Nortel pops as Canada forgoes auction sale review; OPTI debt flies higher; Dynegy ends firmer

By Stephanie N. Rotondo

Portland, Ore., July 19 - Distressed debt had a better tone Tuesday, given a 200-plus point gain in the equity markets and chatter that the U.S. government was coming close to agreeing on a debt ceiling deal.

Still, "volume was pretty light," a trader said, adding, "We just got to a billion."

Nortel Networks Corp. was a winner for the day. The bonds gained about 3 points on news that the Canadian government was not planning to review the company's recent sale of its patent portfolio to a consortium led by Apple Inc.

Among other Canadian issuers, OPTI Canada Inc. debt remained strong. The bonds have moved up at least 10 points in the last week, since the company filed for creditor protections in Canada.

In the energy realm, Dynegy Inc. paper was modestly higher, traders reported. In a research report sent to clients, an analyst remarked that the company's recent announcement that it planned to issue new loans to take out old debt was not necessarily in bondholders' best interests.

Nortel debt pops

Nortel networks' bonds shot up 3-plus points on news the Canadian government had decided not to review its recent $4.5 billion patent portfolio sale to a group led by Apple Inc.

"If there was some concern that in reviewing that it could possibly get blocked, then it was probably a good thing," a trader said.

He pegged the 10¾% notes due 2016 "around 113."

Another trader said the 10¾% notes were "quite active" at 1131/4, which he said was up 3¼ points.

The trader also saw the 10 1/8% notes due 2013 at 113, a gain of 3½ points, he said.

The Canadian government previously said that it was considering reviewing the auction sale under the Investment Act of Canada, which requires a review of foreign investments with a book value of more than C$312 million to determine if they are of "net benefit" to the country.

However, Nortel had several times written the value of the patent portfolio down to zero.

"Based on the information provided by the investor and Nortel's 2010 audited financial statements, the acquisition of the Nortel patents is not subject to review for net benefit under the act," the government said in a statement.

The bankruptcy courts overseeing Nortel's case approved the sale on July 11.

Nortel is a Toronto-based telecommunications equipment manufacturer.

OPTI remains strong

A trader said OPTI Canada's subordinated debt "continues to go up."

He said the 7 7/8% and 8 ¼% notes due 2014 traded as high as the mid-50s before "scaling back" to 53 bid, 54 offered.

"Certainly they were up a good bit today," he said, estimating a gain of 4 to 5 points. "These things have rallied 10 points [since the company filed for creditor protections in Canada on July 13]."

He also noted that the paper was "very active," but didn't know what was causing the action or the gains. He opined it could be "a strategic buyer."

Another trader said the subs were "up a lot." He pegged the notes at 533/4, up 4½ points on the day.

OPTI is a Calgary, Alta.-based oilsands producer.

Dynegy inches higher

Dynegy's debt was "up mildly, but not overly active," according to a trader.

He saw the 7¾% notes due 2019 at 68½ bid, 69 offered and the 7½% notes due 2015 around 74.

Another trader saw "a couple trades" in the name, the 7½% notes around 74¼ and the 7.67% notes due 2016 at 723/4.

The Houston-based power producer said last week that it planned to issue $1.7 billion in new loans to take out old debt. Since then, the bonds have lost some value as bondholders worry that the restructuring effort would strip away valuable assets from them.

According to Gimme Credit LLC analyst Kim Noland, the new loans and the new entities that will be created for them "would be structurally senior to the bonds, reducing bond recovery value in a downside scenario involving bankruptcy or a distressed debt exchange.

"The restructuring would solve covenant compliance issued but the new deal will add near $1 billion of additional debt as well as make it easier to sell assets of the new entities," Noland wrote in a report released Tuesday morning. "Weak covenants in the bonds have left holders unprotected for this kind of maneuver.

"We would not be surprised to see a distressed debt exchange in the offing," she concluded.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.