Sino-Forest downgraded and executives exit, bonds decline; Caesars Entertainment improves

By Stephanie N. Rotondo

Portland, Ore., Aug. 29 - Trading in distressed debt was "lackluster," a trader said Monday, as people were dealing with the aftermath of Hurricane Irene.

"The trains weren't even running [into New York]," the trader said.

"There's a lot of people without power," said another trader, who also remarked that the bulk of his day was spent not trading bonds, but tracking down a generator.

But while volume was thin, prices were higher.

"It was pretty quiet, but it was very, very firm," a trader said. "Nobody was really leading the way, just everything was nudging higher."

That was not the case, however, for Sino-Forest Corp.'s debt. The bonds fell a few more points in Monday trading as the company received another round of downgrades and several of its top executives exited their posts.

Caesars Entertainment Corp.'s debt was trading lighter than usual but was still one of the more active names. Like the rest of the market, the notes headed upward.

In the space of distressed preferred stocks, National Bank of Greece SA's preferreds gained ground after Greece's second- and third-largest banks announced that they would merge.

More pain for Sino-Forest

Sino-Forest's bonds weakened after both Standard & Poor's and Moody's Investors Service cut their ratings on the Chinese-based and Canadian-listed company.

S&P then withdrew all its ratings shortly thereafter.

A trader saw the 10¼% notes due 2014 at 33 bid, 34 offered. That compared to levels around 35 on Friday.

Another trader said that the paper "was definitely more actively quoted today than some of the other things," However, he said the bonds were quoted up.

He said that the 6¼% notes due 2017 were quoted between 28 and 32 bid and with a 30½ bid at the end of the day, while the 10¼ notes were at 30-35. He called those levels up to 3 points better from the levels in the mid to upper 20s.

"People were looking for offerings," though he said he didn't know how much real activity there was, since it's a Rule 144A name.

On Friday, Sino-Forest's stock (Toronto: TRE) was halted by order of the Ontario Securities Commission, which is investigating whether charges of fraud are true or not.

Over the weekend, the allegations seemed to gain more credence as the company's top executive, Allen Chan, as well as three other executives resigned their posts.

Back in June, known short-seller Carson Block - also the founder of Muddy Waters Research LLC - claimed that Sino-Forest had fraudulently misstated its land holdings in China, as well as its revenues. Though the company has denied any fraudulent actions, the market seems to believe otherwise.

"Recent developments point toward a higher likelihood that allegations of fraud at the company will be substantiated," said S&P in its report.

Before withdrawing its ratings, S&P gave Sino-Forest a CCC- rating, down from B. Moody's cut its rating to Caa1 from B1.

Caesars bonds rise

With the overall light volume, even normally go-go names like Caesars Entertainment were on the quiet side, traders reported.

Still, the Las Vegas-based casino operator's 10% notes due 2018 did close higher than Friday levels.

One trader quoted the issue at 75 bid, 76 offered, up "about 2 [points]." Another market source pegged the notes at 75½ bid, up a deuce.

Miamisburg, Ohio-based NewPage Corp. was also muted, though a trader said its 11 3/8% first-lien notes due 2014 were "a little bit higher" at around 85.

Greek bank up on merger

National Bank of Greece's 9% series A preferreds traded higher on more-than-usual volume after two Greek banks - Eurobank and Alpha Bank - announced that they would merge.

The bank's preferreds (NYSE: NBGPA) gained 76 cents, or 14.42%, to finish at $6.03. Volume was over 296,000 shares.

"The decision by the two banks to proceed with a merger is a positive development," said finance minister Evangelos Venizelos. "This initiative demonstrates that today's crisis could serve as a corrective opportunity and provide a boost in the financial sector as well as in the real economy."

Alpha Bank had previously vetoed a takeover bid from National Bank in February, claiming that it did not benefit its shareholders.

Elsewhere in the financial realm, the rise in financial stocks - led by insurance - helped by the perception that the insurers will be helped by lower-than-expected claims from Hurricane Irene, helped push some bonds higher.

A trader saw Radian Group Inc. 5 5/8% notes due 2013 at 77 bid, 79 offered, versus 75 bid, 76 offered, although there was "not a lot traded." He said MGIC's 5 3/8% notes due 2015 were at 67 bid, 69 offered, versus 64 bid, 66 offered last week.

Paul Deckelman contributed to this article

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