Distressed marketplace muted by month-end and looming weather; OPTI Canada debt remains active

By Stephanie N. Rotondo and Paul Deckelman

Portland, Ore., Jan. 31 - Distressed debt traders lamented a case of the Mondays, as sources said the day's trading session was "deadish."

"There were a lot of two-sided market that didn't get done," said one trader. Price movements were also at a minimum, leaving the market essentially sideways.

Another trader noted that it was month-end, which could have accounted for the lack of any real action. He also remarked that New York and other East Coast locales "might have some inclement weather coming in," which didn't bode well for the rest of the week.

OPTI Canada Inc. continued to trade in size, but the bonds performed in line with the rest of the market, ending about unchanged. There hasn't been any OPTI-specific news out to drive volume or price, but earnings season for its sector began last week.

Eastman Kodak Co. was also on the more active side, but again, the bonds closed in line with where they went out last week.

However, Solo Cup Co. debt drifted in about a point on the day, with no news out to explain the loss. One trader pointed out that the bonds have been losing ground for the last couple of weeks.

OPTIs still dominating

OPTI Canada bonds were again trading on the active side, though a trader said the debt was "not much different" in terms of price.

He pegged both the 7 7/8% and 8¼% notes due 2014 around 60, which he said was off maybe a quarter-point.

Another trader also placed the issues around the 60 level.

Last week, Canadian Oil Sands Ltd. started off earnings season for oilsands producers, reporting a nearly triple increase in profit for the fourth quarter of 2010. Oilsands producer in general are expected to see a surge in their fourth-quarter results, in part due to the rising cost of oil.

Calgary, Alta.-based OPTI could benefit as well, though the company's Long Lake joint venture project with Nexen Inc. has been beset with operational issues and the project has yet to produce up to full capacity.

OPTI's results are expected on Feb. 10. The company has previously said that its financial health depends largely on the oilsands project.

Kodak active, steady

There was also "some action" in Eastman Kodak's 7¼% notes due 2013, a trader said, but as with OPTI there was "not much price movement."

He saw the bonds at 931/4, while another called the notes 1-point weaker at 93½ bid.

Another trader quoted the notes at 93½ bid, 94 offered, "kind of in line with where it has been."

At another shop, a trader said the were trading around 93 bid, which he said was still down nearly a point to a full point from the levels seen around Friday in a 931/2-93¾ level. He said there had been "decent activity" in Kodak on Friday after the bonds got beat up last week on the combination of bad quarterly earnings and an adverse preliminary decision in the patent-infringement case Kodak it brought against several well-known smartphone makers.

But even allowing that the bonds had stabilized from their previous fall and had actually improved a little on Friday on such bullish jawboning, the trader said that Kodak was "still in a bad situation.

"Even if they succeed in the patent case, their numbers are just terrible to begin with," he declared.

Early last week, the Rochester, N.Y.-based company released disappointing earnings, posting net income of just $33 million, compared with $430 million the year before.

Eastman Kodak intends to hold an institutional investor meeting later this week in New York City.

Solo Cup losing weight

A trader said Solo Cup's 8½% notes due 2015 were actively trading, though he wasn't sure what was causing the volume.

He called the notes down "about a point" at 901/4.

Another trader put the bonds in a 90 bid, 90½ offered ZIP code, noting that the paper had been trading around 91 last week and 92 before that.

"So that one continues to slide a little bit," he said.

Solo Cup is a Lake Forest, Ill.-based manufacturer of single-use products used to serve food and beverages for the consumer/retail, foodservice and international markets.

Harrah's hangs in

In the gaming arena, a trader said Harrah's Entertainment Inc./Caesar's Entertainment Inc.'s bonds were "not all that active," and about unchanged on the day.

He saw the usually active 10% notes due 2018 around 91.

Another market source saw the notes slipping a bit to 91 bid.

Navios Maritime sinking

A trader said that Navios Maritime Holdings Inc.'s recently priced 8 1/8% notes due 2019 "were getting clocked" on Monday, seeing the Greek cargo shipping company's bonds having fallen to 95 bid, 97 offered - well down from the par level at which the $350 million offering, upsized from the originally announced $325 million, had priced "only around two weeks ago," on Jan. 13, to be precise.

He said that the bonds had eased down last week from par to around 98 ¾ bid, 99½ offered, but in Monday dealings, "they were being offered at 97, and the best bid I saw was 95."

He suggested that bondholders might be nervous over the prospect that the current political turmoil in Egypt could conceivably produce a closure of the strategic Suez Canal, which could play havoc with the company's shipping of such drybulk commodities as iron ore, coal, grain and fertilizer between Atlantic ports in the U.S. and Europe by way of the Mediterranean Sea and ports on the Persian Gulf, the Indian Ocean and Asian destinations even beyond, including India and China.

He also said there might be concern that drybulk shipping rates might not be high enough to allow such companies to be profitable. Another Greece-based drybulk cargo carrier, Excel Maritime Carriers Ltd, last week postponed an expected $250 million offering of eight-year notes, citing financial market conditions and adverse shipping industry developments, including a sector peer, Korea Line Corp., being forced to file for receivership last week.

Amid a glut of big new cargo ships ordered during the shipping boom years in the middle of the 2000s decade and now plying world maritime lanes, rates for leasing such vessels have fallen steeply over the past few months, now hovering dangerously near or in some cases even below the breakeven levels the operators need to keep the ships afloat. A Deutsche Bank report last week cautioned that China would likely cut its coal consumption as that country attempts to control inflation by slowing its heretofore runaway growth, which would likely mean fewer coal shipments, hurting carriers hauling such commodities. Deutsche warned of "a weak drybulk market in the near-to-intermediate term," causing shares of some shipping companies to slide.

At another desk, a trader also quoted the new Navios bonds in a 95-97 context. "You've got guys making lower bids, the offerings are lower, but people aren't hitting them down at that level yet."

He was a little skeptical of the Suez Canal blockage or closure scenario, pointing out that just on Monday in an interview on CNBC, petroleum tanker operator TeeKay Corp.'s chief executive officer said that one of his company's ships went through the canal on Monday with "no issues."

"They were in contact with it, and so it was kind of a non-event," the trader said. "They're watching it - but nothing terrible has happened yet."

That having been said, though, he allowed that "with the turmoil that can go on in that section of the world, you can just never know what can happen tomorrow. So, maybe owning [bonds or shares of] a shipping company that goes though the Suez Canal is not something you would necessarily have as a core position at this point in time.

"There would seem to be no smooth sailing but instead, rough seas."

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