Sprint debt falls post-earnings; Synovus holds on to gains; Smurfit higher; broad market mixed

By Stephanie N. Rotondo

Portland, Ore., April 28 - Distressed debt was mostly firm Wednesday after losing ground in the previous session.

Sprint Nextel Corp. released its first-quarter earnings on Wednesday. The numbers showed improved revenues and subscriber losses, but the bonds were seen weakening anyway.

In the financial space, Synovus Financial Corp. retained the gains it had incurred on Tuesday, though trading was still active, according to traders. The company's debt had moved up 7 to 8 points on Tuesday, following news of a $630 million capital plan.

Smurfit-Stone Container Corp. paper continued to improve, following a recent trend in the name. With no news out, the gains seem to be an indication of value in the company - which could bode well for stockholders attempting to fight Smurfit's current reorganization plan.

Sprint debt falls post-earnings

Sprint Nextel bonds ended the day weaker even as the Overland Park, Kan.-based company posted its first sequential increase in total net operating revenues in nearly three years.

A trader said all Sprint debt was "down a quarter to a half across the board," seeing the 8¾% notes due 2032 at par ½ and the 8 3/8% notes due 2017 at 1031/2.

Another source, however, said the bonds were down as much as a point, pegging the 6% notes due 2016 at 93 bid.

For the first quarter, Sprint saw net operating revenues of $8.1 billion. Net loss came to $865 million, which included a non-cash $365 million increase in valuation allowance on deferred tax assets.

Free cash flow was $506 million and the company has $4.4 billion in cash and equivalents as of March 31.

Subscriber losses improved slightly, as the company lost a total of 75,000 customers during the quarter.

Driven by the best year-over-year improvement in post-paid gross subscriber additions and the highest prepaid gross subscriber additions in five years, the company achieved the best total company net subscriber results since the third quarter of 2007," the company said in the earnings release.

"Sprint's first quarter results, including increased net operating revenues and significant year-over-year net post-paid subscriber improvements show we continue to make progress in improving the business," said Dan Hesse, chief executive officer, in the release. "Our ongoing focus on improving the customer experience, generating cash and strengthening the brand continues to pay off."

But not everyone shared Hesse's optimism.

"Sprint still has not managed to turn the corner, although it is making progress in some areas," wrote Gimme Credit analyst Dave Novosel in an afternoon note.

Novosel noted that while Sprint only lost net 75,000 subscribers - "a much better performance than the last four quarters" - postpaid subscriber losses amounted to 578,000, "thereby arresting the positive trend."

Synovus holds on to gains

After running up 7 to 8 points in the previous session, Synovus Financial's bonds remained at their Tuesday levels, though trading was active.

A trader said the 5 1/8% notes due 2017 were "not that much different" around the 90½ level. "They were active though."

Another trader placed the paper in the 90½ bid, 91 offered context, which he deemed about unchanged.

Late Monday, Synovus announced a capital plan aimed at increasing and improving its tier I common equity. To that end, the company said it will raise $630 million in new capital via a $400 million pubic offering of common share, a $200 million public offering of tangible equity units and a debt-for-equity exchange.

"These offerings and the exchange offer are ongoing steps in our previously announced plan to strengthen our capital position," said Richard Anthony, chairman and CEO, in a press release announcing the plan. "Additional capital will contribute to our ability to come out of this cycle soon and take advantage of future opportunities that arise from an evolving financial services landscape."

Synovus is a Columbus, Ga.-based financial services company.

Smurfit still rising

As has been the trend these days, Smurfit-Stone Container paper remained active and continued to gain in value, traders reported.

A trader said the Chicago-based paperboard manufacturer's bonds were "all up 1 to 2 points," placing the 8¼% notes due 2012 around 98. He also saw the 8 3/8% notes due 2012 at that level and the 8% notes due 2017 around 971/2.

Another trader quoted the 8¼% and 8 3/8% notes at 98 bid, 98½ offered.

Market sources previously told Prospect News that recent gains in Smurfit debt were due to the value of the company's assets.

"There is value there," one source opined.

The company's shareholders apparently agree, as they have objected to the company's plan of reorganization. The plan would pay secured lenders in full and give unsecured creditors new equity in the reorganized company. Shareholders would meantime walk away with nothing.

Smurfit's management has claimed that there is not enough value in the company to offer stockholders any type of recovery. The stockholders, for their part, disagree with that sentiment.

In the paper sector at large, a trader said that the industry "got hit" after Catalyst Paper Corp. reported numbers. He said that the Richmond, B.C.-based coater-paper manufacturer's 11% senior secured notes due 2016 were "wrapped around 98," which he called down 3 to 5 points on the day, post-numbers.

He also saw NewPage Corp.'s 10% notes due 2017 at 68 bid, 681/4, "down a few," in sector sympathy.

Another trader said the NewPage paper was active in a 68 bid, 69 offered context, calling the Miamisburg, Ohio-based coated-paper manufacturer's bonds "down a couple of points" from the 70ish levels seen on Monday and Tuesday.

Broad market mixed

Among the "usual suspects," as one trader called them, Rite Aid Corp.'s 9½% notes due 2017 traded up a smidge to around 87.

Harrah's Entertainment Inc.'s 10% notes due 2018 were meantime "basically unchanged," according to a trader, at 86¼ bid, 87¼ offered.

In the automotive arena, General Motors Corp.'s 8 3/8% notes due 2033 were steady around the 38 mark, a trader said.

"They tried to push up a little this morning," he said, noting that the bonds had gotten as good as 38¼ before settling back in.

And, First Data Corp.'s 9 7/8% notes due 2015 were "kind of where they went out [Tuesday], maybe a smidge lower" at 90 bid, 90½ offered.

Paul Deckelman contributed to this article

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