R.H. Donnelley better, Idearc slips on numbers; Nortel gets a boost; GM loan better, bonds mixed

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., March 12 - The distressed bond market ended on a positive note Thursday, as it "moved up in sympathy with the equity markets," according to a trader.

R.H. Donnelley Corp. and Idearc Inc., rival phonebook publishers, reported earnings during the session. Neither one saw their numbers improve much - if at all - and both are reportedly considering their restructuring options.

However, the results had differing effects on the company's respective debt structures. Donnelley's bonds gained some ground, while Idearc's bank debt slipped. Its bonds remain unchanged in the low single digits.

Meanwhile, news of a potential asset sale gave Nortel Networks Corp.'s bonds a boost. A Wall Street Journal article reported that the company has received interest on two of its key businesses.

Upon learning that General Motors Corp. might not need the extra $2 billion it sought from the government, investors helped the company's bank debt move higher in trading. But market sources gave differing pictures of how the news affected the bonds.

RHD better, Idearc slips

R.H. Donnelley, the Cary, N.C.-based phonebook publisher, saw its debt gain some ground after the company posted a fourth quarter loss. The company also said that it had hired financial advisors to look at its restructuring options.

A trader quoted the 8 7/8% notes due 2016 and 2017 at 6.75 bid, 7.75 offered and the 8% notes due 2013 - which are linked to the company's Dex Media Inc. subsidiary - at 8 bid, 10 offered. He also said the junior issues, such as the 6 7/8% notes due 2013, were trading around 7.

At another desk, the 8% notes were seen climbing nearly 2 points to close at 8 bid.

The company reported a pre-tax loss of $700.3 million, compared with a loss of $27 million in 2007. Revenue dropped 7% to $630 million with advertising sales declining 12%.

The wider loss was largely due to a writedown caused by Donnelley's declining stock price.

Also, the company reduced its debt by $621 million, leaving it with $9.4 billion outstanding at the end of 2008.

But with some debt coming due in 2010, the company felt it needed to restructure.

"Though we intended to refinance this debt prior to maturity, it may no longer be possible to do so given the current state of the capital markets," Steven Blondy, Donnelley's chief financial officer, said in a statement. The company has hired Lazard to help it along in the restructuring process.

"You can run but you sure can't hide," Gimme Credit analyst Dave Novosel wrote in an afternoon comment. "That aptly describes R.H. Donnelley's approach to results for the fourth quarter."

While Novosel goes on to say that the company's margins did see some improvement, the research firm still downgraded that company to stable from improving.

Meanwhile, Idearc's term loan headed lower following the company's release of disappointing quarterly financials and the discussion of a potential Chapter 11 filing, according to traders.

The term loan was quoted by one trader at 30 bid, 31 offered, down from 30½ bid, 32½ offered, and by a second trader at 29½ bid, 30½ offered, down from 30¼ bid, 31¼ offered.

In the bonds, a trader said the 8% notes due 2016 remained at 1.5 bid, 2 offered.

For the fourth quarter, Idearc reported a net loss of $77 million, or $0.53 per share, compared with net income of $100 million, or $0.68 per share in the prior year.

Revenues for the quarter were $709 million, a 9.9% decrease compared with $787 million in the same period in 2007.

EBITDA for the quarter was $48 million, down 85.6% from $333 million in the previous year, and adjusted EBITDA was $287 million, down 18% from $350 million in 2007.

"Idearc's fourth quarter financial results are disappointing as we expected," Scott W. Klein, chief executive officer, said in a news release. "We are making progress on our transformational and cost-cutting initiatives. However, the unprecedented economic challenges this nation is facing are creating never-before-seen obstacles for our clients and, as a result, for us as well."

In its earnings release on Thursday, Idearc said that it is evaluating various options for restructuring its capitalization and debt service obligations as a result of covenant issues and to create a capital structure that will permit it to remain a going concern.

Some alternatives being considered include a pre-packaged or similar plan of reorganization under bankruptcy laws.

The company went on to say that even if a pre-packaged reorganization cannot be agreed upon, it will likely file for Chapter 11 anyway.

The covenant issues that Idearc is facing include possible non-compliance with the leverage ratio sometime in the first half of 2009, and a default resulting from auditors issuing a going concern opinion in its Dec. 31 financial statements.

"Simply stated, restructuring our capitalization and debt obligations to a more appropriate level will provide us with the opportunity to prosper and grow in the years ahead," Klein said in the release.

"We are dedicated to implementing an appropriate capital structure to support our new strategic business plans and objectives. A debt restructuring plan that will strengthen Idearc's financial condition will position the company to compete more effectively in a challenging and rapidly evolving economic environment," Klein added.

Idearc is a Dallas-based provider of yellow and white page directories and related advertising products.

Nortel gets a boost

Nortel Networks' debt got a slight boost on reports the company was considering some asset sales.

One trader said the 10¾% notes due 2016 remained in the 15 bid, 16 offered range, but another called the 10 1/8% notes due 2013 a point better at 15.75 bid.

Yet another market source pegged both the 10 1/8% notes and the floating-rate notes due 2011 at 15 bid, 16 offered, deeming that a point higher.

The Wall Street Journal reported Thursday that Nortel is considering selling its wireless equipment operation, as well as its corporate communications network unit. Avaya and Siemens Enterprise Communications are supposedly interested in purchasing enterprise assets, while Nokia Siemens Networks wants the wireless business.

Nortel is an Ottawa-based manufacturer of telecommunications equipment.

GM gains ground

General Motors' term loan inched its way to higher ground, as news emerged that the company does not need the additional funding it requested for March, according to a trader.

The term loan was quoted at 36½ bid, 41½ offered, up from Wednesday's levels of 36 bid, 41 offered, the trader said.

But market sources gave differing views on the company's bonds. One source called the 7 1/8% notes due 2013 more than a point weaker at 13.5, while another deemed the debt unchanged at 13 bid. The second source also saw the benchmark 8 3/8% notes due 2033 at 14.5 bid, a 1.5 point gain.

On Thursday, General Motors said that it advised the Presidential Task Force on the Auto Industry that the $2 billion of funding previously requested for March would not be necessary at this time.

The company explained that this development reflects the acceleration of its cost reduction efforts as well as proactive deferrals of spending previously anticipated in January and February.

On Dec. 31, the company entered into a loan agreement with the U.S. Department of Treasury for funding of $13.4 billion, which was already paid in three tranches.

Then, in a viability plan filed with the Treasury on Feb. 17, General Motors included a request for additional government funding so that it can continue operations until global automotive sales recover and its restructuring actions generate benefits.

Also on Thursday, General Motors announced that GM Canada and the members of the Canadian Auto Workers union have ratified a new competitive agreement that is vital to the continued transformation of the Canadian operations.

The agreement will quickly reduce costs in Canada by significantly closing the competitive gap with U.S. transplant automakers on active employee labor costs and substantially reducing legacy costs by introducing cash contributions for health benefits, increasing employee health care cost sharing, freezing pension benefits and removing hourly pension cost of living adjustments.

In addition, GM Canada and the CAW will work together with the Canadian government to explore the possibilities of adopting a similar approach to the GM UAW VEBA agreement in the United States.

General Motors is a Detroit-based automaker.

Broad market mostly better

Sprint Nextel Corp.'s 6% notes due 2016 closed a little higher at 62 bid, 62.5 offered, according to a trader.

"They seemed to hang in there pretty well," he said.

Smithfield Foods Inc.'s bonds fell some after the company reported earnings. The 7% notes due 2011 were seen in the low 70s, while the 7¾% notes due 2013 ended around 60.

After several sessions of gains, Rite Aid Corp.'s bonds gave back some. A trader placed the 9½% notes due 2017 at 20.5, down from 23 at its recent high.

Capmark Financial Group Inc.'s floating-rate notes due 2010 inched a point higher to 28.

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