Blockbuster gets busier as auction begins; Harry & David steady; Nortel notes close day mixed

By Stephanie N. Rotondo

Portland, Ore., April 5 - Distressed debt continued to be generally stronger, traders reported Tuesday.

"Prices definitely ground up again a little bit more," a trader said, and on "good volume."

However, another trader remarked that while trading in the secondary space was active, investors were mostly focused on the new issue market, "not a lot of distress-y stuff."

Blockbuster Inc. was a topical name for the day as an auction to sell the business started. Though the bonds were trading more actively than has been the norm of late, traders saw them closing unchanged on the day.

Fellow bankrupt company Harry & David Holdings Inc. also saw busier trading during Tuesday's session. Like Blockbuster, however, the bonds were steady pricewise.

Just one day after learning that Google Inc. had made a $900 million play for Nortel Networks Ltd.'s patent portfolio, Nortel notes closed the day out mixed. The bonds had traded up on Monday on the news, in active dealings.

Also active was Energy Future Holdings Corp., continuing a trend that began last Friday when the company said it was seeking to amend its credit facilities. Traders also said those bonds were virtually unchanged on the day.

Blockbuster busier on auction

A trader said there was "some trading" in Blockbuster's 9% notes due 2012 as an auction for the bankrupt movie rental chain got under way.

"Obviously, it's just a topical name," the trader said.

He said the bonds were trading around 1, which is where the debt has been for some time.

Another trader said the subordinated issue was "a little active," quoting the notes at 1 bid, 1¼ offered. He also called that unchanged on the day.

"It's just people cleaning up positions," he said.

The results of the auction showed an investor group led by billionaire investor Carl Icahn winning the war, with a $310.6 million bid. Dish Network Corp. came in second with a $307.1 million bid.

However, SK Telekom Co. said its $284.5 million bid was still superior, as that offer provides more cost-coverage related to movie studios and also takes on more of Blockbuster's liabilities.

Cobalt Video had the stalking horse bid at $290 million.

Icahn attended the day's auction but did not specify whether he would reorganize the business or if he would liquidate.

Harry & David action increases

Harry & David Holdings' debt was "getting a little more active," a trader said, pegging both the 9% notes due 2013 and the floating-rate notes due 2012 at 23 bid, 24 offered.

"It's been active since that announcement," said another market source, referring to news of the company's bankruptcy filing last week.

The source saw the bonds trading around the 24 mark.

The Medford, Ore.-based specialty retailer filed for Chapter 11 protections nearly 30 days after missing a $7 million interest payment on March 1. Declining sales - caused in part by the economic crisis - had previously put pressure on the company, resulting in a bankruptcy warning earlier this year.

Nortel ends mixed

Nortel Networks' remained a topical credit, as the market digested news that Google Inc. had made a $900 million bid for the company's patent portfolio.

A trader said the 10¾% notes due 2016 and the 0% notes due 2011 were "very active," at 92½ and 883/4, respectively.

He called the former down a quarter-point and the latter up half a point.

Another trader said the bonds were trading in the "same sort of ZIP code," seeing the 10¾% notes at 92½ bid, 93 offered.

Google's bid will be the stalking horse bid in an auction to sell off one of the Toronto-based telecommunications company's last remaining assets. It is expected that the price could climb much higher as bidders vie for the portfolio of about 6,000 patents and patent applications.

Nortel filed for bankruptcy protection in January 2009 and has been selling off assets ever since.

Proceeds from the sale of the patent portfolio will be used to pay off creditors. Equity holders will receive nothing from a potential sale.

TXU remains active, steady

A trader said that while Energy Future Holdings' debt was still busy - he saw about $100 million to $150 million of the entire complex trade - the bonds were "flat yesterday, holding at the recent highs."

He quoted the 10¼% notes due 2015 at 66 bid, 67 offered, the 11¼% notes due 2017 at 89 bid, 89 ½ offered and the 10% notes due 2020 at 107 bid, 107½ offered.

But another trader called the 10¼% notes down almost a point around the 67 level, even as another said the issue was unchanged, also around "67-ish."

The bonds had begun trading in massive size on Friday, as the Dallas-based power producer said it was seeking to amend and extend its senior secured credit facilities and that it was asking lenders to agree that it was not in a technical default. Aurelius Capital Management had previously alleged a default based on some inter-company loans that it says were not done on an "arm's length" basis.

Energy Future is a Dallas-based power producer.

GM boosted by stock gain

A trader said General Motors Corp.'s benchmark 8 3/8% notes due 2033 were stronger, "helped by the stock finishing a lot higher."

He called the paper half a point better around 301/2.

The stock (NYSE: GM) traded up 48 cents, or 1.48%, to $32.87.

At another desk, however, a trader said the notes were "not moving," placing the issue at 30¼ bid, 30¾ offered, on "not tremendous volume."

GM is a Detroit-based automaker.

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