New Rock-Tenn bonds move up in aftermarket; Abitibi, phone directory names continue slide

By Paul Deckelman and Paul A. Harris

New York, Feb. 29- Rock-Tenn Co.'s newly priced bonds were heard to have moved up smartly in Friday's session, up several points from the discount level at which those bonds priced during Thursday's dealings.

Back among the established names, AbitibiBowater Inc.'s bonds continued Thursday's slide, as did such telephone directory names as Idearc Inc., R.H. Donnelly Corp. and the latter's Dex Media Inc. subsidiary.

Also seen lower again was Thornburg Mortgage Inc., whose bonds had swooned badly on Thursday on the company's revelation that it has been the subject of several hundred million dollars of margin calls associated with a portfolio of securities backed at least in part by alt-A mortgages.

General Motors Corp. bonds were lower, as a strike at one of its key parts suppliers has forced the temporary shutdown of four assembly plants.

With the Rock-Tenn offering now finally out of the way - the first new junk deal to price in two weeks - primary sphere players sank back into their comfortable mid-winter slumber.

Market indicators lose more ground

A trader said that the widely-followed CDX index of junk market performance was off by ½ point Friday to 87½ bid, 88 offered. Meanwhile, the KDP High Yield Daily Index lost 0.43 to end at 73.75, while its yield widened by 9 basis points to 9.68%.

In the broader market, declining issues led advancers by a five-to-three margin. Overall activity, reflected in dollar volumes, fell by about 23% from Thursday's levels.

A trader described the day's results as "pretty ugly."

However, another said that considering the way equities were getting creamed - the bellwether Dow Jones Industrial Average slid 315.79 points, and broader market indexes were down big as well - "to be honest, our market hung in there, for the most part."

New Rock-Tenns roll

This was nowhere more evident than in the behavior of the new Rock-Tenn 9¼% notes due 2016, which had priced on Thursday at a discount to par in order to get the Norcross, Ga.-based packaging company's deal done.

The trader saw the bonds at 101.25 bid, 102 offered, "kind of where they started trading" on the break. That was well up from the 99.30 level at which the bonds had priced.

"The first trade was at 101.25, and they stayed there all day."

Another trader situated the bonds at 101.25 bid, 101.75 offered, while yet a third was quoting them at 101 bid, 102 offered.

More investor Abitibi angst

Back among the established issues, traders saw the bonds of AbitibiBowater continuing to retreat on the heels of the big downturn seen during Thursday's session after the Montreal-based forest products company announced a sizable loss for the fourth quarter and also acknowledged that it has not yet managed to refinance issues of its bonds slated to come due in April and in June.

A trader saw AbitibiBowater's 6.95% notes due on April 1 at 87 bid., 89 offered, down from 90 bid, 92 offered on Thursday, while its 5¼% notes maturing on June 20 were at 82 bid, 84 offered, down from 84 bid, 86 offered. Among the longer-term issues, 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 of maturing debt] due this year - but people are skeptical about whether they can do it."

Another trader saw the 6.95s at 87 bid, 87.75 offered, and the 51/4s at 83 bid, 85 offered. Among its intermediate-term bonds, the company's 7.95% notes due 2011 were at 64 bid, 65 offered, its 8 3/8s due 2015 at 51 bid, 53 offered and its 6% notes due 2013 at 50 bid, 52 offered.

A market source pronounced the 7.95s down more than 4 points on the day at the 65 level, and looking at the longer paper, pegged the 8.85s down around 3 points at 48 bid, although those bonds had gone as low as 42 during the session before firming from that nadir.

Abitibi's New York Stock Exchange-traded shares - which fell 11.49% in Thursday's dealings after the company released its numbers - plummeted another $4.28, or 29.2%, on Friday to end at $10.35. Volume of 5.1 million shares was nearly five times the norm.

AbitibiBowater - created last year by the merger of the former Abitibi-Consolidated Inc. of Montreal and what was Greenville, S.C.-based Bowater Inc., a deal completed in October - announced Thursday that in the fourth quarter it lost $250 million, or $5.09 per share. Excluding one-time special items, the adjusted loss came in at $115 million or $2.34 per share. The figures were considerably greater than the year-earlier losses, which only reflected the Bowater results.

While expectations were high that the combination of the two companies to form one of the largest forest products concerns in North America would yield economies of scale and size that would allow the new entity to be greater than the sum of its parts, AbitibiBowater has struggled with weaker demand and falling prices for its newsprint and lumber products. The strength of the Canadian dollar, particularly against its U.S. counterpart, has also hurt sales of its Canadian pulp and wood products outside of that country.

Along with the results, the company on Thursday discussed its financing plans and liquidity needs, acknowledging in its statement that the upcoming maturities of its short-dated bonds originally issued by Abitibi-Consolidated - $200 million for the 6.95s and $150 million for the 51/4s "have not yet been refinanced" and remain "among other liquidity needs that must be addressed."

While AbitibiBowater said it "has been reviewing multiple financing alternatives to develop additional liquidity for the remainder of 2008 and 2009," it also admitted that "continued negative conditions in the credit and capital markets, as well as the difficult industry operating environment, are challenging its ability to obtain such financing."

On Friday, after having studied Thursday's results and having listened to the company's conference call with investors that followed the release of the results, equity analysts for Deutsche Bank and Banc of America Securities lowered their price target for the company's shares - considered a vote of no confidence on Wall Street.

Deutsche's Mark Wile declared in a research note to clients that "based on the high operating costs demonstrated in the fourth quarter" - they were up substantially in all segments, except newsprint - "we think that our [prior] estimate of break-even by fiscal 2009 was too optimistic." His opposite number at B of A, George Staphos noted the impact of the strong Canadian dollar on AbitibiBowater's sales, as reflected in the quarterly results, as along with what he termed worse-than-expected pricing and fundamentals for wood products and poor newsprint consumption trends.

Idearc, Donnelley continue retreat

Also continuing to fall Friday were the bonds of telephone directory companies such as Idearc, rival R.H. Donnelley and the latter's Dex Media subsidiary.

A trader saw Cary, N.C. -based Donnelley's 6 1/8% notes at 61 bid, 62 offered, "down another 4 points." He noted they had been trading at 80 earlier in the week.

"That continued pretty ugly," he said with no small amount of understatement.

He also saw the 8% notes due 2016 of Donnelley's Dallas-based rival Idearc 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.

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

A market source said that Donnelley's 8 7/8% due 2016 were off by 5 full points to the 60 bid level, while the Idearc bonds fell even more, by 6 points, to that same 60 level

Donnelley's shares - which had plunged by 47.5% on Thursday after the company released lower-than-expected forward guidance and announced the unexpected resignation of a key executive, interactive unit president Jake Weinbaum - dropped another $2.25, or 24.09%, to $7.09 on the NYSE on Friday, on volume of 22.7 million, or 11 times the usual turnover. Idearc, affected by the same industry dynamics as Donnelley, pretty much came along for the downside ride, falling 94 cents, or 16.32%, to $4.82 on the NYSE. Volume of 13.3 million shares was about 5 times the average daily turnover.

A trader said of the latter company that he thought Idearc is "solid, their outlook is OK and they're free-cash-flow positive," so he is surprised by the recent fall in the company's bonds. He concluded that "people are spooked" by the announcement earlier in the week that chairman and chief executive officer John Mueller - who was just appointed to those positions about 10 days ago - is now suddenly leaving the company due to health concerns, creating further investor uncertainty about its future.

Thornburg a loser, again

Yet another credit seen doing worse after having plunged Thursday was Thornburg Mortgage. The Santa Fe, N.M.-based mortgage originator - whose 8% notes due 2013 lost about 8 points in busy dealings on Thursday - fell 2 additional points to 79 bid, 81 offered.

Another trader saw Thornburg at 80 bid, 82 offered, "down a couple [of points] from where they went back to yesterday" as they bounced off their lows to end Thursday's session around 82 bid.

Thornburg's bonds had nosedived in response to company disclosures that it had paid about $300 million to cover margin calls on a $2.9 billion portfolio of securities backed by below-prime alt-A mortgages - and on company warnings that it might have to sell assets to raise cash to meet further margin calls.

GM bonds in reverse

Traders saw General Motors' bonds lower, with one quoting its benchmark 8 3/8% bonds due 2033 down 2 points at 77 bid, 79 offered, while another saw them a point down at 77 bid, 78 offered.

There were differing opinions as to whether the slide was linked to the news that GM has now temporarily closed a total of four plants that make Chevy Silverado and GMC Sierra pickup trucks due to a labor strike at key parts supplier American Axle & Manufacturing Corp. The latter's 7 7/8% notes due 2017 were meantime seen unchanged at 85.5 bid, 86.5 while its 5¼% notes due 2014 lost ½ point to 80 bid, 81 offered.

A trader noted that GM can afford to cut production right now because it has a sizable backlog of unsold vehicles, but cautioned that "if [the strike] lasts too long, [GM] may be in trouble."

Ends with a whimper

A syndicate official, who remarked that the Friday session produced no primary market news whatsoever, noted that the final three sessions of February each saw junk trade lower.

However, the source said, there is one ray of light: Rock-Tenn Co.'s new 9¼% senior unsecured notes due 2016 were holding in above issue price at Friday's close.

"That's extremely good news," the investment banker insisted.

"That's exactly what investors want to see...whether or not new bonds can hold their value once they are priced and begin to trade in the secondary.

"I don't think this will open the floodgates - especially where the LBO risk overhang is concerned - but at least it's a good start."

Rock-Tenn priced its $200 million issue (Ba3/BB-) at 99.30 to yield 9 3/8% on Thursday.

The yield came on top of the 9 3/8% area price talk.

Initially the deal was expected to price Friday, however early Thursday it was announced that pricing had been moved up.

An informed source, describing the deal as a blowout, said that the order book was five-times oversubscribed.

Banc of America Securities, Wachovia Securities and SunTrust Robinson Humphrey were joint bookrunners for the corporate-to-corporate acquisition financing deal.

The bond portion of the financing was downsized from $400 million.

Almost no calendar

As the shutters close on the month of February 2008, there is virtually no new deal forward calendar.

Ainsworth Lumber Co. Ltd. is in the market with $50 million to $75 million of six-year senior secured first-lien notes via Barclays Capital.

The deal is being marketed without an investor roadshow.

Ainsworth brings the new notes to market concurrent with and exchange offer for $153.5 million of senior floating-rate notes due 2010, $275 million of 7¼% senior notes due 2012, $75 million senior floating-rate notes due 2013, $210 million 6¾% senior notes due 2014 and $110 million 6¾% senior notes due 2014.

The new notes offer is backstopped by certain holders of the existing notes in return for warrants to purchase up to 7,887,998 of the company's common shares, representing approximately 35% of the currently outstanding shares.

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