DirectBuy bonds gyrate, rally by end of day; Kodak moves up; Harry & David debt on the decline

By Stephanie N. Rotondo

Portland, Ore., March 25 - A trader said the distressed debt market was "trading infinitely higher" on Friday, though investors continued to zone in on new issues.

"It was a busier Friday that it should have been, but it was definitely recent new issue-driven," he said.

"New issues were still getting some focus," another trader said, deeming the day as quiet overall. "Plus it's Friday during a not-all-that-active week."

But DirectBuy Holdings Inc. paper was still seen moving around during the session. The bonds continued to gyrate, but - like Thursday - they ended higher.

Eastman Kodak Co. debt was also inching up slightly, as the company sought to force Apple Inc. and Research In Motion Ltd. to pay royalties for image viewers used in their cellphones. Kodak alleges that the technology used in those phones infringes on their patents.

Also, Harry & David Operations Corp. notes were drifting in, according to a trader. The company missed a coupon payment earlier this month and its 30-day grace period is about to expire.

DirectBuy bonds rallying

DirectBuy Holdings' 12% notes due 2017 traded "a little bit better," a trader said.

He pegged the notes at 76 bid, 77 offered.

At another desk, a trader quoted the bonds at 77 bid, 78 offered, though he noted they had hit a low around 74.

"The pattern is, wherever it starts, it ends somewhere else," he said, referring to the gyrations seen in the debt since the company said its chief financial officer was leaving.

The Merrillville, Ind.-based company held a bondholder call on Tuesday. During the call, the company reportedly not only disclosed a decline in new memberships, but also said that its CFO, Mark Boggess, was resigning.

The call "reportedly went poorly, with disclosures including weak membership sales, a lower club count and the resignation of the CFO helping pull bonds down sharply," a Knight Capital Group Inc. analyst said in a recent research report.

But the credit has provided an interesting drama for distressed buyers, as the bonds have fallen about 23% since they were issued in February.

Even then, the bonds were priced at a discount, at 97.

Kodak inches up

A trader said Eastman Kodak paper was "probably a little better," seeing the 7¼% notes due 2013 "straddling 99."

But another trader deemed the debt essentially unchanged, around par.

On Friday, the Rochester, N.Y.-based company said that its patent fight with Apple Inc. and Research in Motion Ltd. could provide more than $1 billion in revenue from royalty payments.

Kodak expects to learn Friday if the International Trade Commission will review the findings of a judge, in which the judge said Apple's iPhone and RIM's BlackBerry do not violate any patents. Kodak is alleging that both companies infringed on their image preview patent.

The company has already won lawsuits against Samsung Electronics Co. and LG Electronics Inc. for infringing on the same patents. Those suits garnered a total of $964 million in royalty payments.

Harry & David drift

Harry & David Operations' bonds "keep sliding a little bit," according to a trader.

He saw the 9% notes due 2013 "drifting lower" to 26 bid, 27 offered.

Another trader, however, said the paper was "a little better" around 26. But he did note that "it's hard to be better when you are [trading] down there."

The Medford, Ore.-based specialty foods retailer has struggled during the economic crisis. Currently, the company is operating under a 30-day grace period for missing a March 1 coupon payment.

The 30 days will expire next week.

"It's a tough situation," said a source who follows the name. "It's a one-quarter company really."

Additionally, he said, Harry & David faces "a lot of competition."

"They have been around a long time," he said, adding that Harry & David gifts "have some cache."

But, "despite their best remake, there's just a lot of $50 to $100 type of gifts you can send that might be more appealing."

He speculated that "it will be restructured. Something will happen there."

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