First Data recoups some losses; WaMu mixed on new settlement; Smurfit up on shareholder pact

By Stephanie N. Rotondo

Portland, Ore., May 24 - The distressed debt market attempted to stage a comeback Monday after losing weight in the previous week.

The market "tried to bounce back a little" in the morning, a trader said. But momentum was soon lost and, as another trader put it, "I don't think there was much follow-through."

Still, there was some firmness in the marketplace. First Data Corp., for example, managed to recoup some of the losses incurred last week. A trader deemed that the trend of the day, as "stuff that traded up was all stuff that got beat down last week."

Meanwhile, Washington Mutual Inc. paper closed the session mixed. The movements came as investors reacted to a revised settlement and plan of reorganization that was announced late Friday. And, not all of the reactions were positive.

Smurfit-Stone Container Corp. said it had reached an accord with shareholders protesting its plan of reorganization. The news gave the company's debt a 1- to 2-point boost.

And Sprint Nextel Corp. gave tentative pricing on its new credit facility. In the bonds, traders saw the debt inching up at least a point on the day.

First Data recoups some losses

First Data's debt "came up a little bit off the bottom," a trader said, following the string of losses seen last week.

The trader said the 9 7/8% notes due 2015 "remained active," closing at 82½ bid, 83½ offered. That compared with levels around 80 bid, 81 offered on Friday.

Another market source saw the paper improving more than 2 points to 84 bid. The source called credit the day's "most active bond."

Earlier this month, First Data posted a $240 million loss for the quarter, squashing hopes of a potential initial public offering in the near term. That news had put pressure on the bonds, as they fell to their lowest levels since September.

Last week's declines brought the bonds back to those high 70s levels, but with no catalyst.

According to traders, Monday's gains could have been a market correction. However, there was also news out regarding the effect that proposed debit card interchange fees would have on the company's bottom line.

"Fitch Ratings expects that proposed limits on debit card interchange fees, as contained in a Senate Amendment passed May 13, should be neutral to [First Data's] expected financial performance going forward," the rating agency said in a statement released Monday. The proposed legislation would allow banks to set the fees, with limits determined by the Federal Reserve, and would also limit Visa and MasterCard's ability to determine certain fees.

"Furthermore, any negative implications for FDC's Financial Services segment would likely be offset by potential positive impacts of the proposed regulation," Fitch stated. "Specifically, the limit on interchange fees could cause more retailers to begin accepting debit/credit cards for purchases which could boost the secular shift to card based transactions.

"This would positively impact FDC's Retail and Alliance Services business as it typically earns a higher fee on credit card transactions versus PIN debit."

First Data is an Atlanta-based processor of electronic payments.

WaMu mixed on new plan

Washington Mutual filed a revised plan of reorganization late Friday and come Monday, the bonds were mixed in response.

A trader said the bank seniors, such as the floating-rate notes due 2011, were 1 to 1¼ points cheaper at 41¼ bid, 41½ offered. However, the holding company paper - such as the 4% notes that were to have matured in 2009 - was unchanged around the 104 mark.

At another desk, a trader also placed the bank notes around 411/2, deeming that "down a point or so." He added that the holdco debt was "better, by about a point" at 104½ bid, 105 offered.

The new reorganization plan takes into account a revised global settlement with J.P. Morgan Chase & Co. and the Federal Deposit Insurance Corp. The third agreement between the parties is in regard to the FDIC-brokered sale of the Seattle-based thrift to J.P. Morgan in September 2008 and what to do with about $4 billion in deposits WaMu had at that time.

Additionally, the parties will agree to terminate any legal proceedings between them.

Bondholder reaction

However, not all interested parties are pleased with the arrangement. In a statement released Monday, a group of senior bondholders - represented by William Isaacson of Boies, Schiller & Flexner - made their ire known.

"This proposed settlement by the FDIC would represent an enormous loss to the WMB estate," Isaacson said in the statement. "The FDIC is signing off on a several billion dollars windfall to WMI and JPMC, including by affording them WMB-driven tax refunds made permissible by the 2009 stimulus legislation and giving effect to questionable reallocations by WMI of intercompany loans during the week prior to WMB's failure.

"Moreover, the proposed settlement would provide for vastly inferior treatment of the claims against WMI asserted by bank bondholders compared to the treatment afforded to the claims of the WMI noteholders, without any adjudication of the respective claims.

"The dramatically superior recovery of bondholders at the parent company level - under the proposed settlement, virtually all of the WMI noteholders including subordinated holders, will be paid in full, whereas senior WMB noteholders will not receive anything close to payment in full - will deliver the negative message to the marketplace to beware of investment in bank bonds because the FDIC will not protect bank creditors even where, as here, the assets were at the bank and the holding company noteholders were told at the time they purchased their notes that, in the case of an insolvency of the bank and the holding company, their recovery would be subordinate to that of bank creditors.

"This raises serious questions about the FDIC's ability to handle the collapse of large institutions and manage apparent conflicts of interest which pervade their statutory authority."

Elsewhere in the financial realm, CIT Group Inc.'s 7% notes due 2017 opened "down a point," a trader said, around 88. But by the end of business, the bonds had risen to the 89½ mark.

Smurfit-Stone debt higher

Smurfit-Stone Container bonds headed higher in trading, as the market learned that the company and its shareholders had come to terms, allowing for an early summer exit from bankruptcy.

A trader called the 8¼% notes due 2012 "somewhat active" and "up a little bit" at 86¼ bid, 87¼ offered. The paper was seen going out around 85 on Friday, he said.

Another source pegged the notes at 87¼ bid, up 1½ points on the day.

On Monday, the Chicago-based paperboard and packaging manufacturer announced it had reached an agreement with shareholder groups that had previously been fighting the company's plan of reorganization. The resolution will give 2.25% of new equity to stockholders.

The previous plan canceled all of the current equity and gave no form of recovery.

"Reaching this agreement with our stockholders is a major milestone for our company and positions us to emerge from bankruptcy in the coming weeks," said Patrick J. Moore, chairman and chief executive officer, in a press release announcing the deal. "Our focus has been, and continues to be, driving value for our stakeholders and helping our customers grow their businesses."

Sprint better as facility prices

Sprint Nextel notes were on the firm side in Monday trading, as the company announced tentative pricing for its new $2.1 billion unsecured revolving credit facility due October 2013.

A trader said the 6% notes due 2016 "looked up a little bit" at 88 bid, 88 ½ offered.

Another trader saw the 8 3/8% notes due 2017 closing around 981/2, which he called "up a couple points."

In a filing with the Securities and Exchange Commission, the Overland Park, Kan.-based wireless telecommunications provider said that pricing on the new credit facility - which will replace a $4.5 billion revolver that comes due in December - will range from Libor plus 275 basis points to 350 bps based on ratings.

Also on Monday, Goldman Sachs Group Inc. analyst Jason Armstrong upped his rating on the company's equity to "buy" from "neutral." Armstrong based his decision on his belief that Sprint will see fewer subscriber losses going forward.

As a result of the upgrade, Sprint's shares gained about 10% on the day.

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