Spansion gains ground; Blockbuster bonds firm; Nortel notes end sideways; broad market better

By Stephanie N. Rotondo

Portland, Ore., Oct. 6 - The distressed debt market ended Tuesday with a mostly firm tone, despite starting the day basically unchanged, traders reported.

Spansion Inc., for example, gained about 3 points on the day. There was no fresh news to explain the gains, but traders did note that the company's recent news regarding its reorganization plan was well received by the market.

Meanwhile, Blockbuster Inc. saw rather heavy trading, also on no news. And, the issue traded slightly higher, reversing its recent downward direction.

Nortel Networks Corp.'s paper finished the session largely unchanged. The bonds had moved up some in the previous trading day on news it was in talks with a potential buyer of its Ethernet business.

Spansion gains ground

Traders saw Spansion's bonds continuing to trend upward as the company readies to exit Chapter 11 protections.

A trader said the floating-rate notes due 2013 jumped 3 points on the day to 106.5 bid, 108 compared with closing levels Monday of 102 bid, 103 offered. Another quoted the issue at 107.5 bid, 109 offered, and also saw the 11¼% notes due 2016 at 93.5 bid, 94.5 offered.

"The market has gotten a lot better for what they do," the first trader said. Still, he conceded that "it is crazy" that a bankrupt company's debt was trading above par.

"They are just creeping higher," said the second trader.

Last week, Sunnyvale, Calif.-based Spansion said it had reached an agreement with a bondholder group and other creditors regarding key terms of its reorganization plan. Under the plan, the floating-rate noteholders will get cash, new debt and new equity.

Spansion expects to exit bankruptcy late in the fourth quarter or early in 2010.

Blockbuster bonds firm

Blockbuster paper traded actively throughout the session, but with no fresh news, traders were uncertain as to what caused the interest.

One trader said as much as $40 million of the 9% notes due 2012 changed hands. He saw the notes gaining "a little bit" to end around 60 1/8.

Another trader quoted the issue at 60 bid, 61 offered, compared with a low around 58 on Monday.

The second trader also saw the Dallas-based movie rental chain's new issue, the 11¾% notes due 2014, heading higher, closing at 94.5 bid, 95 offered.

Blockbuster's debt had experienced a run-up when the company said it was launching a new issue to repay some of its outstanding bank debt. Though there was some indecision in the market about whether the deal got done, it did indeed hit the market.

But once the new issue came, the recent gains in the old notes suddenly began to wane. The bonds hit a low in the mid-50s in the last few sessions.

The new notes also contain a clause allowing holders to require the company to buy back the notes should the old notes not be refinanced by a certain date.

Nortel ends sideways

Nortel Networks' notes were "very sideways," a trader said, just one day after the company said it had a buyer for its Ethernet unit.

The trader said the 10¾% notes due 2016 "traded all around" a 59.5 to 60.25 range "all day," which was basically the same level it had been Monday. He said the 6 7/8% notes due 2023 were also unchanged at 32.5 bid, 24 offered.

Another trader saw the bonds "tick up to the 60s," pegging the 10¾% notes in a 59.5 to 60.5 range. However, while he said that "60 is a new handle" for the issue, "it didn't stay there," leaving him to pronounce the bonds essentially unchanged.

"They traded in both halves" of that range," he said. "If they left it at 601/2, they'd be up half a point, at 591/2, down a quarter. There's no real change, but they traded at the high and traded at the low, remaining unchanged."

Still, he said, there was "good volume in that name."

On Monday, Toronto-based Nortel confirmed it was in "advanced discussions" with Ciena Corp. to sell of its optical networking and carrier Ethernet assets. The potential sale is just one of several the company has undertaken in an effort to pay off creditors and to emerge from bankruptcy with its core assets intact.

Broad market mostly better

Among other active traders, CIT Group Inc.'s 5.65% notes due 2010 saw some action, with about $40 million trading, according to a trader.

The trader said the paper was "definitely up another point or so" at 87 3/8.

Meanwhile, Energy Future Holdings Corp. - also known as TXU Corp. - saw its 10 7/8% notes continued to be active. About $45 million of the issue changed hands, though it ended unchanged - or "within a point for sure" - at 69.5.

A trader saw Smurfit-Stone Container Enterprises Inc.'s bonds, like its 8 3/8% notes due 2012 and 8% notes due 2017, around a 70 to 71 context, "so that's up a couple of points, although there was not a lot of volume."

At another desk, a market source likewise saw the company's Jefferson Smurfit Corp. 8¼% notes due 2012 up nearly 2 points on the session, at 70 bid.

Swift Transportation Co.'s 12½% notes due 2017 was up as much as 2 points on the day, at 75 bid, 77 offered.

A trader noted that K. Hovnanian Enterprises Inc. did a new deal on Monday, "so that's why you're getting activity in that name.

"The new issue seemed to bring out the other paper," he said. He saw the company's existing 6¼% notes due 2016 up a point around 77, although noting that "it was only one trade, it doesn't mean a whole lot."

He added that "they're quoted higher - call them a point higher - but there's not much trading away from the new issue."

Another trader meantime saw the Hovnanian 6 3/8% notes due 2014 gain more than a point on the day, to above the 80 level.

Paul Deckelman contributed to this article.

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