R.H. Donnelley, Idearc lower; Abitibi slips on refinancing worries; Delphi still looking for exit funds

By Stephanie N. Rotondo

Portland, Ore., Feb. 29 - The distressed bond market took a downturn along with its equity counterparts during Leap Day trading Friday after a week of overall firmness.

"For the most part, the market seemed stronger over the week," a trader said. "With what was going on with the stocks [Friday], there was some general market weakness."

As the Dow Jones Industrial Average fell more than 300 points, the junk sector took a hit as well - though some names under that umbrella already seemed to be heading in that direction.

According to one trader, R.H. Donnelley Corp. and its peer, Idearc Inc, along with AbitibiBowater, Inc. - to name a few - topped the "biggest losers" list for the week.

Sector pressures prompted R.H. Donnelley and Idearc's bonds to fall as much as 10 points over the week, as concerns about advertising revenue continued to grow. It was for that reason that Moody's Investors Service downgraded Idearc earlier in the week and why R.H. Donnelley lowered its 2008 forecast.

It is no secret that the forest products industry has come under fire. A housing slump decreased demand for lumber, and the move from print media to online venues has caused demand for newsprint to plummet. The latter was pointed to as the reason for AbitbiBowater's recently reported quarterly loss. But as that problem does not seem to have a solution, the company is seeing its debt fall. With more than $300 million in debt maturing though 2009, the company is reportedly looking into refinancing options, but with the credit markets as they are, some investors are worried.

Speaking of troubled credit markets, Delphi Corp. is continuing its struggle to obtain the financing it needs to exit bankruptcy. As such, the company requested more time to try to find the funds, without having to revise its reorganization plan. The company said it still hopes to emerge "as soon as is practicable," but wanted the previous date of March 31 moved back two months.

But that news came as no surprise to the market, and the automotive parts supplier's bonds remained relatively inactive.

R.H. Donnelley, Idearc drift lower

R.H. Donnelley and Idearc were under pressure over the week, with both names losing about 10 points from their starting levels.

A trader quoted R.H. Donnelley's 8 7/8% notes due 2016 at 58 bid, 59 offered, calling that down 6 points on the day. At another desk, a trader pegged the 6 7/8% notes due 2013 at 57 bid, 58 offered and the 8 7/8% notes due 2017 at 58 bid, 59 offered.

Another source saw the 2016 issue end the week at 58 bid, 59 offered, down from Monday's levels of 69 bid, 70 offered. The trader also saw sector peer Idearc's 8% notes due 2016 at 58 bid, 60 offered, compared to 68 bid, 69 offered at the start of the trading week.

Another trader said Idearc's debt closed at 59 bid, 60 offered.

Elsewhere, a trader called R.H. Donnelley's 6 1/8% notes "down another 4 points" at 61 bid, 62 offered. He noted they were trading at 80 earlier in the week.

"That continued pretty ugly," he said.

The trader also saw Idearc 8% notes at 58.5 bid, 59.5 offered, down from 63 bid, 64 at the opening and from 64 bid, 65 offered at Thursday's close.

R.H. Donnelley-owned Dex Media Inc.'s 8% notes due 2013 lost 5 points to end at 71.

Early in the week, Idearc's bonds began to lose ground after Moody's Investors Service downgraded the company's debt and Idearc's top executive resigned, citing "unforeseen health problems." The downgrade was based on the directory publisher's poor quarterly performance and continued concerns about declining advertising sales.

On Thursday, R.H. Donnelly posted its fourth-quarter results and lowered its 2008 guidance. While the company's rating has thus far been unaffected by the weaker forecast, Standard & Poor's has placed the company on CreditWatch, with a negative outlook. Idearc also made that list.

R.H. Donnelley and Idearc are yellow pages publishers and online local search companies. R.H. Donnelley is based in Cary, N.C., and Idearc has headquarters in Dallas.

Abitibi: To refinance or not

AbitbiBowater continued to be an actively traded name in the distressed arena, and its bonds continued to suffer.

A trader said shorter-dated paper, such as the 6.95% notes coming due in April 2008 and the 5¼% notes maturing in June 2008, where among the hardest hit as investors grew more concerned about whether the company would be able to refinance its upcoming maturities. The trader quoted the April issue at 87 bid, 88 offered and the June paper at 84 bid, 85 offered.

But longer-dated issues were not immune to the losses, which had built up over the week and were added on to after the company posted a $250 million loss for the fourth quarter. The trader said issues such as the 7.4% notes due 2018, the 7½% notes due 2028 and the 8.85% notes due 2030 were trading in the high-50s are were steadily drifting lower.

Another trader pegged the 8½% notes due 2029 at 46.5 bid, 48.5 offered on Friday, down from Monday's levels of 52.5 bid, 53.5 offered.

At another desk, a trader saw the 6.95% notes at 87 bid., 89 offered, down from 90 bid, 92 offered on Thursday, while its 5¼% notes were at 82 bid, 84 offered, down from 84 bid, 86 offered. In the longer term, he saw the 8.85% bonds due 2030 fall to 46 bid, 48 offered from 49 bid, 51 offered.

"They're trying to do a deal," he said. "They have two bond payments [totaling about $350 million] due this year - but people are skeptical about whether they can do it."

Another trader placed the 6.95% issue at 87 bid, 87.75 offered and the 5¼% notes at 83 bid, 85 offered. Among the longer-dated bonds, the company's 7.95% notes were at 64 bid, 65 offered, its 8 3/8s at 51 bid, 53 offered and its 6% notes at 50 bid, 52 offered.

As the forest products industry continues to suffer in the current economic climate, Fitch Ratings downgraded the company on Feb. 21, placing the company square in distressed territory. Abitibi also made S&P's CreditWatch/outlook negative list.

AbitibiBowater produces newsprint and commercial printing papers, market pulp and wood products. It is based in Montreal.

Delphi searches for exit funds

Delphi's exit financing credit facility has fallen victim to the currently volatile primary market conditions, causing the company to ask for an extension to emerge from Chapter 11 to May 31 from March 31, according to court documents.

"This is not unexpected as they had hinted at it for a while [given] the way the market is," a market source told Prospect News.

The source went on to say that he thinks General Motors Corp. "will do something" to help remedy the situation. When asked what that fix might be, he said he wasn't sure but General Motors "probably will take some sort of note."

Earlier in the month, GM said it was looking at financing alternatives with its supplier offspring. GM said one of the options on the table was increasing its contribution toward the exit facility.

In early January, the company launched its $6.125 billion exit facility consisting of a $1.6 billion ABL revolver talked at Libor plus 250 bps, a $3.7 billion first-lien term loan (Ba3/B+) talked at Libor plus 450 bps and an $825 million second-lien term loan (B3/B-).

The first-lien term loan was launched with an original issue discount of 96 and call protection of 102 in year one and 101 in year two.

For weeks now, market sources have been saying that revisions to the Delphi deal are being contemplated and would be necessary for syndication to be successful; however, nothing official has been announced.

Of the total second-lien term loan amount, $750 million is expected to be issued to General Motors in connection with plan of reorganization distributions.

Originally, the second-lien loan was going to be sized at $1.5 billion, but it was downsized prior to launch as a result of a permanent improvement in liquidity as the company generated cash flow during the second half of 2007 in excess of the amount projected in its revised business plan.

JPMorgan and Citigroup are the lead banks on the deal that will be used to repay the company's debtor-in-possession financing facility, to fund other payments required upon emergence from Chapter 11 and to conduct post-reorganization operations.

In the recently filed documents, Delphi said that it must "still procure fully committed exit financing that will support implementation of the plan."

As the trader said, the news came as no surprise to bond investors. Delphi's debt has maintained its levels in the mid- to high-30s, as activity in the name has dwindled down considerably.

Delphi is a Troy, Mich.-based automotive electronics manufacturer.

Herbst loan better, bonds slip

Herbst Gaming Inc.'s term loan was better bid on Friday after a significant drop during the previous session on news that the company engaged a financial adviser to assist with an evaluation of strategic alternatives, according to a trader.

The term loan was quoted at 78 bid, 79 offered, compared to Thursday's levels of 75 bid, 79 offered, the trader said. Prior to the adviser announcement, the debt was quoted at 81 bid, 83 offered.

"Some guys were bottom fishing and trying to figure out how bad things were," the trader explained. "Nothing happening down sub-78. Guys are buying paper in the 78-79 context."

On the corporate debt side, a trader quoted the casino operator's 7% notes due 2014 at 22.5 bid, 23.5 offered, down from 37 bid, 38 offered at the beginning of the week.

On Thursday afternoon, Herbst said that it hired Goldman, Sachs & Co. to help evaluate various alternatives including a recapitalization, refinancing, restructuring or reorganization of its obligations or a sale of some or all of its businesses.

The company said that the move was a result of the recent impact from Question 5, the Nevada smoking ban and general economic weakness.

Herbst Gaming is a Las Vegas-based casino and slot route operator.

Broad market weaker

In mid-February, Pliant Corp. posted "record-breaking" numbers for the fourth quarter. But that has not stopped its bonds from being added to the week's "biggest loser" list.

The trader quoted the 11 1/8% notes due 2009 at 80.5 bid, 81 offered, down from 82 bid, 83 offered earlier in the week.

Charter Communications Inc.'s paper was weaker, a trader said. He attributed the slip to general weakness in the marketplace, placing the 11% notes due 2015 at 69.5 bid, 70 offered. Another trader quoted the bonds down a point, its 8 3/8% senior notes due 2014 at 91.5 bid, 92.5 offered and its 10% subordinated notes due 2014 at 45 bid, 47 offered.

Fitch placed the cable operator on Rating Watch, citing concerns over whether the company has enough liquidity through 2009.

Rite Aid Corp.'s 7.7% bonds due 2027 were off a point at 56 bid, 58 offered.

Sara Rosenberg and Paul Deckelman contributed to this article.

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