OPTI heralds restructuring plan, bonds benefit; Dynegy debt keeps buckling; broad market mixed

By Stephanie N. Rotondo

Portland, Ore., July 13 - OPTI Canada Inc. was the big news Wednesday, as the company announced it had commenced restructuring proceedings in Canada.

The agreement came just days before a 30-day grace period was set to expire, after the company missed a coupon on its subordinated debt last month. The news gave the bonds a boost, according to traders.

Meanwhile, Dynegy Inc.'s bonds continued to succumb to pressure. The debt has been on the decline since Monday, when the company said it was looking to issue new loans to pay existing debt.

Overall, the market was steady to slightly better, following the trend of the equity markets.

OPTI up on restructuring

OPTI Canada's debt traded up on news the company had reached an agreement with noteholders that would allow it to restructure its balance sheet.

As such, OPTI said it had "commenced proceedings in the Court of Queen's Bench of Alberta under the Companies' Creditors Arrangement Act to implement the restructuring."

A trader said the subordinated paper - the 8¼% and 7 7/8% notes due 2014 - traded up nearly a point to around 43. The senior notes - the 9% notes due 2012 and the 9¾% notes due 2013 - were also better at 102 bid, 102¾ offered.

"They had been wrapped around 101," the trader said. "You could tell they were going to file."

Another trader pegged the subs around 43 and the seniors around 102.

Under the terms of the restructuring agreement, the Calgary, Alta.-based oilsands producer will convert the subordinated notes into common stock. Additionally, the company will undertake a C$375 million rights offering, which will be backstopped by members of the subordinated noteholder group.

The senior notes must be refinanced prior to the closing of the offering as a condition of the agreement.

Existing stock will be canceled, though stockholders will receive warrants to purchase about 20% of the new shares in the rights offering.

"The restructuring and new equity commitment we have negotiated is indicative of the support of OPTI's noteholders, who recognize the long term value in the company's asset base," said Chris Slubicki, president and chief executive officer, in a statement.

"The recapitalization of our balance sheet will provide us with cash resources to continue to advance operations at Long Lake, as well as to begin development at Kinosis, with our operating partner, Nexen [Inc.]."

OPTI hopes to complete the restructuring by Dec. 1.

On the news, Standard & Poor's dropped its rating to D from SD. S&P had previously placed the rating at SD when OPTI missed a coupon payment last month.

Dynegy declines again

Dynegy paper was "falling farther," according to a trader.

He called the 7¾% notes due 2019 down another 1½ points to 67½ and the 7½% notes due 2015 about 1¼ points weaker at 733/4.

Another market source deemed the 7¾% notes a point lower at 67¾ bid.

Earlier in the week, the Houston-based energy producer said it was looking to secure $1.7 billion of new loans in order to pay down existing debt. The action was the first part of the company's attempt to restructure itself.

Dynegy had warned earlier in the year that it might be forced to file for Chapter 11 protections if it could not get its balance sheet in check. That warning came after the company rejected two takeover offers, claiming that both bids valued the company too low.

However, some bondholders are now concerned that the company is looking to take value from bondholders, as the new loans will become senior to the bonds.

Broad market mixed

In the rest of distressed land, NewPage Corp.'s 11 3/8% notes due 2014 were seen unchanged around 911/4.

A trader said Clear Channel Communications Inc.'s 10¾% notes due 2016 gained a point to end around 90, while the 11% notes due 2016 inched up to 88.

In Nortel Networks Corp.'s paper, the 7 7/8% notes due 2026 closed at 108½ and the 6 7/8% notes due 2023 were called "kind of unchanged" at 79.

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