Dynegy to issue new loans, bonds decline; court approves Nortel auction results; OPTI subdued

By Stephanie N. Rotondo

Portland, Ore., July 11 - Broad market concerns - specifically about Europe's debt and the U.S.' debt-ceiling talks - put pressure on the distressed debt space Monday, according to traders.

One trader said that distressed issues were down at least a quarter- to a half-point.

Dynegy Inc., however, lost more than that as the company announced it was planning on issuing $1.7 billion in new loans to pay off existing debt. Traders saw the bonds falling anywhere from half a point to nearly 3 points on the day.

Meanwhile, Nortel Networks Corp.'s recent auction sale of its patent portfolio got the OK by a joint U.S.-Canada court. But traders gave mixed reports as to how the bonds reacted.

There was not much going on in OPTI Canada Inc.'s bonds Monday. But the expiration of a 30-day grace period is rapidly approaching, leaving one trader to opine that there could soon be more volatility in the name.

Dynegy falls on new loans

Dynegy's debt dipped following news the company was planning to launch $1.7 billion in new senior secured loans as part of a restructuring effort.

A trader said the 7¾% notes due 2019 were "pretty active" and "straddling 71," which he said was down about half a point. The 8 3/8% notes due 2016 were "down a few points more" around 78.

Another market source called the 7¾% notes nearly 3 points softer at 70 bid.

A third source said Dynegy "got beat up," seeing the 8 3/8% notes lose over 2 points, closing at 773/4. He also saw the 7¾% notes fall about 1½ points to finish around 70.

However, Dynegy's strip of institutional bank debt moved up to 98¾ bid, 99¾ offered from 98¼ bid, 98¾ offered on the news, according to a trader.

A second trader, who was quoting the paper at 98¾ bid, 99½ offered, said that the debt probably didn't move all the way up to par on the news since there is some risk of whether the deal will get done.

After rejecting two takeover attempts since September, the Houston-based energy company warned that it might have to file for bankruptcy in the second half of the year if it could not get its balance sheet in check. To that end, it hired financial advisors to help devise a restructuring plan.

The new loans are the first part of a proposed plan aimed at reducing overall debt. Of the loans, $1.3 billion will be held at the company's GasCo subsidiary and the remaining $400 million at the CoalCo unit.

Proceeds from the GasCo loan will be used to repay Dynegy Holdings Inc.'s existing senior secured credit facility, repay existing debt relating to Sithe Energies Inc., make a $400 million restricted payment to a parent holding company of GasCo and to fund cash collateralized letters of credit and cash collateral for existing collateral requirements.

The CoalCo loan will be used to fund cash collateralized letters of credit and cash collateral for existing collateral requirements, and for general working capital and general corporate purposes.

A bank meeting was held Monday and the loans are expected to launch Tuesday. Closing is expected by the end of the month.

Nortel gets OK on patent sale

Traders gave mixed reports of how Nortel Networks' debt fared as a joint court approved the $4.5 billion sale of the company's patent portfolio to a group that included Apple Inc. and Microsoft Corp.

One trader called the 10¾% notes due 2016 half a point lower at 108 bid, 108½ offered. But another trader said the bonds were "all better," seeing the notes gain over half a point to end at 108 5/8.

At the joint hearing, U.S. Bankruptcy Judge Kevin Gross in Wilmington, Delaware, and Ontario Superior Court Judge Geoffrey Morawetz in Toronto gave the sale the go-ahead to the Rockstar Bidco LP group.

Along with Apple and Microsoft, the group includes Research In Motion Ltd., Sony Corp., Ericsson AB and EMC Corp.

Nortel, a Toronto-based manufacturer of wireless telecommunications technology, filed for Chapter 11 protections in January 2009. Since then, the company has sold off units to pare down and to pay off creditors. With the monstrous bid from the patent auction, creditors are expecting to receive 100% pre-petition recovery and there is some optimism about post-petition recovery as well.

OPTI nears full default

OPTI Canada paper was radio silent Monday and a trader said the bonds were quoted in the same range as they had been of late.

He pegged the 8¼% notes due 2014 at 42 bid, 44 offered and the 7 7/8% notes due 2014 at 41 bid, 43 offered.

The bonds trade flat, as the company missed a coupon on June 15. The Calgary, Alta.-based oilsands producer is currently operating under its 30-day grace period, which will expire on Friday.

"I haven't heard much chatter on those," a trader said. "So the end of this week, there could be some volatility. We could get a preview of what people think [will happen].

"There has got to be talks going on behind the scenes," he added. As such, he opined that as the grace period expiration date nears, some of those talks might get "leaked out."

OPTI has struggled to bring its Long Lake joint venture project with Nexen Inc. up to full capacity and has said that without it, the company's bottom line would be severely hampered.

OPTI has been working with advisors to develop a restructuring plan, though no word of any plan has surfaced.

Market weakness reigns

Among other distressed issues, NewPage Corp.'s 11 3/8% notes due 2014 were deemed a point weaker at 92.

The trader also saw Clear Channel Communications Inc.'s 10¾% notes due 2016 dropping 2½ points to end around 89.

Sara Rosenberg contributed to this article

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