Distressed debt turns positive; exchange offer gives Realogy a boost; Harry & David lower

By Stephanie N. Rotondo

Portland, Ore., Dec. 1 - The first day of December saw distressed debt turning positive after two days of weaker to sideways trading, sources reported Wednesday.

"There was pretty good volume today," a trader said, as another estimated that total secondary market trading was "just shy" of $2 billion.

Realogy Corp. was the nom du jour, as the company announced a debt-for-debt exchange. The company's bonds jumped anywhere from 7 to 9 points on the news, with "a boatload" of the various issues changing hands.

Meanwhile, Harry & David Operations Corp. was one of the day's few declining credits. One trader said it was due to one seller who was attempting to liquidate his position.

OPTI Canada Inc. was another active one, according to traders. The company's debt capitalized on the positive trend of the day, moving back up to 70 or higher after a few days of sitting below that mark.

Realogy pops on swap

Realogy debt was "one of the big movers," a trader said, after the company announced a debt exchange offer.

The trader saw the bonds gaining 7 to 9 points on the day, with the 10½% notes due 2014 being "the fairly active one," gaining 7 points to close around "93 and change." That compared to markets of 86 bid, 87 offered previously, he added.

However, the 12 3/8% notes due 2015 improved the most, adding 9 points to its value and finishing around 91.

Another trader - who saw "a boatload" of Realogy paper turn over - said the bonds were "up huge," with the 12 3/8% notes around 91 and the 11%/11¾% senior toggle notes due 2014 around 923/4.

Yet another source placed the 10½% notes around 931/2, up 7 points, while the 12 3/8% notes were seen at 91, up 9 points.

The Parsippany, N.J.-based real estate services company announced Wednesday that it would exchange three series of its notes - the 10½% notes, the senior toggle notes and the 12 3/8% notes - for new senior notes or new convertible debt. The company said the offer was being done in an effort to "provide the company with a more flexible capital structure through the extension of maturities of its existing notes and by giving eligible holders who receive convertible notes the ability to exchange debt for equity in the future."

Realogy is also soliciting consents from noteholders to remove "substantially all" restrictive covenants and certain default provisions from the existing notes.

The company has already received support from investors such as Paulson & Co. Inc. and Apollo Management VI. Those two investors alone hold about $1.95 billion of notes.

Moody's Investors Service deemed the swap a distressed exchange and, given the company's "unsustainable" capital structure, the exchange will be considered a limited default.

Standard & Poor's also said it would drop its issue-level ratings on realogy to D from C, as the exchange would be considered a default. The rating agency also noted that bondholders who tender their holdings would likely get a more junior ranking within the capital structure.

Harry & David under pressure

A trader said it was "pretty cool" that Harry & David's 9% notes due 2013 traded during the midweek session, "only because they never trade and they are one of the few real distressed-y things out there."

He pegged the paper around 70, calling that down "a little bit" from a few weeks ago.

Another trader said the debt dipped below 70, hitting the 69 mark.

"Some guy is trying to get out of them," he said. "But there aren't many buyers.

"They just keep going lower and lower."

Harry & David is a Medford, Ore.-based specialty foods retailer.

OPTI recoups losses

OPTI Canada was another busy trader, according to sources who saw the bonds regaining some ground.

A trader called the bonds a point better, the 8¼% notes due 2014 at 70½ and the 7 7/8% notes due 2014 at 70.

Another trader said about $50 million to $60 million of the various issues traded. He also saw the 8¼% notes around 701/2.

"They had broken below 70 for a few days, but now they are back up," he said.

He also placed the 7 7/8% notes "up and down" around 70.

There was no fresh news out on the Calgary, Alta.-based oilsands producer.

Boyd up, Mohegan down

A trader saw Boyd Gaming Corp.'s recently priced issue of 9 1/8% notes due 2018 having "snapped back up" by 1½ points to 96 bid, 97 offered - although that was still well below the par level at which the Las Vegas-based company, an operator of casinos catering to local players rather than high-rolling tourists, had priced its $500 million offering back on Oct. 28.

"That one had been beaten up pretty good," he said, falling into the low-to-mid-90s in the weeks since its pricing, "but it had a nice bounce today."

However, he said, "on the flipside," Mohegan Tribal Gaming Authority's bonds were down 1 to 2 points after the Uncasville, Conn.-based operator of Connecticut's big Mohegan Sun casino resort was downgraded on Tuesday by Moody's. Moody's cut most of the company's ratings by two notches, lowering its corporate family and probability-of-default ratings to Caa2 from B3, its secured notes to B3 from B1, its senior unsecured notes to Caa1 from B2 and its senior subordinated notes due 2015 Caa3 from Caa2, a one-notch decline.

"There's some pressure on that one," he said, quoting its 6 7/8% notes due 2015 at 67 bid. Its 8% notes due 2012 lost nearly a point to end at 87½ bid.

Broad market turns positive

Among other distressed credits, a trader said Clear Channel Communications Inc.'s 10¾% notes due 2016 moved up a point to 761/2. Another trader echoed that level.

"A lot of stuff was better, given the way the stocks were going," the second trader said, referring to the first positive trading day this week for the equity markets.

The second trader also saw NewPage Corp.'s 11 3/8% notes due 2014 at "92-ish," up 1 to 1½ points.

And, General Motors Corp.'s benchmark 8 3/8% notes due 2033 gained a point, closing with a 33 handle.

Paul Deckelman contributed to this article

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