OPTI bonds rally on court OK for CNOOC takeover; NewPage little changed post-bankruptcy filing

By Stephanie N. Rotondo

Portland, Ore., Sept. 8 - Distressed debt was mixed to better on Thursday, depending on whom you asked.

"I would have thought that the tone was basically unchanged to slightly better," a trader said. "It was definitely mixed. I didn't really see anybody leaning on the market.

"Some names were definitely a little better," he added.

Another trader said the tone was "maybe a little better overall."

OPTI Canada Inc.'s subordinated issues moved up as a Canadian court gave its approval on the company's buyout by CNOOC Ltd. On Wednesday, OPTI had announced that most of its second-lien noteholders had signed on to the company's master plan.

Meanwhile, there was little follow-through in NewPage Corp.'s debt, just one day after the company announced it had filed for Chapter 11 protections. The bonds were not nearly as active as they were in the previous session and not much changed in price.

Hovnanian Enterprises Inc. was also little moved after the company held its third-quarter earnings conference call Thursday morning. The debt was even unfazed by a rating downgrade from Moody's Investors Service.

Also, Dex Media Inc. paper "got creamed," a trader said. He blamed the losses on concerns the company will not be able to pay in cash an upcoming coupon on its toggle notes.

OPTI rallies on takeover OK

A trader said that OPTI Canada's subordinated paper - the 7 7/8% and 8¼% notes due 2014 - "rallied a bit as concerns that the [CNOOC] deal might fall apart fell by the wayside."

He said the debt was "up about a point or so," trading with a 64 handle.

Another trader also saw the issues trading around 841/2.

A third trader pegged the subs at 64½ bid, 65 offered, while the 9¾% senior notes due 2013 were "kind of the same" around 102. He noted that the lack of movement in the seniors was due to the fact that the company's restructuring plan allows for the bonds to be taken out in full - bondholders will get equity for their debt holdings - while the subs were trading at a slight discount, giving them room to move about a bit.

On Thursday, the Canadian court overseeing the company's bankruptcy case in Canada gave its OK on CNOOC's $2.1 billion takeover of the Calgary, Alta.-based oilsands producer.

In the previous session, OPTI said that 99.97% of second-lien noteholders approved of the company's master plan. That paved the way for the court's approval on Thursday.

NewPage little changed

After being the most actively traded security on Wednesday, trading in NewPage paper declined a bit and price levels were not much different.

The company said it had filed for bankruptcy on Wednesday.

One trader said the debt was "not that active," seeing the 11 3/8% first-lien notes due 2014 at 85 bid, 86 offered, down from "87-ish" the previous day. "I don't know if there was some short-covering or not," he said.

Another trader, however, said there was "a lot of action, but not much price change" in the notes. He pegged the 11 3/8% notes at 86 1/4, up a quarter-point.

At another shop, a trader said NewPage was "fairly quiet," seeing the 11 3/8% notes around 86 and the 10% second-lien notes around 12.

"There was nothing really substantial," he said.

The Miamisburg, Ohio-based papermaker has struggled to keep afloat and was further burdened with the task of refinancing its second-lien notes this year in order to avoid the acceleration of other debt. It was therefore no surprise that a Chapter 11 filing came.

"This was no surprise to us or the market," wrote Gimme Credit LLC analyst Kim Noland in an afternoon report. "The company was facing some serious liquidity hurdles because it needed to refinance its second-lien notes by December to avoid the early maturity of the revolver."

Noland also noted that NewPage large debtor-in-possession loan - $600 million via JPMorgan Chase & Co. - "will have administrative priority above all the other debt and will carry high interest rates, impacting the value received by other creditors."

Hovnanian holds its ground

Hovnanian Enterprises' bonds were unchanged to better following the company's earnings release Wednesday and the subsequent conference call on Thursday.

"Earnings were kind of OK," a trader said of the narrowed loss.

Another trader saw the 10 5/8% notes due 2016 trading with an 87 handle.

"I think that's pretty much where they were yesterday," he said.

Another trader said the 10 5/8% notes improved a point to 871/4, while the 11 7/8% notes due 2015 gained 1½ points to end around 56.

On Wednesday, the Red Bank, N.J.-based homebuilder reported its third-quarter results.

Total revenues were $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 to $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.

Despite the improved figures, Moody's cut its corporate family rating to Caa2 from Caa1, citing, among other things, weak gross margins and high homebuilding debt leverage.

Dex One declines

A trader said Dex One's 12% PIK notes due 2017 "got creamed," falling "another 3 points" to levels around 33.

"I guess people are suspecting it's not going to make that coupon in cash," he said, referring to an upcoming payment on the debt. The Cary. N.C.-based phonebook publisher could, however, pay the coupon with additional bonds.

Alion debt drops

A trader said Alion Science &Technology Corp.'s 10¼% notes due 2015 fell as low as a 66-67 context from Wednesday's late levels in the lower 70s, before ending at 66½ bid on a round-lot basis, with over $4 million traded. However, that was little changed from the previous round-lot trades around 66, recorded on Tuesday. Later on Thursday, a few small odd-lot trades set a final closing level of 701/2.

The normally little-traded bonds had begun the month in the lower 70s, but then came in after Standard & Poor's on Tuesday lowered the company's corporate credit rating to CCC+ from B-, cut its $35 million revolving credit facility to B from B+, sliced its $310 million of 12% senior secured notes due 2014 to B- from B and pushed the $250 million of 10¼% notes down to CCC- from CCC+, all with a negative outlook.

S&P said that its downgrade of Alion stems from the Mt. Arlington, N.J.-based defense contractor's recent operational weakness, and "the prospect of further pressure on revenues, which stem from the continuing resolution on the 2011 federal government budget that wasn't settled until April 2011, the subsequent specter of a U.S. government default during the debt ceiling debate, and the ongoing uncertainty over future budget cuts and levels."

Broad market mixed

Elsewhere in distressed debt land, a trader said there was "some trading" in Clear Channel Communications Inc.'s bonds, though he said the debt was 'for the most part unchanged."

He placed the 10¾% notes due 2016 around 66.

Another trader also said the paper was "pretty much unchanged across the board," the 10¾% notes at 66, the 11% notes due 2016 at 64, the 5½% notes due 2016 at 45½ and the 9% notes due 2021 around 81.

The second trader also saw Caesars Entertainment Corp.'s 10% notes due 2018 slipping a point to 73 and Dynegy Inc.'s 8 3/8% notes due 2016 around 64, a gain of about 2 points.

Another trader called Lehman Brothers Holdings Inc.'s notes - which tend to trade on top of one another - a bit better at 251/2. He also said Ambac Financial Group Inc.'s paper - another one that trades together - was stronger at 14 bid, 15 offered.

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