Distressed market ends session mixed; Dean active on new issue, covenant changes; McClathy up

By Stephanie N. Rotondo

Portland, Ore., Dec. 9 - The distressed debt market was "pretty subdued," a trader reported Thursday, save for a few "new issues that gave some momentary joy."

"It was the same suspects again, but no real price movement," he added.

"We just sort of ebbed and waned with the equity markets," said another trader.

The first trader speculated that "market burnout" had hit and that people were simply trying to get things wrapped up before the end of the year.

"I fear for tomorrow," he lamented.

Thursday saw a fair amount of activity in Dean Foods Co., as the company announced covenant changes to its credit facilities and a resulting new issue. The new debt - which priced after the market closed - will be used to repay old debt, as required by the company's lenders.

Meanwhile, McClatchy Co. bonds remained strong in trading, extending Wednesday's gains. The bonds jumped as much as 6 points on Wednesday after the company gave a rosy outlook in regard to its advertising revenue. The bonds gained another 2 points or so on Thursday.

NewPage Corp. also continued to be an active credit, though there was little seen in the way of price movement.

Dean better to unchanged

Dean Foods' debt was "somewhat active," a trader said, and "up a little bit" as the company announced its plans to issue $400 million in new debt.

The trader pegged the 7% notes due 2016 at 93 bid, 93 ½ offered.

Another trader saw about $25 million to $30 million of the paper turn over, also around the 93 level, which he said was "within a quarter-point of where they have been."

Dean, which has been struggling amid the raising costs of commodities such as soybeans and sugar, intends to issue the new debt to repay current borrowings. The issuance is being required by the company's banks in exchange for changes to covenants governing its credit facilities.

After the market closed, the Dallas-based company priced the new issue at 9¾% with a 2018 maturity.

On Thursday, Standard & poor's rated the new issue B- and assigned a 6 recovery rating, signifying 0% to 10% recovery in the event of a default.

Last week, Fitch Ratings downgraded the company's issuer default rating to B and placed Dean on negative watch.

"As we expected, Dean Foods went to its banks to get covenant relief with amendments to its credit facilities announced this morning," wrote Gimme Credit LLC analyst Vicki Bryan in an afternoon report. She noted that Dean has been "getting uncomfortably close to the maximum leverage limit," which - under the original terms of the credit facilities - was to fall to 5x from 5.5x on June 30, 2011.

Dean hit 4.9x in its most recent quarter, she said.

But the changes to the credit facilities - which will only go into effect once Dean issues its new debt and pays off $400 million of other debt - will increase maximum leverage to 5.75x through 2011 and reduces minimum interest coverage ratio to 2.5x from 3x.

Bryan said Dean's status was deteriorating.

Dean made several other announcements during the session, including that it had reached a settlement agreement in regard to an anti-trust lawsuit. The company also said it expected to take a charge of about $18.4 million as a result.

McClathy gains again

McClathcy paper continued to gain ground in Thursday trading, extending its Wednesday gains.

A trader said the 5¾% notes due 2017 "traded up a bunch," closing around 761/4, with "almost $40 million" changing hands. He said the bonds were "up 21/2, almost 3 points."

Another trader said the notes were "active again," deeming them "up another couple of points" around 76.

The trader also saw the 11½% notes due 2017 "up a little bit, but not as much as those other ones," at 108 bid, 108¼ offered.

Yet another market source pegged the notes at 761/2.

At the UBS Annual Global Media & Communications Conference on Wednesday, McClathy's top management said it saw improved advertising revenues over the last few months and that it expected those trends to continue.

In October and November, ad revenues dipped 5.8%. But those declines were better than the 6.4% decrease seen in the third quarter and an 8.2% drop in the second quarter.

Classified advertising in particular has experienced a boom, the company noted, with employment ads growing 2.1% since May.

Also, McClatchy said it expected to repay all of its outstanding bank term debt by the end of 2010, leaving total debt at $1.78 billion.

"This leaves us with a very manageable maturity schedule with only $18 million of bonds maturing in mid-2011 and then none until 2014," said Pat Talamantes, chief financial officer of the Sacramento-based company, in a statement. "We expect our leverage ratio to be about 4.6 times cash flow at year-end, down from 5.3 times at the end of 2009."

NewPage still active, but steady

After losing weight in the previous session, NewPage's bonds "continued to be active," according to a trader, but remained "about in line" with Wednesday closing levels.

He saw the 10% notes due 2012 closing at 58 bid, 58½ offered.

Another trader placed the notes around 581/2, with about $20 million or so trading.

On Wednesday, the Miamisburg, Ohio-based papermaker said it had revised guidance for the fourth quarter. It is expecting to report adjusted EBITDA of $125 million to $135 million and net loss to be between $275 million and $315 million.

In the fourth quarter of 2009, EBITDA came to $88 million and net loss was $55 million.

Back in September, as NewPage announced its second-quarter results, the company had said EBITDA would be up dramatically, forecasting $55 million to $65 million more than third quarter EBITDA. When the third quarter numbers came out on Nov. 4, EBITDA was reported at $106 million, compared with $140 million the year before.

Broad market mixed

Elsewhere in distressed debt trading, a trader said about $25 million to $30 million of Harrah's Entertainment Inc.'s 10% notes due 2018 traded, though they ended unchanged at 89 ½ bid, 90 offered.

Another trader said Clear Channel Communications Inc.'s 10¾% notes due 2016 "moved up a couple points" to 811/2, though he "didn't see anything specific" that would have caused the gain.

General Motors Corp.'s benchmark 8 3/8% notes due 2033 meantime was seen "following the stock market down," ending around 32.

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