Softness still shows in distressed debt; Dynegy steady on sale cancellation; First Data drops

By Stephanie N. Rotondo

Portland, Ore., Nov. 23 - There was "a decent amount of stuff trading" in Tuesday's distressed debt market, a trader said, though generally the day was characterized as kind of quiet.

"There was big volume in some of the normal stuff," the trader said, like Harrah's Entertainment Inc. and First Data Corp., both of which tend to trade in decent size nearly every day.

However, there was no fresh news out on either credit.

But there was news out on Dynegy Inc., though that did little to shake up the company's debt. The company said Tuesday it had decided to forgo its planned takeover by Blackstone Group, a move not entirely unexpected by the market. Traders saw the bonds ending unchanged to marginally softer on thin volume.

OPTI Canada Inc.'s debt was also on the decline, losing about 2 points on the day. The bonds have been falling since last week in response to comments made at a credit conference.

Dynegy dips as sale ditched

Dynegy debt didn't trade "as much as I thought it would," a trader said, after it was announced that the company had scrapped its $5-per-share takeover by Blackstone Group.

"I think part of why more didn't trade was that it was expected, but it wasn't unexpected," he surmised. "It didn't seem to raise too many eyebrows."

He called the Houston-based power producer's bonds down slightly to unchanged, seeing the 7½% notes due 2015 at 74, the 7¾% notes due 2019 at 66½ and the 8 3/8% notes due 2016 at 741/2.

Another trader deemed the 8 3/8% notes a point lower at 741/2, while the 7¾% notes lost half a point to end around 661/2.

Yet another source saw the 9 7/8% falling 1½ points to around 86 and another saw the 7¾% notes at a wide 66 bid, 69 offered.

The takeover was first announced in August and at that time, Blackstone was offering $4.50-per-share. Shareholders such as Carl Icahn and Seneca Capital vehemently opposed the transaction, calling the proposal undervalued.

Though Blackstone had originally said it wouldn't increase the offer, the investment firm did just that on Nov. 17 - the shareholders were originally slated to vote on the bid. Shareholders were then given until Nov. 23 to digest the improved pricing and management continued to affirm its belief that the sale was the right way to go.

Dynegy had been seeking a buyer for two years before the Blackstone deal came. Even once the offer was made, Dynegy had an opportunity to find better bids. But during its 42-day "go-shop" period, no others offers were found.

Dynegy said it would now "immediately engage interested parties, including Seneca Capital and Icahn Associates, who may have an interest in making an offer to acquire Dynegy," according to a company statement.

For his part, Icahn has already offered a $2 billion credit line.

First Data rally over

First Data's bonds were "heading south now" after last week's "little bounce back," a trader reported.

He called the 9 7/8% notes down "almost 2" at 853/4.

Another trader said about $40 million to $50 million of the issue changed hands, pegging the paper at 861/4.

"That's down again," he said.

Last week, the company's chief financial officer said it would be able to "stomach" upcoming interest payments on its debt. That news was then followed up with word of a debt-for-debt exchange aimed at refinancing up to $5.5 billion of notes.

First Data is an Atlanta-based electronic payment processor.

Harrah's active, weaker

Harrah's Entertainment's 10% notes due 2018 were a "huge trader" during Tuesday's session, according to a market source.

He said about $50 million of the bonds turned over, falling "a point and change" to finish around 85. Another trader - who agreed that the debt was "very active" - deemed the issue half a point softer at 851/2.

Last week, the Las Vegas-based casino operator pulled the plug on its initial public offering, citing difficult market conditions. The news came just one day after General Motors Corp. launched its much-lauded initial public offering, which some market players found to be disappointing.

"It's not that anyone expected differently," a market source explained. "But now you'll have to wait a little longer.

"As bondholders, it's half a dozen in one had and six in the other," he added.

OPTI debt still sliding

With the rest of the market in the negative, OPTI Canada paper followed suit, dropping "almost 2 [points]," a trader said.

He saw the 8¼% notes due 2014 at 69¼ and the 7 7/8% notes due 2014 at 681/4.

At another desk, the 8¼% notes were placed at 69 and the 7 7/8% notes at 681/4.

There hasn't been any fresh news out on the Calgary-based oilsands producer since last week, when its Long Lake project partner, Nexen Inc., told Bank of America Merrill Lynch conference attendees that production at the property would likely miss expectations. OPTI later made its own presentation at the conference, in which it said its profitability relied heavily on the project.

Blockbuster creditors 'cleaning up'

Investors might have been tidying up their accounts Tuesday, which might explain why "$20-odd million" of Blockbuster Inc.'s 9% notes due 2012 traded during the day.

"I'm not really sure what precipitated that other than probably cleaning up," he said, seeing the bonds at 1.

Another trader said the credit was "more active," but was still at 1½ bid, 1¾ offered, so "not much price movement."

On Tuesday, the bankruptcy judge overseeing the Dallas-based movie rental chain's case gave creditors the go-ahead to investigate certain events before the company's Chapter 11 filing, including investments held by Carl Icahn. Some creditors are alleging that Icahn "possessed substantial, pre-petition influence over the debtor."

The investigation will also focus on the October 2009 refinancing of the senior notes.

A&P trending upward

A trader said that in contrast to the overall weak tone in the secondary market, "do you remember when everybody left A& P [Great Atlantic & Pacific Tea Co. Inc.] for dead? Well, the bonds keep moving up."

He saw the Montvale, N.J.-based supermarket operator's 5 1/8% notes due 2011 - which not too long ago were trading in the mid-high 60s and lower-70s after disappointing quarterly earnings - up to around 80½ bid, "the highest it's been in months."

He said that "when they sold real estate" - the company recently sold a half-dozen of its Pathmark locations in New York, New Jersey and Delaware in an $89 million sale-leaseback transaction - "people saw the company meant business" and the bonds recovered.

"So there are certain companies that are doing the right thing," he said.

Paul Deckelman contributed to this article

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