Distressed debt softens ahead of calendar; Harry & David bonds plummet 30-plus; NewPage steady

By Stephanie N. Rotondo

Portland, Ore., Jan. 19 - The distressed debt market showed signs of weakness as investors waited for the "next wave of the calendar," a trader said Wednesday.

"The weaker end of each sector is getting a little weaker in front of the calendar," he said.

The day's stress was most apparent in Harry & David Holdings Inc., whose bonds fell about 30 or so points from Tuesday levels. The bonds had begun dropping in the previous session on news the company had hired a financial adviser to explore its recapitalization options.

Traders also noted that the bonds were being quoted flat, or without accrued interest, though it was not clear if the debt was actually trading that way.

Meanwhile, NewPage Corp. managed to hold its ground despite the general market softness, along with news the company had amended its credit facility. Industry chatter was also buzzing about a potential merger between the company and another U.S. papermaker.

OPTI Canada Inc. continued its downward course, though there has not been any fresh news out. One trader opined that the company was simply the "weak sister" of the sector and thus was the reason for the recent pressure.

Harry & David plummet

News of a looming recapitalization at Harry & David Holdings continued to weigh on the Medford, Ore.-based company's debt, traders reported.

One trader said the 9% notes due 2013 traded as high as 39 and as low as 33 during the midweek session. That compared with markets of 71 bid, 72 offered on Tuesday.

"They may have started trading flat," he added, noting that he saw several flat markets, but was not sure if the bonds actually traded without accrued interest.

Another trader called the bonds the day's "notable mover." He said the debt had dipped about 10 points on Tuesday as the company announced that it had hired Rothschild Inc. as a financial adviser. Going out Tuesday, he said the bonds were offered in the low-60s. Come Wednesday, the bonds fell to the high-30s, making the total losses in the paper 30-plus points.

"I think they were quoted flat," he said. "I'd probably trade them flat."

Another trader saw a steep slide in the 9% notes.

"There was a lot of rotten fruit there," he quipped, in seeing the bonds swoon to a 38-40 context going home, after being quoted at wide levels as low as 33 bid, 43 offered in the morning. He noted that on Tuesday, the bonds had been in the 60s and last week, the 70s.

He said the company has "nice gifts - but you can see what people think about [its news] today.

"They think they're not going to be able to pay, and they're down 30 points."

Second-quarter financials

The specialty foods retailer said in a regulatory filing on Tuesday that its preliminary second-quarter results were "significantly below its expectations." Though the results will not be finalized until February, Harry & David is expecting to post net sales of $262 million, down from $267 million the year before.

EBITDA is forecast to be around $36 million versus $67 million for the same quarter of fiscal 2010.

"Despite making product improvements, introducing new packaging, accelerating marketing initiatives, enhancing Harry & David's website and taking cost-reduction actions, sales and margins for the second quarter were disappointing," the company said in the filing. "Harry & David was forced to offer significantly greater than expected discounts during the key holiday selling season."

As of Dec. 25, Harry & David had a cash balance of $66.9 million and accounts payable of $57.9 million. Based on its preliminary second-quarter results, the company will be out of compliance with its revolving credit facility and therefore will not be able to access any funds from that facility.

"While the company believes cash on hand is sufficient to fund short-term operations, based on the company's current working capital and anticipated working capital requirements and results of operations, the company will not be able to finance continuing operations without securing new capital and restructuring its obligations," the filing said.

NewPage active, unchanged

NewPage bonds were about unchanged on word the company had amended its $470 million revolving credit facility agreement in order to extend the maturity date.

A trader placed the 11 3/8% notes due 2014 around 98. Another trader also pegged the notes at that level, deeming it "kind of in line with where they have been."

The second trader also saw the 10% notes due 2012 "right around 60," which he called "a smidge better."

Under the amended agreement, the credit facility will come due on either Dec. 21, 2012 or the later of March 1, 2012 or 61 days prior to the scheduled maturity date of the first-lien notes, senior secured notes, senior subordinated notes, the NewPage Holding PIK notes and any refinancing thereof, whichever occurs first.

In other NewPage news, PPI Pulp & Paper is claiming that NewPage and Verso Paper Corp. have renewed merger talks. Verso is controlled by Apollo Management, which also holds a majority of NewPage's $800 million of second-lien notes.

NewPage is a Miamisburg, Ohio-based coated papermaker.

Catalyst keeps falling

Also in the paper arena, a trader said that Catalyst Paper Corp.'s bonds continued to decline, as the Richmond, B.C.-based paper manufacturer's debt moved back to around the levels it held before the intense, but short-lived upside flurry last week following its announcement that it would call a smallish outstanding deal for redemption several months before the scheduled maturity date.

He saw Catalyst's 7 3/8% notes due 2014 "drop a bit" to finish at 811/2, which he called a 11/2-point loss from Tuesday's level.

Those bonds had risen last week to as high as 86 bid from around the 81 level after Catalyst said it would redeem the remaining $26 million of its 8 5/8% notes coming due on June 15 about four months ahead of schedule, calling them for a Feb. 11 redemption at par.

"That was just a small deal that didn't amount to much," he said in explaining why the bonds finally gave up all of their gains over the last few sessions.

He said that bonds were "mainly quoted down a point, but there was really no trading in it" on Wednesday.

He also saw the larger and generally more active 11% senior secured notes due 2016 down a point in a 1001/2-101 bid context, versus 102 on Tuesday.

OPTI's drop again

Levels of OPTI Canada bonds remained depressed, though on no news, according to traders.

One trader said the bonds were "down a couple points on fairly decent volume," seeing the 8¼% notes due 2014 at 67, versus 69 bid, 69½ offered previously. The 7 7/8% notes due 2014 were "down a similar amount," trading around 661/2.

Another trader said the debt was "a good bit lower," noting that the 7 7/8% notes started the day around 68½ but dropped down to end at 66 bid, 67 offered.

OPTI Canada is a Calgary, Alta.-based oilsands producer.

Wolverine catching interest

A trader said that he was being "checked every day" by some investors on the bonds of Wolverine Tube, Inc., the bankrupt Huntsville, Ala.-based maker of copper and aluminum tubing used for refrigeration, appliances, residential and commercial HVAC and other industrial applications. The company filed for Chapter 11 protection with the federal bankruptcy court in Wilmington, Del., in early November.

He said most people in the market "are restricted - but people are chomping at the bit to start trading the bonds again." He said that small pieces had been trading around a 35-36 context, but the bonds have recently been quoted around 40-45.

"That's one to keep your eye on as we go along," he said.

However, a market source elsewhere said that he had seen a couple of smallish trades on Wednesday, still down around 35.

Broad market steady, softer

In the rest of the distressed debt sphere, Clear Channel Communications Inc.'s 10¾% notes due 2016 were called "pretty active," but "kind of unchanged" at 93 bid, 93½ offered.

General Motors Corp.'s benchmark 8 3/8% notes due 2033 meantime fell to 35½ bid, 36 offered.

Paul Deckelman contributed to this article

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