Blockbuster debt still soft; ATP bonds drop; GM slips on recall news; Smurfit notes stay weak

By Stephanie N. Rotondo

Portland, Ore., June 8 - The distressed debt market experienced what one trader called a "disconnect" on Tuesday, resulting in an overall lower marketplace.

"Things were definitely weaker," he said. "We had a bit of a disconnect with stocks," referring to the gains the equity market incurred.

Still, "it was much busier today, or at least a lot more volume," another trader said.

Blockbuster Inc.'s bonds declined just over a point during trading, leaving the subordinated issues deeper in single-digit territory. According to news reports, some analysts think a bankruptcy filing is near.

Meanwhile, ATP Oil & Gas Corp. got active again, falling as much as 5 points during the session. A trader speculated that the losses were due to growing concerns about the Gulf of Mexico oil leak and how that situation will shake out.

General Motors Corp. announced that it was recalling more than 1 million vehicles sold during 2007 and 2009 due to a malfunction that could cause a fire. As a result, market sources saw the bonds slipping about a point.

And, Smurfit-Stone Container Corp.'s debt remained under pressure, traders reported. However, there was still no news out to explain why the paper packaging manufacturer's notes have been on the decline for the last couple of trading days.

Blockbuster moves lower

Struggling movie-rental chain Blockbuster saw its 9% notes due 2012 fall deeper into single-digit territory Tuesday, according to traders.

One trader saw the paper slipping 1½ points to 8 bid, 9 offered. However, he said the 11¾% notes due 2014 were "still" at 57½ bid, 58½ offered.

"Those are holding up somewhat," he said.

Another trader said the name "traded a bunch," seeing the 9% notes hit a low of 7 before coming back to close around 9. He meantime placed the 11¾% notes at 571/4.

In a Bloomberg article published Tuesday, analysts were cited as saying that the company's bondholders - specifically holders of the $630 million of 11¾% notes - could offer Blockbuster a bankruptcy loan in exchange for most of the equity in the reorganized company.

The analysts opined that a Chapter 11 filing is imminent and that, in such a case, investors of the 11¾% notes could receive as much as 70 cents on the dollar in a restructuring.

"The bankruptcy writing is on the wall," Stan Manoukian, founder of Independent Credit Research, was quoted as saying in the article. Even though a bondholder-backed loan "may dilute the recoveries, but at least the company will have some turnaround options."

However, holders of the 9% notes might not get a dime for their investment.

The Dallas-based company will hold its annual shareholder meeting on June 24. It is expected that the company will give an update on its restructuring talks at that time.

ATP bonds drop

ATP Oil & Gas' 11 7/8% notes due 2015 dropped as much as 5 points on the day, as concerns about the Gulf of Mexico oil leak grew.

A trader said the bonds were "still soft" at 67 bid, 68 offered.

At another desk, a trader said the paper was "all over the place," hitting a high of 72 and a low of 673/4. By the end of business, he said the notes had settled in at 68 bid, 69 offered, with about $30 million to $40 million trading.

"I think it's a little of everything," the second trader said when asked what had caused the multi-point decline. "This is an issue [referring to the BP plc oil leak] that isn't going away yet."

On top of the BP spill, there is also talk that another offshore driller, Diamond Offshore Drilling, is having a leak at one of its well sin the Gulf of Mexico.

The trader said that while people try to figure out where the liabilities fall and what insurance will cover, they are also "looking at some of the smaller firms that, even if they can survive, will get beat up a little.

ATP is a Houston-based oil exploration company.

GM slips on recall effort

General Motors' debt fell as much as a point on the day after the company announced a recall of 1.5 million 2007-2009 vehicles.

Traders pegged the 8 3/8% notes due 2033 between 31 3/8 and 311/2, with about $30 million to $40 million of the notes changing hands.

The Detroit automaker's recall effort is due to a heated washer fluid system module that could pose a fire risk. The company is offering a $100 payment to owners and lessees of each vehicle.

"While our analysis shows the number of incidents is very small compared with the number of vehicles on the road, we want our customers to have complete peace of mind," said Jeff Boyer, executive director of safety, in a press release. "We always want to make sure customers can count on the safety and quality of their GM vehicle.

"This was a unique technology available from only one supplier, and that supplier has stopped manufacturing, which left no opportunity to collaborate on an improved design," Boyer added. "We want to be clear that the voluntary payment to customers is for the loss of the feature, not the recall."

Smurfit debt remains weak

Smurfit-Stone Container's debt continued to lose ground in trading, but there was still no news out to explain what was causing the declines and traders were equally at a loss to explain it.

One trader, speaking generally, said Stone paper had fallen a couple points into the high-70s.

Another source saw the 8¼% notes due 2012 dropping nearly 4 points to end at 78¾ bid.

Yet another trader said there was "lots of trading" in Stone bonds, which he deemed "all down between 2 and 3 points."

The trader pegged the 8% notes due 2017 at 781/4, the 8¼% notes at 78¾ and the 7½% notes due 2013 at 76.

Smurfit-Stone is a Chicago-based manufacturer of paper packaging products.

Broad market on the decline

Elsewhere in the land of distressed debt, there was "not much" going on in Ambac Financial Group Inc.'s bonds, a trader said, even as news reports indicated the company could be forced into a pre-packaged bankruptcy.

"Those things have been drifting lower," he said, adding that the 6.15% notes due 2037 had traded at 3½ bid, 4½ offered on Monday. "But I haven't seen much in them today."

In the gaming arena, Harrah's Entertainment Inc.'s debt remained active, with "$100 million and change" of the company's various issues turning over. He said the 10% notes due 2018 were "down a solid point and change" around 80.

And, Realogy Corp.'s 10½% notes due 2014 were also "slightly softer, but not anything drastic" at 843/4, the trader said. He noted that $10 million to $15 million of the notes changed hands.

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