Distressed debt market sizzles in first session of 2011; Dynegy moves up, board OKs Icahn bid

By Stephanie N. Rotondo

Portland, Ore., Jan. 3 - It was "a much more active day than I would have expected," a distressed debt trader said of Monday's trading session.

"Everything was flying, everything is up," he added of the first trading day of the New Year. "It was a good solid first day and obviously the stocks kind of helped it along."

"The market is on fire," said another trader. "It was definitely stronger... I guess it's taking its cues from the equities."

With the strength in the market, Dynegy Inc.'s bonds moved up in active trading. Last week, the company's board of directors approved a takeover bid from billionaire investor Carl Icahn, recommending that stockholders approve the deal.

General Motors Corp.'s debt was also trending higher, as the company readies to release its annual vehicle sales report. Analysts are expecting sales to show an increase, which would be the first in six years.

The general overtone of the market also helped OPTI Canada Inc. gain some ground, though there was no news out.

Dynegy gains, takeover looms

Dynegy debt gained ground in the first day of 2011 trading, according to traders.

One trader said "$20-odd million" of the 7¾% notes due 2019 changed hands at 683/4.

That level was echoed at another desk.

On Thursday, the Houston-based power producer's board of directors unanimously voted to recommend approving a $5.50-per-share takeover bid by Carl Icahn's Icahn Enterprises LP.

Seneca Capital, however, is fighting the deal, claiming that the company is worth $6 to $7 a share.

Seneca and Icahn had joined forces previously to fight a previous takeover bid by Blackstone Group LP.

While the board is recommending approval on the deal, the company still has until Jan. 24 to find superior offers.

GM trending higher

A trader said General Motors' bonds - the ones linked to Motors Liquidation Co. - were "up huge," seeing the 8 3/8% notes due 2033 at 36½ bid, 37 offered. In the short end, the 6¾% notes due 2012 climbed to 99¼ bid, 99¾ offered, on $20 million to $30 million traded.

"It's getting closer to when it all becomes equity," the trader explained as a reason for the gains. "It was always trading below where it should have been."

Another trader agreed that GM paper was active, calling the 8 3/8% notes up half a point at 361/2. He also saw the 7 1/8% notes due 2013 and the 7.20% notes due 2011 gaining 1 to 1½ points, with both ending around 353/4.

At another shop, the benchmark 8 3/8% notes were deemed a point better at 36¾ bid, 37 offered.

GM's stock has also been on the rise of late. Monday saw a rally in the Detroit-based automaker's equity as analysts opined that annual auto sales will rise for the first time since 2005.

OPTI up with market

OPTI Canada paper moved up in line with the positive tone of the general marketplace, traders reported.

One trader said about $30 million to $40 million of the company's assorted issues turned over, pegging both the 8¼% notes and 7 7/8% notes due 2014 around 72.

Another trader called the 8¼% notes up half a point at 72 and the 7 7/8% notes nearly a point firmer at 713/4.

OPTI Canada is a Calgary-based oilsands producer.

A&P mixed

A trader saw The Great Atlantic & Pacific Tea Co. Inc.'s 11 3/8% senior secured notes due 2015 moving up, quoting the bankrupt, Montvale, N.J.-based supermarket operator's bonds having pushed up to 93 bid, 93½ offered, "on activity, with a lot of quotes in that name," calling the paper "up a couple of points," estimating around a 21/2-point gain.

He said that the company's two convertible issues - the 5 1/8% notes slated to come due on June 15 and the 6¾% notes due 2012 - "didn't move," and stayed around the same 33-34 context where they have recently traded. The two converts are trading like plain old unsecured junk bonds because the underlying stock into which they could be converted now trades well below $1 per share.

A second trader, while seeing the A&P secured bonds around 93 3/8 bid, noted that they had been trading in mid-December as high as a 95½ bid, 96 ¼ offered level seen on Dec. 17. After that, however, "it was just offer, offer, offer," and the bonds fell back, quoted as low as the upper 80s to around 90 area. He said he had not seen them trading last week, the traditional thinly traded inter-holiday period.

"This morning," he said, it was "90 bid, 91 bid, 92 and then 93."

Another trader deemed the bonds " a little lower since around Christmas time." At that point, the bonds were trading around 95, he said, but come Monday, they were 92½ bid, 93½ offered.

"They've been all over the place," he said.

Financials firm

A trader said that Lehman Brothers Holdings, Inc.'s various bonds were ending up at bid levels of 25-251/4. He said "that stuff trades in huge size, $20-$25 million, so they're always active."

Another trader saw CIT Group Inc.'s bonds firmer across the board, citing the positive news that the New York-based commercial lender plans to redeem $500 million of its $2.1 billion of outstanding 7% notes due 2013 at a price of 102. Last Thursday's announcement said the redemption will take place on Jan. 31 and will leave $1.6 billion of the bonds outstanding. The bonds will be redeemed on a pro-rata basis.

The trader said that the 13% notes firmed by around 1 point to between 101 and 102 bid, while its longest issue, the 7% notes due 2017, were a point better, at par bid. He said that par-to-101 covers all of the issues, other than the 13s. The company also issued 7% notes due 2014, 2015 and 2016 as part of its exit funding when it emerged from Chapter 11 in December 2009.

A second trader, after initially quoting the 16s as high as 101 7/8, backtracked and said "that can't be right" and said that it was much more likely the bonds traded at 100 7/8, given where the 13s are trading.

He said the CIT bonds, which were already trading on either side of the par level, went up by "not a lot, just a little bit."

Mohegan debt mounting

Mohegan Tribal Gaming Authority's bonds didn't trade - at least not in round lots - a trader said, though he noted that there were "bids around for some shorter paper.

"It gets quoted on 4 to 5 points spreads and still doesn't trade," he said.

According to a recent filing with the Securities and Exchange Commission, the Connecticut-based gaming operator has about $2.1 billion in total debt, $1.2 billion of which is due in the next three years.

Broad market rises

Elsewhere in the land of distressed debt, a "big chunk" of Harrah's Entertainment Inc.'s 10% notes due 2018 traded at 921/4, according to a trader.

Another trader said First Data Corp.'s 11¼% notes due 2016 were up 2 to 3 points around 89.

Clear Channel Communications Inc. was also on the stronger side, another trader said. He placed the 11% notes due 2016 at 89 bid, 89½ offered and the 10¾% notes due 2016 around "91-ish."

"It has moved up," he said of the credit.

Paul Deckelman contributed to this article

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