constituted a default under the indenture. The bondholders are maintaining that it is in fact a default and that gross mismanagement on the company's part resulted in losing its gaming license.

Tropicana was denied a license renewal late last year by the New Jersey gaming commission. The company therefore was forced to put its Atlantic City property up for sale.

"I think the bondholders are trying to keep their options open," a trader said. Proceeds from the sale of the property, as well as another casino in Evansville, Ind., will likely be used to pay bank debt, which could leave little to no recovery for bondholders. By alleging default, the bondholders are trying to find "better footing than the bank debt," the trader said.

And, as the Tropicana is considered the "crown jewel" of the company's assets, there would be little left over for bondholders. Thus, the group is alleging a "technical default."

"I don't see how, though," the trader opined.

According to the trader, a bank debt conference call was held Thursday. He said he was not sure what came out of the call but believed it focused on the pending asset sales.

Elsewhere in the gaming sector, fellow Atlantic City native Trump Entertainment Resorts Inc.'s bonds were also deemed unchanged by a trader, the 8½% notes due 2015 quoted at 69.5 bid, 70 offered. At another desk, a trader pegged the bonds at 69.5 bid, 70.5 offered.

Vertis takes beating

Vertis' paper got "beaten up," a trader said, as the publishing company took its turn in the sector meltdown.

The trader called the company's bonds down 3 to 4 points, its 10 7/8% notes due 2009 at 39 bid, 40 offered.

"Publishers, that has just been a sector that's gotten beaten up," the trader said, referring to fellow publisher Quebecor World's financial struggles. "It's just Vertis' turn."

At another desk, a trader quoted the 10 7/8% notes at 40 bid, 41 offered and the 9¾% notes due 2009 at 83.5 bid, 84.5 offered.

Vertis has been struggling since last year when a merger with American Color Graphics went belly up. Still, the company said in November that it has enough liquidity for at least the next year.

Primus numbers better, bonds lower

Despite better quarterly numbers, activity in Primus Telecommunications' bonds has not picked up. One trader, however, did note that the debt has been quoted lower.

The trader said the 8% notes due 2014 were quoted in the high-40s, while another trader pegged that issue at 47 bid, 49 offered. The second trader also saw the 3¾% notes due 2010 at 54 bid, 57 offered.

On Wednesday, Primus reported its fourth-quarter and full-year results for 2007. Revenue was stable at $224 million, compared to $225 million the previous quarter. Net income declined from the previous quarter to a loss of $5 million from an income of $2 million.

Still, the company managed to shrink its debt to $664 million from $679 million.

Standard Pacific gives back some gains

After several sessions of gains, Standard Pacific's bonds backed off slightly, as "better sellers" came in.

A trader placed the 5 1/8% notes due 2009 down just a tad to 88 bid, 88.75 offered. He noted that the bonds have "been running up the past couple days," adding that they were only "slightly worse" during Thursday trading.

Another trader saw the 7% notes due 2015 at 70 bid, 71 offered, "about where they had been [before]."

Recently, traders have reported that more investors are taking an interest in the Irvine, Calif.-based homebuilder. Some have said that they are the strongest of a weak sector, while others have no explanation for the debt's performance.

"There are drastically opposing views," the trader said. "One camp thinks that they can survive." The other is not so optimistic.

In fact, some market players have suggested that the company's probability of default on its debt, coupled with its breach of certain bank covenants, equal a not-so-rosy view - especially for equity holders, given the company's current stock price.

Still, the bond trader opined that the name holds intrigue not only for the high-yield sector, but for crossover investors as well.

Elsewhere in the housing sphere, Beazer Homes USA Inc.'s 6 7/8% notes due 2015 were "a little higher" in a "73ish" level, up 1.5 points.

Broad market mixed

Charter Communications Inc.'s bonds inched up during the session, after sliding all week. A trader said the end-of-week increase was "probably a reaction to Comcast [fourth-quarter results]."

The trader quoted the 11% notes due 2015 at "close to 68."

Retailers continued to gain momentum, following gains in the previous session. A trader pegged Blockbuster Inc.'s 9% notes due 2011 at 82 and Michael's Stores Inc.'s 11 3/8% notes due 2016 at 81. He said there was "not much difference" in Bon-Ton Stores Inc.'s 10¼% notes due 2014, placing the bonds at 68 bid, 69 offered.

Spectrum Brands' 7 3/8% notes due 2015 were slightly lower at around 63.

Visteon loan up on positive numbers

Visteon Corp.'s term loan traded up during market hours as the company released fourth-quarter and full-year 2007 results that people found to be somewhat positive, according to a trader.

The term loan was quoted at 79 bid, 81 offered, up from 77 bid, 80 offered, the trader said.

On the bond side, the 7% notes due 2014 were a point better at 66 bid, while the 8¼% notes due 2010 were up 1.5 points to around the 82.5 level.

For the fourth quarter, Visteon reported a net loss of $43 million, or $0.33 per share, on sales from continuing operations of $2.9 billion. By comparison, for fourth-quarter 2006, the company reported a net loss of $39 million on sales from continuing operations of $2.8 billion.

The fourth-quarter net loss includes $30 million of non-cash asset impairments and $32 million of restructuring expenses that were not eligible for reimbursement from the escrow account.

EBIT-R for the fourth quarter was $15 million, an improvement of $52 million over the same period of 2006.

The company generated $331 million of cash from operating activities during the quarter, an increase of $92 million, or 38%, compared to fourth-quarter 2006.

And, free cash flow was $187 million for the quarter, an increase of $56 million over last year.

"For the fourth quarter and full year 2007, Visteon delivered on the financial guidance we provided," said Michael F. Johnston, chairman and chief executive officer, in a news release. "We continue to progress with our restructuring activities as planned, and have now completed 18 of the 30 items that are part of our three-year plan. By implementing our restructuring and continuing to improve our operations and global capabilities, we are positioning Visteon for long- term success."

For full-year 2007, Visteon reported a net loss of $372 million, or $2.87 per share, on sales from continuing operations of $11.3 billion. By comparison, for full-year 2006, the company recorded a net loss of $163 million, or $1.27 per share, on sales from continuing operations of $11.3 billion.

The net loss for 2007 includes $107 million of non-cash asset impairments and $32 million of restructuring expenses that were not reimbursed from the escrow account.

EBIT-R for the year was negative $49 million compared with positive $27 million in the same period of 2006.

Cash provided from operations totaled $293 million, compared with $281 million for full-year 2006.

For full-year 2008, the company expects EBIT-R to be in the range of negative $25 million to positive $25 million on product sales of about $9.7 billion, and free cash flow is projected to be in the range of negative $350 million to negative $250 million.

"The progress Visteon is making, combined with what we will execute in 2008, lays the foundation for Visteon to be free cash flow positive in 2009," Johnston added in the release. "With almost $1.8 billion of cash as of year-end 2007 and additional available liquidity, Visteon has flexibility to execute its plans."

Visteon is a Van Buren Township, Mich.-based automotive supplier.

Sara Rosenberg and Paul Deckelman contributed to this article.

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