'Good day' for distressed market; Dynegy bonds feeling pressured; Lehman paper up on case news

By Stephanie N. Rotondo

Portland, Ore., Oct. 21 - It was "definitely a good day" for distressed debt, a trader said Thursday.

He said there was "lots of trading going on" and that "everything was probably better by a quarter to a half, in general."

Another trader, however, said there was "not much movement" in the market, though he did add that "most things are grinding tighter."

Dynegy Inc. debt was under pressure during the session, traders reported. This week, the company presented Blackstone Group's recent takeover bid the best alternative to selling off assets.

Meanwhile, Lehman Brothers Holdings Inc. has been in the news as the company attempts to get through its bankruptcy case. News out in the previous session - as well as on Thursday - helped to give the bank's bonds a boost.

There was no news out, however, on either NewPage Corp. or Clear Channel Communications Inc. But that didn't stop NewPage from dominating trading, or Clear Channel's notes from "drifting lower."

Dynegy debt under pressure

Dynegy paper traded down 1 to 1½ points, as investors reacted to the company's recent assertion that being bought out by Blackstone Group was its only option.

A trader called the 7¾% notes due 2019 "pretty active" around 651/2, which was down 1½ points. He said the 8 3/8% notes due 2016 fell off "almost a point" to 761/2.

Several other market sources also saw the 7¾% notes around 651/2.

Earlier in the week, the Houston-based power company held an investor presentation in which it made its case for agreeing to Blackstone's $4.50-per-share offer. Dynegy stock, the company said, could fall 40% or more if the sale isn't approved by shareholders at a Nov. 17 meeting.

Additionally, the company said it had looked into selling off assets instead of being bought out, but that financial covenants made that impossible.

"Dynegy will continue to face significant challenges in the near- to medium-term that pose significant risks and operating limitations for Dynegy," the company said in a letter sent to shareholders on Oct. 19. "If the Blackstone transaction does not close, Dynegy stockholders could lose significant and immediate value and face future dilution and further loss of investment."

As previously reported, some Dynegy investors - including Carl Icahn - have deemed the Blackstone bid as inadequate. Icahn recently disclosed that he had secured a nearly 10% stake in the company, seemingly in an effort to block the takeover.

Lehman news helps bonds

Lehman Brothers Holdings' notes "traded up some," a trader said, on the back of news regarding the now-defunct investment bank's bankruptcy case.

The trader called the 5 5/8% notes due 2013 up half a point at 221/2.

"I guess people were reading into that as possibly positive for Lehman," he said of the various headlines.

On Wednesday, the bankruptcy judge overseeing the case allowed Lehman to stay lawsuits it had filed against banks and investors, giving the company more time to negotiate with the defendants. Lehman had previously brought the suits against such entities as Bank of America Corp. and Deutsche Bank AG in order to recover payments that could then be dispersed to creditors.

The judge also noted that he had not approved certain changes related to the sale of the company to Barclays, which is also being sued by Lehman. Lehman alleges that Barclays received a "windfall gain" in the deal and that the company therefore owes Lehman $13 billion.

Despite the lack of approval, Barclays is arguing that all parties are and have been operating under the assumption that he did give his OK, and therefore Lehman has no grounds to ask for a dismissal of the September 2008 sale.

Elsewhere in the financial realm, Washington Mutual Inc.'s senior bank paper - like the 5.55% notes due201 - finished the day "pretty much unchanged," a trader said, at 38½ bid, 39 offered.

NewPage dominates again

Trading in NewPage's 10% notes due 2012 picked up again, after being called "strangely inactive" in the previous session.

A trader saw the paper gaining 1½ points to end around 611/4.

Another trader echoed that level, adding that about $50 million to $60 million of the bonds changed hands.

There was no news out on the Miamisburg, Ohio-based papermaker.

Clear Channel losing ground

A trader said Clear Channel Communications' bonds have "been drifting a little bit lower," though he had no explanation as to why.

He said the 11% notes due 2016 were active Thursday, but "under pressure," closing around 74. That compares to a market of 76 bid, 77 offered last week.

Another trader called the 11% note "pretty active," and down half a point around 74.

Clear Channel is a San Antonio-based multimedia company.

Sbarro bonds active, lower

Sbarro Inc.'s bonds continued to trade actively at the sharply lower levels to which the Melville, L.I.-based Italian-style quick-service restaurant chain operator's paper has fallen over the past week.

A market source saw the company's 10 3/8% notes due 2015 trading around between 29 on the low side and 35 on the high end, before going out around 34, unchanged from Wednesday, mostly on smallish odd-lot trades. There was one sizable trade, at 35, which put the bonds down multiple points from the previous round-lot level of 42.5.

Sbarro had fallen to 42.5 last Friday on several large-block trades from prior round-lot levels in the low 60s, although there was no specific fresh negative news out on the company, which has been struggling with reduced traffic at the shopping malls where the company runs some 450 outlets, as well as higher prices for cheese, the key ingredient in its Italian specialties like pizza and lasagna.

Broad market mixed

Among other distressed credits, Harrah's Entertainment Inc.'s 10% notes due 2018 moved up over a point to around 86, according to a trader.

TerreStar Networks Inc.'s 15% senior secured PIK notes due 2014 meantime ended "a lot better," another trader said, creeping up into the low-90s.

TerreStar filed for bankruptcy on Tuesday.

Paul Deckelman contributed to this article

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