DirectBuy settlement rejected, bonds take dive; OPTI Canada debt softens; Nortel ends stronger

By Stephanie N. Rotondo

Portland, Ore., May 17 - Distressed debt closed out Tuesday's session on the weak side, traders reported.

"The market was a little heavy today," a trader said. "Lots of things were quoted lower, but there wasn't a lot of trading."

The trader opined that the market was suffering from "early summer depression."

But it was a lawsuit settlement rejection and not general depression that pushed down DirectBuy Holdings Inc.'s bonds anywhere from 5 to 10 points. A trader said the debt "got beat up some" as the judge overseeing the company's class-action lawsuit said its settlement was not near good enough.

OPTI Canada Inc. was also softer, though there was no news to act as catalyst.

On the upside, a trader said Nortel Networks Corp.'s notes gained ground as yet another potential bidder for the company's patent portfolio entered the fray. Another trader, however, did not agree that the debt was firmer.

DirectBuy bonds pressured

DirectBuy Holdings was the "loser of the day," a trader said, on "follow-through" from news out late yesterday regarding the company's class-action settlement.

The trader called the 12% notes due 2017 - a $335 million issue that priced at 97 on Jan. 21 - about 10 points weaker at 36 bid, 37 offered.

Another trader pegged the paper at 36 bid, 38 offered, down 5 to 6 points on the day.

The bonds had closed at 42 bid, 44 offered on Monday and opened Tuesday's session at 32 bid, 42 offered, the second trader said.

The bonds began to decline late Monday after a U.S. District Court judge rejected a proposed settlement in the company's class-action lawsuit.

The lawsuit alleges improper sales practices. The Merrillville, Ind.-based home improvement club had offered plaintiffs two months of free membership in a $55 million settlement.

The judge, however, called the proposal "meager," noting that the company failed to meet the heightened test of fairness for early class-action settlements as it failed to account for state consumer protection claims and it overstated the risks of success of the lawsuit.

Attorneys general from 39 U.S. states and territories objected to the settlement, along with a consumer advocacy group.

OPTI bonds weaken

There was no news out on OPTI Canada on Tuesday, but that didn't stop the subordinated debt from trading "fairly active," according to a trader.

He said the 7 7/8% and 8¼% notes due 2014 closed lower around 46.

Another trader echoed that level.

The Calgary, Alta.-based oilsands producer has seen its bonds decline ever since it released yet another disappointing earnings report in mid-April. The company also warned that it would most likely not hit its 2011 production target.

Nortel inches up

Nortel Networks' 10¾% notes due 2016 moved up slightly as news reports indicated that yet another interested party was thinking of joining the auction for Nortel's patent portfolio.

However, "it wasn't extremely active," a trader said.

The trader called the notes up a quarter-point around 92.

But another trader said the issue was "unchanged, maybe a smidge lower," also around that 92 level.

Ericsson AB is reported to be considering making a bid for Nortel's portfolio of patents, possibly in conjunction with a partner, according to Bloomberg News.

Google Inc. made the initial $900 million bid last month. RPX Corp. and Research In Motion Ltd. are also reported to be considering making an offer.

The increasingly high level of interest has led some to believe that the purchase price could easily top $1 billion.

Nortel is a bankrupt telecommunications company based in Toronto.

Lehman steady, Capmark down

In the financial realm, a trader said Lehman Brothers Holdings Inc. continued to be active, but held in at the 25½ bid, 26 offered level.

Meanwhile, Capmark Financial Group Inc.'s 7 7/8% notes due 2012 fell as much as half a point to around 58, a trader said.

William Lyon, NewPage gain

Elsewhere in distressed debt, William Lyon Homes Inc.'s 7½% notes due 2014 were "a little bit stronger," according to a trader, around the 60 mark.

NewPage Corp. was also a bit higher, another trader said.

"It seemed like bonds rallied in the afternoon," he said, seeing the 10% and floating-rate notes due 2012 closing "just north of 40."

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