Distressed market begins holiday week sideways; pricing changes cause losses for NewPage bonds

By Stephanie N. Rotondo

Portland, Ore., Dec. 20 - The holiday week began Monday with a "brutally slow day" in the distressed debt market, according to a trader.

"It's as light as I've seen it," he said. "No flow, no size."

"People are really trying to wind it down," another trader said, adding that the market was "higher in general," though there were some things that fell and others that stayed about the same.

Of the day's decliners, NewPage Corp. bonds lost ground during the session. One trader speculated that the softness was because of paper pricing changes the company announced last week.

Meanwhile, Harry & David Operations Corp. traded down, according to a trader. But another trader disagreed and also noted that the company was currently in its biggest season of the year.

Blockbuster Inc. announced it would close nearly 200 stores in the first quarter of 2011 as it attempts to come out of bankruptcy leaner and meaner than before. On the news, however, traders saw little response from the company's bonds.

NewPage slips on pricing

A trader said paper sector bonds were active in morning trading, which he attributed to revised paper prices NewPage released last week.

"They had announced price increases about a month ago," he said, which then resulted in a rally for the bonds, as investors thought the higher prices could help the struggling papermaker. However, the trader said the price increases were "rescinded on Friday," resulting in pressure on the bonds come Monday.

He deemed the 10% notes due 2012 down "a point or two" at 56 bid, 57 offered. He also quoted the 11 3/8% notes due 2014 at 91½ bid, 92½ offered and the 12% notes due 2013 around 261/2.

NewPage wasn't the only name in the sector to be feeling the pressure either, the trader said. Catalyst Paper Corp.'s 7 3/8% notes due 2014 were "a little bit softer" at 72 bid, 73 offered.

Harry & David soft, steady

Harry & David Operations' 9% notes due 2013 traded "a little bit softer, but not by much," according to one trader.

He pegged the paper at 71.

But another market source said he "wouldn't necessarily declare them markedly down," also seeing the 71 print. He noted that the last round-lot trade was with a 70 handle and that there were several odd-lot trades in the mid-70s.

There hasn't been any news out on the Medford, Ore.-based specialty foods retailer, but the company is currently in their busiest season of the year.

"About 63% of revenues come in the current fiscal quarter," a source said. "People are doing channel checks and making/changing bets accordingly."

The source added that he had heard that the company's call center was "busier than last year, which makes sense because the company has been very promotional this year.

"The pop-up stores only seem to be experiencing modest conversion, from what we have heard and observed," he said. "However, they serve to remind people of the brand and could be leading to stronger conversion on the website by putting the brand fresh into the minds of consumers."

Blockbuster unresponsive to news

A trader said Blockbuster debt was quiet on the heels of news regarding upcoming store closures.

He saw the 9% notes due 2012 quoted at 1¼ bid, 1¾ offered.

The Dallas-based movie rental chain said in court documents that it plans to shutter 182 stores by the end of the first quarter, with 72 closures expected by Jan. 1 and another 110 throughout the quarter.

The company is expected to emerge from bankruptcy by the end of the second quarter. Upon its exit, billionaire investor Carl Icahn and his hedge fund will control the company.

MGM loan stable

Metro-Goldwyn-Mayer Inc.'s $325 million six-year term loan held at 98½ bid, 99½ offered, after breaking at those levels late Friday, according to a market source.

Pricing on the term loan is Libor plus 500 basis points with a 1.5% Libor floor, and it was sold at an original issue discount of 981/2. There is 101 soft call protection for one year.

The company's $500 million exit financing credit facility (B1/B+) also includes a $175 million five-year revolver.

During syndication, the term loan was upsized from $250 million as the revolver was downsized from $250 million, pricing on the term loan was increased from Libor plus 400 bps and the discount widened from 99.

JPMorgan is the lead bank on the deal for the Los Angeles-based motion picture, television, home video and theatrical production and distribution company.

Sara Rosenberg contributed to this article

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