Smurfit-Stone cracks on Chapter 11 fears; Nortel slips more; Charter misses coupon; Masonite dips

By Stephanie N. Rotondo

Portland, Ore., Jan. 15 - The distressed bond market continued to be weak Thursday, with trading dominated by "stuff that was going into bankruptcy or was possibly going into bankruptcy," according to a trader.

The trader added that the market's weak tone - further exacerbated by negative earnings and negative forecasts - would likely continue.

"It was kind of hard to continue the [beginning of the year] rally," he said. "Maybe if we get a string of good news, it will go back up."

As the trader pointed out, the day was full of names that potentially could face - or already were facing - bankruptcy. Smurfit-Stone Containers Corp. was the newest to face speculation.

Fears of a looming bankruptcy weighed heavily on the company's bonds, which dropped 8 points before rebounding some by close of business. Traders reported that the debt was trading flat, versus Wednesday's session when the notes were still trading with accrued interest.

Nortel Networks Corp., meanwhile, continued its downward descent after filing for bankruptcy protections on Wednesday. The telephone parts manufacturer's bonds slipped another point on the day.

A missed coupon payment put pressure on Charter Communications Inc.'s bonds, sources said. The notes lost anywhere from 3 to 8 points on the day. Still, traders remarked that the missed payment was not a big surprise.

Masonite International Inc.'s term loan continued to retreat, a trend that began with a lender call held on Tuesday. Investors seemed worried over the discussions of that call and have pushed the debt lower for the last two sessions.

The bond market will close early on Friday and will be closed on Monday in honor of the Martin Luther King, Jr. holiday.

Smurfit-Stone cracks

Smurfit-Stone Containers' bonds were dubbed the "bond du jour to get the crap kicked out of it" by a trader, as bankruptcy fears plagued the debt.

The trader said at least $20 million bonds traded in each of the 8 3/8% notes due 2012, 8¼% notes due 2012 and 8% notes due 2017. He saw the notes hit a low around 8.5 before rebounding some to close at 12.5 bid, 13 offered, flat.

Another trader placed the 8 3/8% notes at 9 bid, 10 offered most of the day. He added that the debt crept back up "into the 12s" by market close.

At another desk, a source pegged the 8¼% notes at 12 bid, down nearly 5 points on the day.

The corrugated papermaker has struggled with falling demand, which prompted the company last month to state that fourth-quarter earnings would be "significantly" lower. Given that, many are concerned that upcoming debt payments will not be made.

According to a client note from Gimme Credit analyst Kim Noland, Smurfit has hired bankruptcy advisers and is looking to secure debtor-in-possession financing.

"We have noted Smurfit's business decline and liquidity problems but the company may file bankruptcy imminently," Noland wrote.

On the news, Standard & Poor's, Moody's Investors Service and Fitch Ratings all downgraded Smurfit's credit rating.

Nortel debt slips more

Trading in Nortel Networks' debt remained active, traders reported, just one day after the company filed for bankruptcy.

A trader said "$20-odd million" of the company's bonds, such as the 10 1/8% notes due 2013, changed hands. He quoted the debt generically at 17 bid, 17.5 offered.

Another trader pegged the bonds at 17.5 bid, 18.5 offered, a point lower than Wednesday's closing levels.

Nortel had about $100 million in interest payments come due Thursday. But the company, which is struggling to sell off units, instead elected to voluntarily file for Chapter 11, instead of being forced into it in the event of a default. Gimme Credit analyst Kim Noland wrote in a morning report that Nortel "likely chose to file in advance of a liquidity crunch so that its cash could assist its effort to reorganize, especially given a frozen lending environment where debtor-in-possession financing is hard to obtain."

Following in S&P's footsteps, Moody's cut Nortel's rating to Ca in response to the news.

Charter misses coupon, bonds fall

Charter Communications' bonds dipped during Thursday's session after the company failed to make about $74 million worth of interest payments.

One market source deemed the 8% notes due 2012 down more than 8 points to 78 bid. Another saw the 11 1/8% notes due 2014 and the 13½% notes due 2014 fall nearly 4 points to 2.5 bid, 4 offered and 4 bid, 6 offered, respectively.

At one desk, a trader said all the bonds ended weaker, with most of the issues "bid for flat."

Still, another trader called the 10¼% notes due 2014 unchanged to better around 50.

"Missing the coupon was not a surprise to anybody," he said.

Last month, Charter announced that it had hired Lazard LLC to begin discussions with noteholders regarding a potential restructuring. The St. Louis-based cable provider has 30 days to make up the missed coupon. Should it fail to do so, a bankruptcy might be imminent for the highly leveraged company.

Masonite continues to retreat

Masonite International's term loan lost some more ground on Thursday as more people seemed worried over the topics that were discussed in a lender call on Tuesday, according to a trader.

The term loan was quoted at 36 bid, 38 offered, down from 38 bid, 39 offered on Wednesday and 44 bid, 45 offered on Tuesday, the trader said.

The lender call was held earlier this week to talk about the company's future cash need and projections, and the topic of how much debtor-in-possession financing should a bankruptcy filing occur also was discussed.

Masonite had compliance issues with covenants related to EBITDA metrics as of June 30 and Sept. 30, and is currently operating under a forbearance agreement, but that agreement was set to expire on Thursday.

In addition, the company has a forbearance agreement regarding a default for failing to make an Oct. 15 interest payment on its senior subordinated notes due 2015 that expires on Jan. 31.

During the forbearance periods, the company is trying to develop an appropriate capital structure to support its long-term strategic plan and business objectives.

Masonite is a Mississauga, Ont.-based manufacturer of residential and commercial doors.

Sara Rosenberg contributed to this article.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.