Distressed market ends with positive tone; First Data pops on CFO remarks, debt swap; GM falls

By Stephanie N. Rotondo

Portland, Ore., Nov. 18 - The distressed debt market ended Thursday's session "better," a trader said, pushed up in part by massive amounts of activity in First Data Corp. and General Motors Corp.

"There was lots of GM, lots of First Data," he said. Between those two credits, he opined that trading volume "probably made up $500 million of the $1.7 billion that traded" in the secondary space.

First Data charged ahead, with some of its bonds gaining as much as 6 points on the day. The gains were a reaction to positive comments made by company management, as well as a debt-for-debt refinancing announced Thursday.

GM meanwhile launched its initial public offering Thursday and the new stock immediately traded above its $33-per-share issue price. Still, a few market players were disappointed by the equity's performance, which was a sentiment likely echoed by investors, as the carmaker's bonds dropped 1 to 2 points in trading.

Elsewhere, OPTI Canada Inc.'s debt took a hit, traders reported. The losses came after the company and one of its project partners warned that production would be weaker than expected at a credit conference in New York.

Also among the day's more actively traded names was Clear Channel Communications Inc. The company's debt traded higher on the day, though on no news.

First Data charges upward

Atlanta-based First Data saw its debt take off during Thursday trading, following positive comments by the company's chief financial officer and an announced debt exchange.

One trader said First Data's 10.55% notes due 2015, the 9 7/8% notes due 2015 and the 11¼% notes due 2016 - the first two are the targets of the debt-for-debt swap - were the "three most heavily traded bonds" during the session.

He said the 10.55% notes climbed "almost 4 [points]" to 881/2, while the 9 7/8% notes gained just over 2 points to end around 881/4. The 11¼% popped the most, improving about 6 points to close around 801/2.

Another trader said that "certainly over $200 million" of the 10.55% notes changed hands, seeing them "up a solid 4 points," also at that 88½ mark. About $100 million of both of the other issues turned over, he said, seeing the 9 7/8% notes end 3 points higher at 88½ and the 11¼% finishing 5 points firmer at 801/2.

"This is a good thing," the second trader said of the refinancing. "Especially given that First Data had been leading the charge downward for so long."

Under the terms of the swap, the company will exchange the 10.55% and 9 7/8% notes for new debt. For each $1,000 of the notes tendered by the early tender deadline - which is 5 p.m. ET on Dec. 1 - holders will receive $500 worth of new 8 ¼% cash-pay senior second-lien notes due 2021 and new 8 ¾%/10% PIK toggle senior secured second-lien notes due 2022, as well as $500 of 12 5/8% senior unsecured notes due 2021. Those tendering after the early deadline will receive $485 of the cash-pay second-lien notes and $485 of the unsecured paper for each $970 of old notes tendered.

The exchange offer will not exceed $5.5 billion.

Additionally, Ray Winborne told Bank of America Merrill Lynch credit conference attendees on Wednesday that the company "should be able to stomach the increase in cash expense" coming in 2012. At that time, the 10.55% notes require cash payments instead of paying the interest via new debt, which First Data has been doing of late.

GM declines, stock gains

As General Motors initial public offering got under way Thursday, traders saw the company's "old" debt declining.

"They were all down across the board," a trader said, adding that at least $300 million to $400 million of the bonds traded.

He pegged the benchmark 8 3/8% notes due 2033 at 321/2, down 2½ points form Wednesday's closing levels.

"Oh they were active," said another trader, noting that the 8 3/8% notes "got beat up." He also placed the paper around 321/2, down 2½ points.

Both the 8¼% notes due 2023 and the 7.20% notes due 2011 were 2 points lighter, he added, the former at 31½ and the latter at 321/2.

Based on the Detroit automaker's reorganization plan, "old" GM creditors were to receive stock in exchange for their debt holdings once the IPO came. Shares of the "new" GM (NYSE: GM) were priced late Wednesday at $33 - coming in at the high end of guidance - and traded as high as $35.99 come Thursday, before settling back in to $34.19.

One trader deemed the IPO "kind of a disappointment."

"I think there was expectation that stock was going to trade higher," he said. He also pointed to the heavy amount of turnover, which led him to believe that the majority of stock players were not those who were interested in holding on to the securities to see where they would go.

Another trader said he wasn't surprised by the bonds' performance in contrast with the stock.

"Stock drifted lower from about 11 a.m. to the close," he said in an e-mail to Prospect News. "Bonds were always implying a much higher price for the common so once the IPO got done and people knew where to value the common, the bonds looked rich, plus they should trade at a discount to the common."

When combined with the sale of some preferred shares, it is being estimated that GM raised about $20 billion from the IPO. However, the company will not receive any of that money, as the shares being sold were part of those owned by the U.S. and Canadian governments, as well as the United Auto Workers union.

OPTI takes a beating

A trader said OPTI Canada was "getting beat up" in Thursday trading, just two days after the company's Long Lake oils sand project partner presented at the Bank of America Merrill Lynch conference.

He called the 8¼% notes due 2014 down a deuce at 731/2.

Another trader placed the 8¼% notes around 74, off "a point and change" on "$10 and change million" traded. The 9¾% notes due 2013 meantime closed around 101.

On Tuesday, Nexen Inc. said production in 2011 would be lower than previously forecast, coming between 38,000 and 45,000 barrels of raw oil sands crude per day. Based on OPTI's stake in the project, that means the company would receive a share of less than 15,000 barrels per day.

The Calgary-based company has been exploring its strategic alternatives in order to increase shareholder value for the better part of the year. While a recent financing did provide OPTI with additional liquidity, the company said the "success and timing of [its] strategic process [would be] determined by production ramp-up at Long Lake" during its own presentation at the conference on Wednesday.

One market source opined that it was "kind of a mixed bag" for OPTI.

"The second-lien stuff will get leaned on a little bit," he speculated. "The senior secured stuff will go sideways.

"There is nothing to drive [the debt] up particularly, but it's not going to go down because it's covered."

Clear Channel active, better

Clear Channel Communications was "pretty active," according to a trader.

He said the 5½% notes due 2014 gained "almost 2 [points]," ending around 721/2. The 10¾% and 11% notes due 2011 both improved by a point, closing at 78½ and 771/2, respectively.

Another trader said the 5½% notes were "up the most of all of them," pegging the issue at 72¾ on "$25-odd million" traded. He said about $15 million to $20 million of the 11% notes turned over at 763/4, up a quarter- to a half-point.

At another desk, the 5½% notes were deemed "up a couple points" at 72½ bid, 73 offered, while the 10¾% notes "were active" around 77½ bid, 78 offered.

Clear Channel is a San Antonio-based multimedia company.

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