Distressed debt gets sidelined by new issues, equities; Dex One notes gain but problems linger

By Stephanie N. Rotondo

Portland, Ore., Dec. 3 - It was an "average Friday, I think," a trader said of the distressed debt market.

Volumes, he said, were on the thin side and the overall tone wasn't quite negative, but not positive either.

"We started the morning with pretty weak employment numbers," said another source. That led to an equity market that was "squishy" - though it did eventually end up nearly 20 points - and the bond market followed suit.

The source also noted that investors continued to focus on "digesting" new issues, which left the secondary market on the sidelines.

Of the day's dealings, Dex One Corp. was an active credit and one trader saw the notes moving up as much as 4 points. There was no news out, however, and another market source said the bonds had lost a lot of ground in the past month.

Also in the publishing realm, Nebraska Book Co. Inc.'s debt fell a point, also on no news. But like Dex, a source called the company "a dying business."

Away from that arena, OPTI Canada Inc. remained busy. The bonds have been fluctuating with the market of late, and Friday's softness resulted in a minor loss for the debt.

Dex up, but worries remain

A trader saw Dex One's bonds popping 4 points on the day, though there was no news out on the Cary, N.C.-based phonebook publisher.

The trader placed the 12% notes due 2017 at 61. Another trader said the bonds were "up a bunch," starting the day around 57, only to close in the low-60s.

But at another desk, a market source saw the notes trading around 58. Before that, he said, trades were around 56 on Nov. 30 and, before that, around 61. At the beginning of November, the bonds were in the low-70s.

"They traded a ton today," he remarked.

"There's been a material deterioration on no news," he added. "The bonds are kind of collapsing."

The source noted that he didn't see an "immediate liquidity crisis," but acknowledged that "trends [in the publishing industry] are a lot worse" than what was thought back in February when the company - then known as R.H. Donnelly Corp. - exited Chapter 11.

He speculated that action in the paper was "people getting out ahead of any headline news. It's a dangerous place to be when market cap is whittling away to nothing."

And, the source said he had heard a rumor that Dex might be considering a merger with rival SuperMedia, which operates Superpages.com.

"They are just not going to survive on their own," he said.

The yellow pages publishing arena has faced hard time as advertising dollars dwindle and more and more consumers turn to digital modes for information. On Nov. 18, another yellow page publisher, Denver-based Local Insight Media holdings Inc., filed for bankruptcy.

Nebraska Book brings risk

Along the same lines as Dex One, Nebraska Book Co., a subsidiary of NBC Acquisition Corp., was bringing the "same type of worry" to the market, the market source said.

"It's a dying business in cyclical decline," he said of the Lincoln, Neb.-based textbook publisher. "It's the same type of publishing risk."

He quoted the 11% variable-rate notes due 2013 at 70 bid, 73 offered.

Another trader called the 8 5/8% notes due 2012 a point weaker around 89, while another pegged them in an 88-89 context.

OPTI still active, fluctuating

As has been the trend over the last week, OPTI Canada bonds remained active, trading in line with the general tone of the market.

A trader saw the 8 ¼% notes due 2014 slipping a quarter-point to 711/2.

"OPTI was active, but price action seemed pretty much unchanged," said another trader.

Broad market posts gains

Among other distressed credits, a trader saw Richmond, B.C.-based paper manufacturer Catalyst Paper Corp.'s 11% secured notes due 2016 around 92 bid, which he called up 1 to 1½ points.

He also saw sector peer NewPage Corp.'s 11 3/8% senior secured notes due 2014 around that same 92 context, which he called up half a point to 1 point. He said that Miamisburg, Ohio-based coated-paper manufacturer's paper has "a positive tone, even though there wasn't much trading."

Meanwhile, Clear Channel Communications Inc.'s 10¾% notes due 2016 were moving in a 77-78 context, with "most of the trades right within that range," a trader said, closer to 77.

He said the San Antonio-based media company's paper was "feeling a little better - there was some positive tone to that." He called the bonds up half a point at 77, on "not a lot of activity, but some activity."

And, Great Atlantic & Pacific Tea Co., Inc.'s big issue, its 11 3/8% notes, were "up a little bit," according to a trader, around 79 bid, 80 offered, on "some activity," in the Montvale, N.J.-based supermarket operator, "not a whole lot."

Paul Deckelman contributed to this article

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