OPTI Canada bonds take beating on downgrade; Sprint Nextel softens despite protective measures

By Stephanie N. Rotondo

Portland, Ore., Dec. 14 - A trader called the distressed debt market "sloppy" on Tuesday.

"Some stuff was cheaper," he said. "I think there are bids out there for short paper."

OPTI Canada Inc. was definitely on the cheaper side, as the bonds lost as much as 3 points on the day. The losses came on the heels of a rating downgrade.

Sprint Nextel Corp. also got downgraded on Tuesday, putting some pressure on the company's debt. On Monday, the company announced steps it had taken to protect itself in the event of a default by Clearwire Corp., which provides Sprint with its 4G network.

Among the day's gainers were First Data Corp. and the Great Atlantic & Pacific Tea Co. Inc. First Data's previously reported debt-for-debt exchange is getting ready to expire on Wednesday, while A&P has been creeping back up since the bonds took a dive on Friday.

OPTI debt gets whacked

A trader said OPTI Canada was one of the day's volume leaders, as another market source said the bonds "got crushed."

The first trader called the company's debt down 2 to 3 points, seeing the 8¼% notes due 2014 around 67 and the 7 7/8% notes due 2014 around 66.

The second source pegged the 8¼% notes at 67 bid, 68 offered and the 7 7/8% notes at 66 bid, 67 offered.

The Calgary-based oilsands producer has seen its debt steadily decline in recent weeks, though there hasn't been much news out. There was, however, news out on Tuesday, as Standard & Poor's said it had cut its rating.

"That doesn't help," a trader said.

S&P dropped OPTI's corporate credit rating to CCC- from CCC+. The first-lien debt was cut to CCC+ from B and its senior secured debt to CCC from B-.

The outlook is negative.

The rating agency attributed its actions to concerns about the company's Long Lake joint venture project with Nexen Inc.

"As the ongoing operational issues at the Long Lake project continues to stall production ramp-up, the acceleration of OPTI's cash burn is faster than we expected during our most recent review in August," said credit analyst Michelle Dathorne in a statement. "Given the company's relatively finite cash resources in 2011, its progress on its strategic review process is also straining its liquidity position and overall financial flexibility.

"As a result, we believe its ability to satisfy its financial and operational obligations has weakened further," Dathorne concluded.

Last month, Nexen warned that production at the project would be less than anticipated, while OPTI said its profitability depended largely on how the project fared.

Sprint falls after downgrade

Sprint Nextel debt was also weaker, despite the company's assertion late Monday that it had taken steps to protect itself from financial troubles at partner Clearwire Corp.

A trader said the bonds were down as little as a quarter-point and as much as three-quarters, "depending on where you look." The 7 7/8% notes due 2028 fell nearly a point to 86.

The 6% notes due 2016 meantime closed around the 95¾ level, down from opening levels of 96¼ bid, 97 offered.

However, he noted that the 7 3/8% notes due 2015 "looks up a little bit," at 993/4.

"Must be short covering," he opined.

Another market source pegged the 6% notes at 95¾ bid, down over a point.

Late Monday, Sprint issued a statement congratulating Clearwire on its ability to find outside funding.

"We are pleased that Clearwire has been able to secure third-party funding, which demonstrates its strength as a wholesale provider of 4G network service to Sprint," the Overland Park, Kan.-based wireless telecommunications company said.

Additionally, Sprint said it had no plans to buy Kirkland, Wash.-based Clearwire and that it had amended its equityholders' agreement to provide "additional flexibility to avoid any risk that Sprint incurs a default under its debt agreements because of its voting interest in Clearwire."

But despite the measures, Fitch Ratings went ahead and cut Sprint' issuer default and senior unsecured notes rating to BB- from BB.

The outlook is negative.

"The rating downgrade reflects the increased credit risk, financially and operationally, resulting from Sprint Nextel's recently announced network modernization project," Fitch said in a statement.

First Data gains

A trader said that First Data's 11¾% notes due 2016 "looked pretty active today," trading between 83 bid and 841/4, which he said was up a little from Monday, when the bonds were trading between 82½ and 83.

He said that the 111/4s seemed to be the most active of the issues.

He also saw the Atlanta-based electronic transaction processing company's 9 7/8% notes due 2015 - one of the two issues the company is trying to largely take out by means of a pending debt-for-debt exchange offer slated to end at midnight on Wednesday - traded at bid levels between 93½ and 94, and said that "they were quite a bit lower" on Monday, trading within a 91½ to 93 range.

At another desk, a market source saw the 9 7/8s move up to 94 bid, which he called a gain of some 2½ points on the session, while seeing the 10.55% PIK notes due 2015 - the other issue which First Data is seeking to essentially eliminate by offering its holders several new series of cash-pay and PIK bonds maturing in the early 2020s - up by 1¾ points on the day at 94 bid.

A&P still strong

The Great Atlantic & Pacific Tea Co. does "seem to be doing better," a trader said, quoting the bankrupt Montvale, N.J.-based supermarket operator's 5 1/8% notes due 2011 at 30 bid after "they went out last [Monday] night a little lower than that."

He also noted that they were well up from the levels in the upper 20s seen on Friday, when the bonds nosedived 45 points, from the lower 70s to the upper 20s, on investor speculation - later vindicated by events - that A&P would file for Chapter 11 in order to restructure its onerous debt burden. He saw the bonds left bid at 30, while the company's 6¾% notes due 2012 were hanging around 28 bid.

A&P's 11 3/8% senior secured notes due 2015 meantime traded at 84½ bid, 85 ½ offered, up from around the 83 bid, 84 level seen on Monday. All of the company's bonds are now trading flat, having forfeited their accrued interest upon the weekend bankruptcy filing.

The trader suggested that "there are a lot of stories out there about Yuciapa being involved," referring to the investment company controlled by California supermarket billionaire Ron Burkle, who is not only a major A&P shareholder, but who has reportedly also been building a hefty position in the secured debt, which would give him a greater say in the company's future during the bankruptcy proceedings.

Paul Deckelman contributed to this article

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