Catalyst paper gives up recent gains; Blockbuster unmoved; Harry & David eyes recapitalization

By Paul Deckelman

New York, Jan. 18 - They say what goes up must come down, and traders in distressed debt saw proof of that on Tuesday in the behavior of Catalyst Paper Corp.'s bonds, which had firmed solidly last week, possibly on the news of a debt paydown by the Canadian paper manufacturer. But after having come in a little on Thursday and Friday from their mid-week highs, the bonds were seen down again on Tuesday as traders dismissed the debt payment news as no big deal.

Elsewhere in the distressed-debt precincts, market participants saw some fairly active trading in another Canadian company - bankrupt communications systems maker Nortel Networks Corp. However, they saw no real news that would explain the improvement in the company's bonds.

Amid a generally quiet day in high-yield trading in general and distressed in particular, as market players straggled back from a three-day weekend, traders did not see too much activity in the usual suspects such as NewPage Corp., Motors Liquidation Co. or Great Atlantic & Pacific Tea Co., Inc.

News that Blockbuster Inc. has been given more time to file a plan of reorganization was largely expected and had no impact on the bankrupt movie-rental company's bonds.

However, another name from the retail sphere - gift-basket seller Harry & David Holdings, Inc. - traded fairly actively at lower levels most of the day, though mostly on small pieces. It was pushed down by the company's warning that it will be out of compliance with its credit facility covenants and will have to secure new capital and restructure its debt in order to operate in the longer term. Harry & David announced the hiring of advisers to help it explore various recapitalization alternatives.

There meantime was little or no activity seen in the bank debt of troubled companies.

Catalyst retreat continues

A trader said that overall, "paper seemed a little lower," and specifically mentioned that he had seen Catalyst's 7 3/8% notes due 2014 fall.

He said that the Richmond, B.C.-based paper manufacturer's bonds had begun the day at 83 bid, then dropped down to 80 and finally ended the day around 81½ bid, 82 offered.

"Down 2 points, up a point, down a point on the day," he summarized, noting that "those were the ones that moved," and on "decent volume," versus the 11% notes senior secured notes due 2016, which have recently been trading above par. He saw the latter bonds - recently as good as around 102-103 - fall to 101 bid but said that the 7 3/8s "were the big movers."

"I don't know how much activity there was in those [i.e., the 11s] - the 7 3/8s seemed to be more active."

A second trader called the latter bonds "kind of active," seeing them easing to 81½ bid.

Those bonds had risen as high as 86 bid, 86½ offered around the middle of last week - a gain of at least 4 or 5 points from their prior levels - after Catalyst announced plans a week ago for an early redemption on its 8 5/8% notes scheduled to come due on June 15; instead, the company called the bonds for redemption at par on Feb. 11. Market sources suggested that the call announcement was a sign of Catalyst's resolve to improve its balance sheet, thus pushing its other bonds not involved in the redemption higher.

However, after hitting those peak levels last Wednesday, the Catalyst bonds began to come in, with the 7 3/8s declining to around 84 bid on Thursday and easing another point to 83 on Friday and continuing to erode on Tuesday.

"They bounced up too much [last week] on that news," the second trader said, estimating a fall of at least 3 points over the last two or three sessions.

Traders trying to explain the slippage said that the redemption news was not that big a deal. "I didn't understand it," the second trader said. "Those bonds went up by 5 points - I thought it was ridiculous."

He and other traders noted that only $26 million is being taken out by the call - the amount that remains currently outstanding of the $400 million originally sold early in the last decade by Catalyst's corporate ancestor, Norske Skog Canada Ltd., which issued $250 million in 2001 and an additional $150 million in 2003. Partial redemptions over the intervening years have whittled the outstanding amount down to present levels.

They also pointed out that the Feb. 11 early redemption only shaves slightly less than four months off the life of those bonds.

While Catalyst was backtracking, a trader said that its Miamisburg, Ohio-based sector peer, NewPage, stayed "right around" the 97 bid, 98 offered level at which he had seen that company's 8 3/8% senior secured notes due 2014 finishing up last week.

Harry & David heads lower

A market source said that Harry & David Operations Corp.'s 9% notes due 2013 saw some brisk trading on Tuesday, although most of it was in relatively small odd-lot pieces - not an unlikely scenario given the relatively small amount ($175 million) of outstanding bonds.

That paper had been trading mostly in a 75-76 context at the tail end of last week before finally going home Friday at 74 bid.

In Tuesday's dealings, the paper opened with a $1 million round-lot deal bringing it down to 72 bid, and it continued to trade in odd-lot pieces at lower levels in a 71-72 range. But the paper dropped as low as 65 at one point in the day's proceedings.

On a round-lot basis, however, the paper ended at 72, unchanged from the previous such big-block transaction earlier last week.

On Tuesday, the Medford, Ore.-based gourmet food and fruit gifts purveyor announced that parent company Harry & David Holdings had hired Rothschild Inc. as its financial adviser and Jones Day as legal adviser to explore recapitalization alternatives - this after its preliminary financial results for the quarter ended Dec. 25 fell "significantly below" expectations, according to the company news release.

Harry & David warned that based on the results of operations in that Dec. 25th quarter, it will not satisfy financial covenants under its revolving credit facility and will not be able to borrow on the facility unless it is amended or the non-compliance is waived.

While the company believes its cash on hand is sufficient to fund short-term operations, Harry & David cautioned that it will not be able to finance its continuing operations without securing new capital and restructuring its debt based on its current working capital and anticipated working capital requirements and operational results.

The company said it plans to hold discussions with its revolving credit lenders, bondholders, other creditors and owners in an effort to recapitalize.

Blockbuster a no-show

Among other troubled names in the retailing sector, a trader said he saw "nothing at all" in Blockbuster's bonds, even as the bankrupt Dallas-based movie-rental company said that its bondholders and lenders had given it additional time to put together a plan of reorganization.

He said that Blockbuster's 11 3/8% senior secured bonds due 2014 were around the same 48-49 context at which they had recently been quoted, while its 9% notes due 2012 continued to languish down around the 1-2 level, with "very few quotes" in either credit.

Another trader agreed that he had seen neither hide nor hair of the company's bonds.

The paper showed exactly zero impact from the expected news that Blockbuster's debtor-in-possession facility lenders and its bondholders agreed to extend the company's deadline for filing a plan of reorganization to Feb. 4 from the previous deadline of this past Friday.

The noteholders also agreed to extend the date by which a supermajority of consenting noteholders must approve a business plan to Feb. 4 as well as the company's deadline for hiring a chief executive officer approved by a supermajority of the consenting noteholders.

Under a previous extension, Blockbuster - which sought Chapter 11 protection from its bondholders and other creditors last September - must file the disclosure statement for its reorganization plan and have it approved by the U.S. Bankruptcy Court in Manhattan no later than a week after the plan is submitted, Feb. 11.

Nortel trades actively

Also among the bankruptcy filers, a trader said that Nortel Networks' 10 ¾% notes due 2016 were actively traded during the day, calling them up 1 ½ points on the day around 87 bid.

A market source at another desk pegged them up some 2 ¾ points at the 87 level and said that over $20 million of the notes had traded by mid-afternoon, making Nortel one of the busiest of high yield names on a generally light day.

The first trader said the 10 ¾% issue "was really the only one that was trading that I see." He saw all of one trade in the company's 10 1/8% notes due 2013 at 86 7/8s, up 1 ¼ points.

There was no fresh news out to explain the suddenly renewed investor interest in the bankrupt Toronto-based telecommunications equipment manufacturer, which is in the process of winding down its operations and selling off its various assets.

A&P not very active

A distressed-debt trader said he saw the bonds of Great Atlantic & Pacific Tea "pretty much unchanged" on the day Tuesday, with the bankrupt Montvale, N.J.-based supermarket operator's 11 3/8% senior secured notes due 2015 staying around 89 bid, 90 offered, the same levels where they finished up on Friday but down from the recent highs around a 93ish context to which those bonds had moved right after A&P's mid-December Chapter 11 filing.

The company's 5 1/8% convertible notes coming due on June 15 and its 6¾% convertibles due 2012 meantime continued to trade down at 33 bid, 34 offered.

OPTI Canada a little lower

Away from bankrupt names, a trader said OPTI Canada Inc.'s bonds were "a little lower" on the day, quoting the Calgary, Alta.-based oil-sands energy company's 7 7/8% senior secured second-lien notes due 2014 at 69 bid, 70 offered, which he estimated was down a point.

However, he emphasized that these were quotation levels, as opposed to actual trades, in keeping with the overall quiet market seen on Tuesday.

He called activity in OPTI Canada "very thin - virtually no activity."

He quoted the company's 8¼% notes also due in 2014 at that same 69-70 level, down 1 point on the day, on "not much activity."

OPTI Canada's bonds had drifted down to around the 70 area at the end of last week from levels around 72 bid they briefly touched earlier in the week after the problem-plagued company had some rare good news for investors. At that time, it reported an 11% increase in daily production of bitumen crude oil in December at the Long Lake, Alta., oil-sands facility that 35%-owner OPTI runs in a joint-venture with partner Nexen Inc., which owns the other 65%.

Bondholders, as well as shareholders of the two companies, have worried that the facility has been slower than anticipated in ramping up to its projected target levels for the extraction of bitumen, a thick and heavy grade of crude oil that the plant owners hope to convert into the more desirable and profitable light sweet crude oil using a proprietary technology.

But while daily average production increased from 26,200 barrels in November to 29,100 barrels in December, that is still less than the 38,000-to-45,000 daily average that Nexen recently estimated for this year - and that in turn is still well below the 72,000 barrels per day figure that the three-year-old plant is theoretically capable of producing.

GM stays parked

A trader saw "not much activity" in Motors Liquidation's benchmark 8 3/8% bonds due 2033 issued by the "old" General Motors Corp. before its 2009 bankruptcy reorganization. He pegged the carmaker's bonds at 36¾ bid, 37 offered, which he called unchanged "on very low volume."

A second trader though said the benchmark bonds were down 1 point on the day at 36 bid, 37 offered, though on only light trading.

He meantime saw GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 down 1¼ points at 107¾ bid, 108¾ offered.

Caroline Salls contributed to this report

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