Distressed debt holds its ground; Michaels steady, launches new issue; WaMu files amended plan

By Stephanie N. Rotondo

Portland, Ore., Oct. 7 - It was a steady day for distressed credits, as "things weren't off at all," a trader reported Thursday.

"Stuff was trading pretty tight," he added.

"In general, most stuff was higher," said another trader.

There was, however, a continued focus on new issues, including one from Michaels Stores Inc. that traders said did not perform as well as some other new pieces of paper.

Meanwhile, Washington Mutual Inc. announced late Wednesday it had filed an amended reorganization plan - this time with bondholder support. Still, there was little movement pricewise in the now-defunct thrift's debt.

A news article - also out late Wednesday - quoted a Blackstone Group executive as saying its bid for Dynegy Inc. was firm resulted in weaker bonds for the power producer. The executive also implied that the proposed sale would be in the company's best interests.

Michaels paper breaks

Michaels Stores' debt continued to be unchanged to just slightly better following the release of the company's new - and upsized - $800 million issue of 7¾% eight-year notes.

"I don't know how they got those done," a trader said of the new issue, adding that the coupon was "a little rich" for the market.

The trader saw the 10% notes due 2014 - which are being taken out by the proceeds from the new issue - at 1053/4, up about a quarter of a point.

The new paper meantime fell below its original issue price of 99.262 to 99¼ bid, 99½ offered.

At another desk, a trader said Michaels' new issue was "the one that couldn't quite clear itself," as all of the other new issues of the day did rather well. Still, he said about $200 million to $300 million of the notes changed hands, quoting them at 99 1/8 bid, 99¼ offered.

The rest of the structure, he said, was "up a little bit," the 10% notes around 1053/4, the 11 3/8% notes due 2016 at 110¼ and the 13% notes due 2016 around 98.

Elsewhere in the retail world, the Great Atlantic & Pacific Tea Co., Inc.'s 11 3/8% notes due 2015 were pegged at 75½ bid, 77 offered by one trader, while another placed them at 75 bid, 76 offered.

The second trader deemed the levels "kind of about the same, maybe a smidge lower."

WaMu steady on agreement

Washington Mutual paper closed the day unchanged, even as the Seattle-based company's bondholders agreed to support a global settlement agreement with Federal Deposit Insurance Corp. and JPMorgan Chase Bank, N.A., in exchange for $335 million.

A trader said the debt "didn't really move much," seeing the zero-coupon notes due 2011 at 42¾ and the zero-coupon notes due 2009 at 43.

Another trader said the bank senior paper - like the 5.55% notes due 2010 - were steady at 42¾ bid, 43 offered.

The agreement between the bondholders and WaMu brings a nearly two-year battle to an end. Bondholders had previously been fighting the settlement, as they were unhappy with their proposed recovery of just $150 million.

Senior bondholders, at the time of the bank's collapse in September 2008, held about $6.2 billion in debt.

Among other bankrupt financial companies, Takefuji Corp.'s 9.20% notes due 2011 fell to around 17, according to a trader.

"They are just kind of moving lower every day," he said.

Dynegy loses on the day

Though the market was generally firmer, Dynegy Holdings' 8 3/8% notes due 2016 were seen slipping about half a point to 781/2.

Late Wednesday, a Reuters article quoted David Foley of the Blackstone Group as saying its $4.7 billion - or $4.50 per share - bid for the Houston-based power producer was "full and fair," and that the private equity group did not intend to increase its offer.

"The reason it wasn't $4.51 is that we were willing to walk away at that price; we didn't know if the board would accept it or not, but we felt that was a very full and fair offer and certainly a steep premium," Foley was quoted as saying in the article.

After the deal with Blackstone was originally announced, Dynegy had until Sept. 22 to shop around for higher competing bids. The company was reported to have approached somewhere between 16 and 42 potential buyers, depending on whom you were asking. None of them were interested.

In the Reuters report, Foley went on to imply that Dynegy needs to go forward with the Blackstone deal for its own good.

"If we don't get the shareholder support, I think the company doesn't do this deal and things look pretty bleak for the company as a public company," he said.

Broad market remains strong

In the rest of distressed land, Mohegan Tribal Gaming Authority's 6 1/8% notes due 2013 jumped as much as 3 points, a trader said, closing around 851/2.

There was no news out on the casino operator, but company executives did present at the Deutsche Bank Leveraged Finance Conference on Wednesday.

Elsewhere in the gaming arena, Harrah's Entertainment Inc.'s 10% notes due 2018 gained a point, closing around 83.

McClatchy Co.'s 5¾% notes due 2017 meantime traded up a point to 681/2, the trader added.

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