Supervalu gets late-day hit as Cerberus buyout stalls; ATP Oil falls deeper into single-digits

By Stephanie N. Rotondo

Phoenix, Nov. 29 - The distressed debt market was again strong Thursday, with a few notable exceptions.

Supervalu Inc.'s debt was declining late in the day as it was reported that buyout talks with Cerberus Capital Management LP had stalled. Cerberus, according to the reports, is having difficulty getting the financing it needs to buy the struggling grocery store operator.

Meanwhile, ATP Oil & Gas Corp. "continued to drop" further into single-digit territory, a trader said. The bonds had first fallen into that area on Wednesday and, as was the case on Thursday, there was no news out to cause the dip.

On the upside, Eastman Kodak Co.'s bonds - at least the second-lien issues - were moving higher following news out late Wednesday regarding a financing plan that should allow the company to exit bankruptcy in the new year.

AMR Corp. was also strong, as a group of bondholders sought to provide the company with funding - but only if the company agreed to oust its current board of directors.

Supervalu, Cerberus talks falter

Supervalu's 8% notes due 2016 were taking hits late in the day on the back of news regarding a potential buyout offer from private equity firm Cerberus.

"They were up earlier in the day because everything was flying," a trader said. "That news knocked them down 4 to 5 points."

The trader said the 8% notes had hit highs around 94½ during the session, but the news that Cerberus was having trouble lining up financing for the leveraged buyout caused the debt to decline to 89½ bid, 90 offered.

Another trader said, "Somebody hit a 90 bid," after the paper had traded as high as a 93-94 context. Even the 7½% notes due 2014 were down a deuce at 931/2, though only in odd-lot trading.

"It can be a volatile name as we've seen in the past," the trader said.

A third trader said the name was on the tips of everyone's tongues. Speculation is that the late-day declines could turn into massive losses come Friday.

Cerberus has been speaking with lenders about getting financing to buy Eden Prairie, Minn.-based Supervalu, which has struggled amid increased competition from value outlets such as Wal-Mart Stores, Inc. But the lenders are reportedly not all that interested in putting money into the company, given its increased debt leverage and declining revenues.

Cerberus is also said to be uneasy with putting up more of its won money for the purchase.

No other potential buyers have emerged for Supervalu, at least not any who want the company as a whole, which management has said it is aiming for. But if a deal cannot be inked with Cerberus, the company will likely be forced to start selling itself piece by piece. That also has its problems, as such sales could result in huge tax charges.

ATP declines again

ATP Oil & Gas' 11 7/8% notes due 2015 fell further into the single digits Thursday, but again, there was no fresh news to act as catalyst.

"It's just going lower," a trader said, seeing the paper fall as low as 8 before coming back to end at 8½ bid, 9 offered.

Another trader said the bonds hit a low of 71/4, only to go out around 8.

The Houston-based oil and gas exploration company is currently in bankruptcy.

Kodak up on financing news

Late in the day on Wednesday, it was reported that bankrupt Eastman Kodak had inked an improved financing deal from a group of bondholders.

Come Thursday, that meant gains for the 9¾% second-lien notes due 2018.

One trader said the paper moved up to the high-70s, while another called the issue up 2 points around 78.

The 7¼% unsecured notes due 2013, however, were "kind of unchanged," the trader said, trading around 10.

"There was limited trading," he added. "I think most of those bonds are already put away."

A group of senior bondholders have agreed to provide $830 million of funds to Rochester, N.Y.-based Kodak. The group had originally said it would provide $793 million.

The proceeds from the financing - which still requires court approval - would be used to help the company exit Chapter 11 protections in the early part of 2013.

However, the caveat regarding the patent portfolio remains: Kodak must sell its patent portfolio for at least $500 million. But the company has struggled to get such a price for the intellectual property, as evidenced by a failed auction earlier this year.

Kodak filed for bankruptcy in January.

AMR gains altitude

A trader said AMR's benchmark 6¼% convertible notes due 2014 "continued to be very strong," boosted at least in part by news that a bondholder group has offered to provide financing.

However, the financing comes with strings attached.

The trader quoted the notes at 76 bid, 77 offered, up a point from the previous session.

A group holding about $885 million of the bankrupt airline's debt - a group that includes JPMorgan Chase & Co. and Pentwater Capital Management LP - has said it will provide restructuring financing for the Fort Worth-based parent of American Airlines, which would allow the company to emerge as a standalone business. But the group has one demand: Fire the entire current board of directors.

Speculation is that the group wants to get rid of the board so that upon emergence, it can seek a merger with U.S. Airways. However, U.S. Airways might only be interested in buying the company while it remains in bankruptcy, as it would likely get it for a cheaper price.

"We remain convinced that the best solution for AMR is to be run by someone else, and the best candidate in our view still is U.S. Airways," wrote Gimme Credit LLC analyst Vicki Bryan in a report released Thursday.

"We suspect this ad hoc bondholder group with its 'exit financing with a catch plan' might be reading the tea leaves the same way we are, and if it can convince all of AMR's stakeholders that a merger with U.S. Airways is their goal it might help to fast track an efficient path for the carrier to exit bankruptcy with a more promising future of growth with sustainable profitability and full support of its employees."

Tribune trades ahead of bank deal

Tribune Co.'s unsecured bonds were seen trading around 40, according to a trader.

He noted that he had not seen the paper move in a while.

"They are doing a bank debt deal to fund the cash distribution part of their reorganization plan," the trader said, adding that he believed the deal would be launched next week. From what he had heard, the deal was "pretty well-received."

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