Earnings news results in heavy distressed trading; smaller loss buoys OPTI debt; iStar higher

By Stephanie N. Rotondo

Portland, Ore., Oct. 28 - Earnings and other news gave distressed debt its share of the limelight Thursday despite a continued focus on new issues in the secondary market.

"There was lots and lots of trading," a trader said.

Both OPTI Canada Inc. and iStar Financial Inc. announced earnings during the session and saw their bonds trading up 1 to 3 points in response. iStar was also helped out by the announcement of a planned debt repayment next week.

Elsewhere, Great Atlantic & Pacific Tea Co., Inc. got downgraded by Standard & Poor's, but a trader said the news did little to shake up the company's debt, "interestingly enough."

Tronox Inc. paper received another shot in the arm during the trading day, as its bonds gained 10 points or more. The gains were in addition to a sizable gain seen Wednesday as well.

OPTI bonds end strong

There were "tons" of OPTI Canada bonds trading Thursday, a trader said, following the release of the company's third quarter results.

The trader said "well over $100 million of the three different issues" changed hands during the session, all up half a point to 3 points.

The 8¼% notes due 2014 were up the most, he said, at 75¾ bid, 76 offered. The 7 7/8% notes due 2014 gained 2 points, closing at 75 bid, 75½ offered, while the 9% notes due 2012 improved just half a point to 101½ bid, 102 offered.

Another trader called the 8¼% notes "up a couple" at 75¾ bid, 76¼ offered.

For the third quarter, the Calgary-based oilsands producer reported a net loss of $46 million. That compared with a loss of $152 million in the second quarter of 2010 and a profit of $12 million in the third quarter of 2009.

Revenues meantime gained year-over-year, but fell from the previous quarter. Third-quarter revenues came to $59 million, down from $61 million in the second quarter, but up from $38 million the year before.

As of Sept. 30, OPTI had $341 million of available cash on hand and 4180 million available under its revolving credit facility. The company said it was continuing to review its strategic alternatives.

"After 10 months of solid ramp-up following our turnaround in September of 2009, we experienced operational interruptions in the third quarter which affected production volumes and ramp-up," said Chris Slubicki, president and chief executive officer, in the earnings release. "Third quarter operations did not meet our expectations. The [Long Lake Project] is now back on-stream and our bitumen ramp-up continues.

"In our ongoing review, we recognize that we require time to demonstrate the value of OPTI through continued ramp-up of the project," Slubicki added. "We expect that net proceeds from the successful sale of $400 million of first lien notes during the third quarter will provide us with the liquidity necessary to further demonstrate this value. We remain committed to our strategic process as we move into the fourth quarter and next year."

Narrower loss boosts iStar

iStar Financial also announced its third-quarter earnings Thursday and a narrowed net loss - combined with the company's assertion that it intends to pay back $1 billion in debt in the near term - helped the company's debt gain ground.

A trader saw the 5.15% notes due 2012 moving up 1½ points form the previous session, ending around 881/2. The 5 7/8% notes due 2016 meanwhile gained "about 3 points" to 82½ bid, 83 offered.

Another trader also placed the 5.15% notes around the 88½ level, calling that "up a couple of points."

iStar's second-lien and delayed-draw term loans were also stronger by a few points on the back of the news, according to a trader.

The second-lien term loan was quoted at 95¼ bid, 95¾ offered, up from 93¼ bid, 94¼ offered, and the delayed-draw term loan was quoted at 99½ bid, 101 offered, up from 96¼ bid, 97¾ offered, the trader said.

For the quarter, the company reported a net loss of $83.5 million, or $0.89 per diluted common share, compared with a loss of $251.3 million, or $2.55 per diluted common share, last year.

And, revenues for the quarter were $134.4 million versus $178.2 million for the third quarter 2009.

The New York-based finance company said it also intended to pay back its $1 billion first-priority credit facility due June 2012 next week.

But amid all the positive news, there was a bit of disappointment, as the company said it has thus far been unable to obtain an amendment to its 2011 maturities.

iStar has nearly $3.2 billion in debt maturing in the first half of next year. Chatter is that if the company cannot meet those obligations, it might need to file for bankruptcy protections. Furthermore, rumor has it that iStar is already preparing a pre-packaged plan.

A&P shakes off downgrade

A trader said Great Atlantic & Pacific Tea Co.'s debt was "just kind of sitting there" after getting downgraded by Standard & Poor's.

He said the 5 1/8% notes due 2011 held in at 74 bid, 75 offered.

"It didn't go up precipitously, but it didn't go down," he said.

S&P gave the Montvale, N.J.-based supermarket operator a CCC rating, down from its CC rating previously. The outlook is negative.

The rating agency said the downgrade was due to "our expectation that operating performance will be weaker in the near term and the company will continue to exhaust available liquidity."

Last week, A&P posted a 6.6% decline in comparable store sales for the second quarter, with total sales dropping to $1.9 billion from $2.1 billion the year before. Net loss nearly doubled to $153.7 million from $80.3 million in the second quarter of 2009.

Tronox pops again

Tronox's 9½% notes due 2012 "continued to have a huge move," a trader reported.

The bonds ended around 125, but traded as high as 130, he said. The day before, the bonds had traded between 106 and 115, which was also a sizable gain.

"This is all part of that what you get from a rights offering going forward," he said.

Tronox, which is looking to exit bankruptcy soon, intends to conduct an equity rights offering for its unsecured creditors as part of its plan of reorganization.

At another desk, a trader said Tronox debt "continues like gangbusters," quoting the notes due 2012 as high as above 130 bid.

The Oklahoma City-based pigment manufacturer filed for Chapter 11 protections in January 2009.

Nebraska Book takes a dive

A trader said that Nebraska Book Co.'s 8 5/8% senior subordinated notes due 2012 traded in an 87-88 context, seeing that "down 5 or 6 [points] from the quotes - this was the first real trade in a while."

The Lincoln, Neb.-based new and used textbook supplier's bonds had previously traded around the 93 level, although the most recent previous round-lot transaction, back around the middle of the month, was at 94½ bid.

"There's probably a credit story there," he said, although he did not know what it was.

"There are not that many things that have down days like that in this market," which has mostly been to the upside.

Sara Rosenberg and Paul Deckelman contributed to this article

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