NewPage notes all the rage as company files for bankruptcy; Hovnanian slips ahead of earnings

By Stephanie N. Rotondo

Portland, Ore., Sept. 7 - NewPage Corp. was the big topic on Wednesday after the company said it had filed for Chapter 11 protections.

"Obviously the most active name today was NewPage," a trader said. However, the bonds - which began trading flat across the board - were not much changed.

Meanwhile, Hovnanian Enterprises Inc.'s debt was trading "maybe a little bit weaker," a trader said, ahead of the company's earnings release after the market closed. Despite a still-shaky housing market, the homebuilder narrowed its loss for the quarter.

Caesars Entertainment Corp. was an active name of the day, but it wasn't the usual suspects. Instead of the 10% notes due 2018 being the dominant issue, it was the 12¾% notes due 2018 that had the most trades, leaving one trader to speculate that some sort of deal might be in the works.

Also, Reader's Digest Associations Inc. was unusually active following a round of downgrades. However, the bonds were higher than the last trades in mid-August, according to traders.

NewPage up on filing

NewPage's debt saw "all kinds" of trading Wednesday as investors reacted to news that the Miamisburg, Ohio-based papermaker had filed for bankruptcy.

The 11 3/8% notes due 2014 were the most active, experiencing "a ton of trades," a trader said. He quoted the notes - now trading without accrued interest - at 84 bid, 85½ offered.

The 10% notes due 2012 meantime closed at 12½ bid, 13½ offered.

Another trader pegged the 11 3/8% first-liens at 86 bid, 87 offered and the 10% second-liens at 13 bid, 15 offered.

A third trader said the 11 3/8% notes were "up a couple points" around 87.

After months of "will they or won't they?" NewPage and its various units - including its Canadian unit - filed for Chapter 11 protections.

"We strongly believe that the court-supervised restructuring we began today is the most effective means of strengthening our financial position and enhancing our standing as the leading producer of printing and specialty paper in North America," George F. Martin, president and chief executive officer, said in a prepared statement.

The company began circulating some pricing details on its proposed $600 million debtor-in-possession financing facility as the company is getting ready to launch the transaction with a bank meeting on Friday, according to a market source.

The $350 million first-out ABL revolver is expected at Libor plus 325 basis points with no Libor floor, the source remarked.

And, the $250 million second-out term loan is talked at Libor plus 750 bps with a 1.5% Libor floor and an original issue discount that is still to be determined, the source added.

J.P. Morgan Securities LLC is the lead bank on the deal that will be used to repay outstanding revolver debt and for general corporate purposes while the Miamisburg, Ohio-based producer of printing and specialty papers restructures under Chapter 11.

NewPage's announcement on Wednesday that it filed for bankruptcy protection was pretty much expected as the company had already warned that this step may have to be taken back in a 10-Q filed with the Securities and Exchange Commission in mid-August.

The company has been facing issues with the maturity of its revolver since it did not refinance its floating-rate and 10% second-lien senior secured notes by July 4.

Because the notes were not taken out, $30 million of the company's $500 million revolver is set to mature on Oct. 3, and if the notes are not refinanced by Dec. 2, the maturity on the remaining $470 million revolver would be accelerated to March 1, 2012 from Dec. 21, 2012.

Also, if the notes are not repaid by Jan. 31, 2012, the maturity of NewPage's $1.69 billion 11 3/8% senior first-lien notes due 2014 would be moved up to March 31, 2012.

As of June 30, the outstanding amount of the second-lien notes was $1.03 billion.

On the news, both Standard & Poor's and Moody's Investors Service dropped their rating on the company to D.

Hovnanian loss narrows

A trader said there was "a little bit of trading going on" in Hovnanian paper ahead of the company's after-the-bell earnings release.

He called the bonds "maybe a little bit weaker," the 8 5/8% notes due 2017 in the low-40s and the 10 5/8% notes due 2015 at 86 bid, 86½ offered.

Another trader, however, said the 10 5/8% notes inched up slightly to 861/2.

For its fiscal third quarter, the Red Bank, N.J.-based homebuilder reported total revenues of $285.6 million, down from $380.6 million the previous year, but up from $255.1 million in the second quarter of 2011.

After-tax net loss came to $50.9 million, or $0.47 per share. That compared with $72.9 million, or $0.92 per share, for the third quarter of 2010 and $72.7 million, or $0.69 per share, in the second quarter.

Net contracts increased 33%year over year to 1,297 homes.

As of July 31, Hovnanian had $334.2 million in available homebuilding cash. About $60.8 million of that was restricted.

Cash flow was negative $76.2 million, due to the company spending $105 million in cash to purchase about 1,200 new lots and for other development activities.

"The housing market remains challenging primarily due to uncertainty caused by general domestic economic and political concerns, stock market volatility and turbulent international economic conditions, all of which are taking their toll on consumer confidence," Ara K. Hovnanian, chairman, president and chief executive, commented in the earnings release.

"Despite this difficult backdrop, our deliveries, revenues, gross margin and cash flow for the third quarter were in line with our expectations. However, we see very few indicators that any recovery in the housing market has begun. As such, we are taking appropriate steps to run our business based on current market conditions, with a focus on maintaining adequate liquidity."

Hovnanian's comments about the housing industry were in line with what JPMorgan Chase & Co. analysts said in a Tuesday research report on the company.

"While the partial recovery in the sector and the broader market over the last two weeks appears somewhat uncertain, as high volatility remains due to persistent questions surrounding the economy and Europe, given the fairly quick and solid retracement that occurred during this period, we believe it is critical for investors to consider how to be positioned across the homebuilders amid a further reversal of the pullback experienced earlier in August," J.P. Morgan analysts wrote.

Caesars heads higher

Caesars Entertainment's 12¾% notes due 2018 had "pretty significant volume for them," a trader said.

"Maybe there's some kind of deal coming or something," he opined.

He said the issue traded between 81½ and 83.

Another trader said the paper was "a little bit better," around "82 and change," while the 10% notes due 2018 inched up half a point to 74½ bid, 75 offered.

A third market source deemed the 10% notes up over 2 points at 74¾ bid.

There was no fresh news out on the Las Vegas-based casino operator.

Reader's Digest gets busy

After a round of downgrades, Reader's Digest Association's debt traded more than usual, traders reported.

One trader said the variable-rate notes due 2017 closed at 89 bid, 89¼ offered, up from the last big trades between 87 1/4-87 ¾ on Aug. 22.

"It hasn't traded in awhile, but there was a bunch of trading today," said another trader, placing the debt at 88 bid, 89 offered.

"Guess it was the fact that they were downgraded," he said.

Moody's cut its probability-of-default and senior secured note ratings to B3 from B1, citing the company's weak second-quarter results and deteriorating liquidity. S&P meantime dropped RDA Holding Co. to CCC+ from B.

S&P's action follows its Aug. 31 rating revision on Reader's Digest to CCC+. The agency noted that the company has a slim margin of error in regards to meeting its financial covenants.

The company is based in New York.

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