Distressed debt takes backseat to new high-yield issues; School Specialty gyrates on DIP fight

By Stephanie N. Rotondo and Rebecca Melvin

Phoenix, Jan. 30 - Distressed bonds were once again weak on Wednesday, especially as investors turned to a new round of new high-yield bond issues.

"Everything that traded was little bit weaker today," a trader said.

"It was all new issue stuff really," another trader said.

Of distressed dealings, a trader saw Springleaf Finance Corp.'s 6.9% notes due 2017 slipping a touch to 951/2, on nearly $30 million traded.

Another trader saw Cengage Learning Acquisitions Inc.'s 11½% notes due 2020 falling about 1½ points, pegging them at 83½ offered.

The trader also said that Caesars Entertainment Corp.'s 10% notes due 2018 remained active, ending around 681/2.

"That's off about a point," he said.

Meanwhile, School Specialty Inc. was a market focus in the convertibles arena on Wednesday with the securities of the bankrupt school supplies company trading first lower, then higher amid speculation about the possibility bondholders might provide debtor-in-possession financing - contrary to what was initially planned.

The School Specialty bonds dipped a point or so to as low to 28.5 and then traded up to 33.

"Bondholders are trying to provide a competing DIP," a Connecticut-based analyst said.

School Specialty gyrates

School Specialty's 3.75% convertibles due 2026 traded initially at 29.95 and slipped to 28.5 before rising back up to 33.

School Specialty's shares slipped 5.5%, to $0.1449.

Trading in School Specialty convertibles was active, and the name of the day in the distressed space, a trader said.

The paper was initially under pressure as market players speculated whether the term lender or a competing bid would win approval to provide debtor-in-possession financing.

"It was different than originally thought," a trader said.

The Greenville, Wis.-based education company, which develops curricula and provides supplies for elementary, middle and high school educators, said initially that a $50 million DIP would be provided by Bayside Capital Inc., an affiliate of global private investment firm H.I.G. Capital.

"There's a lot of uncertainty, and bond holders say that can provide the financing at better terms for the company," the trader said.

Bayside is also the stalking horse bidder in an auction that the company is trying to pull together for court approval Feb. 8.

Bayside can walk away from its agreement if the bid rules are not approved by Feb. 8, the auction isn't commenced by March 24 and the court hasn't approved the sale by March 27, court papers say.

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