Distressed debt market rebounds; Dynegy gains as vote pushed back; GM slips before IPO pricing

By Stephanie N. Rotondo

Portland, Ore., Nov. 17 - After Tuesday's brutal trading session, distressed debt traders saw a rally in the market come Wednesday.

"A fair number of things rebounded," a trader said.

One such thing was Dynegy Inc. The bonds gained as much as 2 points in trading, even as a vote on a takeover bid by Blackstone Group was pushed back to next week.

General Motors Corp., however, wasn't much helped by the market rally. Traders saw the bonds ending "all lower," just ahead of the post-market close pricing of the company's initial public offering.

Meanwhile, NewPage Corp. recently reported numbers that came in ahead of their guidance. Though management remains confident about the current quarter, one analyst believes the company might not be out of the woods just yet.

Dynegy up as vote postponed

The much anticipated vote regarding the Blackstone Group takeover of Houston-based power producer Dynegy was put on hold Wednesday in order to allow shareholders more time to digest the recently increased bid.

The company's bonds traded up following the news, but it might have been more a result of a general market rebound after Tuesday's crushing.

One trader called the 8 3/8% notes due 2016 up over a point at 771/2, while the 7½% notes due 2015 were "up like 2 [points]" around 801/2.

Another trader quoted the 8 3/8% notes at 77 bid, 77½ offered, up from 76 bid, 76½ offered. The 7½% notes meantime closed at 80½ bid, 81 offered.

On Tuesday, Blackstone increased its offer to $5 per share from $4.50 per share, despite its earlier assertions that it would not increase the "full and fair" bid. Many market watchers had speculated the investor might bow to the pressure from shareholders such as Carl Icahn and Seneca Capital, who deemed the original offer too low.

Shareholders will now have until Nov. 23 to consider the proposal. Icahn and Seneca are reported to remain against the takeover, while some analysts still believe the terms are attractive.

"We see upside in asset values to $6 [to] $7 [a share], but believe it could take a cyclical turnaround to achieve which could be several years away," Barclays Capital analysts said in a Wednesday note to clients.

GM prices IPO, bonds slip

In other highly anticipated news, General Motors priced its planned initial public offering after the market closed, coming in at the high end of its recently revised guidance.

Ahead of pricing, the Detroit automaker's debt traded down, according to traders.

One trader said GM paper was "all lower," the benchmark 8 3/8% notes due 2033 a point softer around 35, the 8¼% notes due 2023 over a point weaker around 33½ and the 7.20% notes due 2011 off 1½ points around 331/4.

Another trader - who noted that GM was "one of the most active ones today" - pegged the 8 3/8% notes at 34½ bid, 34¾ offered, adding that it "seems like some bids are filling in."

The second trader said he wasn't surprised the debt dipped ahead of pricing, given the recent increase in the size of the IPO and the fact that many had previously believed that "the IPO would be cheap to the bonds."

On Tuesday, GM increased the amount of shares it intended to sell to 478 million and also upped the price per share to $32 to $33 from $26 to $29.

Actual pricing was reported to come in at $33.

"We'll see where the stock goes tomorrow," the trader said, opining that it will trade up.

Analyst ponders NewPage fate

NewPage's 11 3/8% notes due 2014 traded up "almost 2 [points]," according to a trader.

He saw the notes around 931/4.

Another trader called the bonds a point better at "931/2-ish."

Earlier this month, the Miamisburg, Ohio-based papermaker reported quarterly results that came in above market expectations. But one analyst doesn't believe the company is out of the woods just yet.

"NewPage reported third quarter results that beat its guidance," wrote Gimme Credit LLC analyst Kim Noland in a report sent to clients Wednesday morning. "Management's decision to omit the question and answer portion of the earnings call, however, left investors wondering whether bad news was on the way."

Noland noted that while NewPage was "faring better than some competitors in the recession," leverage was still high at about 12x debt to EDITDA.

"As a result, even significantly improved operating results may not save it from a debt restructuring."

First Data, Harrah's rebounds

The general market rally helped market mainstays such as First Data Corp. and Harrah's Entertainment Inc. regain some of the loses incurred during Tuesday trading, traders reported.

One trader said First Data's 10.55% notes due 2015 moved up 1½ points to 843/4, while another quoted the issue at 84½ bid, 85 offered. He said that compared with levels around 83½ at Tuesday's close.

The second trader also saw Harrah's 10% notes due 2018 firming by a point, finishing the day around 88.

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