Great Atlantic & Pacific takes hit on bankruptcy speculation; OPTI Canada bonds decline again

By Stephanie N. Rotondo

Portland, Ore., Dec. 10 - Great Atlantic & Pacific Tea Co. Inc. was the nom du jour in the distressed debt arena on Friday, as the market speculated that a bankruptcy filing was imminent.

The company's bonds began trading flat as a result, making some of its issues virtually unchanged - aside from the fact that they were trading without accrued interest versus with. But the convertible issues got slammed, losing around 50 points in one day.

Away from A&P, however, there "wasn't a whole lot" going on, a trader said, aside form the usual suspects.

OPTI Canada Inc. bonds remained depressed. One trader said the debt "topped out" earlier in the week and has been on the decline ever since.

Meanwhile, SuperMedia Inc. saw its term loan slide a bit after getting a downgrade. But not all market watchers agreed with the rating change.

A&P crashes on filing buzz

Great Atlantic & Pacific Tea Co. was the "trade of the day," one trader said, as news reports indicated the company could file for bankruptcy over the weekend.

"The converts got killed," he said, seeing the 5 1/8% notes due 2011 falling into the high-20s from levels around 78 on Thursday.

The 11 3/8% notes due 2015, however, were seen at 78 bid, 79 offered, which was "unchanged, except yesterday they were trading with accrued [interest] and now guys are trying to trade them without."

Another trader said the 11 3/8% notes dipped to 72 bid, 73 offered before "climbing back" to straddle 80. He also noted that the bonds were trading flat, or without accrued interest.

At another desk, a trader said the 11 3/8% notes were 79 bid, 81 offered, "so that's down only 1 or 2 [points] in the end," he said.

"They started out really stupid," he added, remarking that he had seen a 72 bid, then a 83 bid, 80 offered market and so on. "Maybe there is some short covering going on."

Yet another source saw a 27 bid for the 5 1/8% converts and a 20 bid for the 6¾% convertible notes due 2012. The difference in those two issues was "strange," the source said, as the notes rank pari passu. "They should be trading on top of each other."

But he did have a theory as to why there was such a gap between the two issues and that was simply because the amount of supply in the general market was much less than the amount of interested investors.

"There is too much money committed to converts and not enough [supply]," he said. "The reality is those things are worthless; they should be trading at zero.

"It's like Blockbuster all over again," he quipped.

The source also remarked that on Thursday, he had rumors that the company was shopping a debtor-in-possession facility. With the reports out Friday, those rumors seem to carry weight.

"That certainly was the speculation," said another source. "That's what pushed the paper down [on Thursday]."

Great Atlantic & Pacific is a Montvale, N.J.-based supermarket operator.

OPTI bonds still weak

OPTI Canada debt was "cheaper yet again," according to a market source.

He said the bonds had "topped out" on Tuesday at 72 bid, 73 offered. By Friday, both the 7 7/8% and 8¼% notes due 2014 were trading between 69 and 70.

Another trader pegged the 7 7/8% notes at 691/2, down nearly a point, while the 8¼% notes were "almost unchanged, maybe down a little" around 701/2.

Earlier in the week, the Calgary-based oilsands producer announced its 2011 capital budget, which showed a 26% increase over 2010's budget. Of its C$150 million plan, C$122 million will be used at the Long Lake Project.

However, OPTI noted that declining commodity prices could have a negative effect on its funding.

SuperMedia loan slips

SuperMedia's term loan dropped in trading to 67¾ bid, 68¾ offered from 68 bid, 69 offered following a downgrade by Standard & Poor's of the company's corporate and senior secured credit facility ratings to CC from B-, according to a trader.

"The downgrade reflects our view that the company's discussion about a proposed amendment, which would allow for subpar repurchases of its term debt of up to $185 million for 90 days from the effective date of the amendment, suggests a high probability of a subpar buyback," said S&P credit analyst Andy Liu in the rating release.

Liu added that under S&P's criteria, the subpar buybacks by the Dallas-based directory publisher would be viewed as tantamount to a default.

"I don't really agree with the logic of the analyst," the trader told Prospect News. "It's opportunistic and a little bit of desperation but I don't think it's the same as a default."

Last week, a market source told Prospect News that he had heard Dex One Corp. - formerly known as R.H. Donnelly Corp. - was considering a merger with SuperMedia, which operates SuperPages.com. Both Dex and SuperMedia have struggled as consumers bypass traditional yellow pages for Internet-based options, resulting in sharp declines in advertising revenues.

Sara Rosenberg contributed to this article

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