Distressed debt market ends steady, new issues remain focus; Harry & David bonds regain ground

By Stephanie N. Rotondo

Portland, Ore., Jan. 20 - Distressed debt continued to take a backseat to new issue trading, traders reported Thursday, leaving the space to close the day about unchanged.

One trader remarked that most of his day was spent trading new issues, as investors continued to focus on that arena.

Harry & David Holdings Inc. attempted a minor rally after losing 30 or more points in the previous session. Traders saw the bonds moving up 2 to 3 points on the day and at least one source opined that the massive losses the day before might have been a bit much.

OPTI Canada Inc. also tried to come back a bit. A trader said the bonds started the day getting hammered, but eventually climbed back up to finish the day virtually unchanged.

Elsewhere, Sprint Nextel Corp. debt took a small hit, though there was no specific news out to cause the slip.

Harry & David stages comeback

After plummeting 30-plus points in Wednesday trading, Harry & David Holdings' debt rebounded a few points. One trader said the move came as the bonds were "probably overshot a little on the downside."

He quoted the 9% notes due 2013 at 41 bid, 42 offered.

Another trader placed the paper around 411/2, which he called up 2½ points from Wednesday's high around 38 and up 7 points from the low-tick around 33.

"I think it was more just a function of there is so little in the distressed world, everybody's jumping in to get a piece," said another trader.

He pegged the bonds at 41 bid, 43 offered, compared with 38 bid, 39 offered previously.

The Medford, Ore.-based 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, the company 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.

Harry & David has hired Rothschild Inc. as a financial adviser and intends to begin talks with stakeholders on a recapitalization plan.

OPTI gets hit, rallies

OPTI Canada paper "started [the day] getting banged," a trader said. But by the end of business, he saw the bonds coming back to close about unchanged from the previous day.

He saw the 7 7/8% notes due 2014 at 66 bid, 67 offered and the 8¼% notes due 2014 at 66½ bid, 67½ offered.

"They've found middle ground," he said.

Another trader said the bonds were "lower, but not much lower," deeming both issues down about half a point, the 7 7/8% notes around 66¼ and the 8¼% notes around 661/2.

There hasn't been any fresh news out on the Calgary, Alta.-based oilsands producer, but the company's bonds have been gyrating for the last few weeks. One market source previously told Prospect News that OPTI - which has been struggling to ramp up production on its Long Lake joint venture project with Nexen Inc. - was the "weak sister" of the sector and that that could be the reason for the movements.

One trader characterized OPTI as "a particular name that seems to bounce around a lot, it's got a high-beta on it, and I think the hedge-fund community likes pushing this one around, so it has a typical 5-point swing."

He further said that investors in OPTI have got to have "a strong stomach for it. It's tough to be involved in that name."

Sprint losing ground

Trading in Sprint Nextel notes was "kind of mundane," a trader said, though the debt lost a bit of ground.

He said the 6% notes due 2016 were the only ones to trade in any size. He called the bonds down half a point to three-quarters around 98. The 8¾% notes due 2032 lost the most weight, dropping a point to end at 1041/2.

Still, he noted that only about $2 million of the latter issue changed hands.

"Nothing sinister there," he said.

Another trader echoed those levels, while another called the 6% notes nearly 2 points softer at 98¼ bid.

Sprint Nextel is an Overland Park, Kan.-based wireless telecommunications provider.

Broad market mixed

Also in the distressed debt realm, NewPage Corp.'s 10% notes due 2012 were seen "up a little bit" around 61, according to one market source.

The source also said that General Motors Corp.'s benchmark 8 3/8% notes due 2033 were getting knocked around with the equities. At one point, the bonds fell as low as 341/4, but managed to come back to around 35.

At another shop, a trader said Harrah's Entertainment Inc./Caesar's Entertainment Inc.'s 10% notes due 2018 lost a point to close around 90.

That trader also saw Dynegy Inc.'s 8 3/8% notes due 2016 at 791/4, about unchanged.

Another trader saw Sorenson Communications Inc.'s 10½% senior secured notes due 2015 ending at 67 bid, 67½ offered, calling that "slightly lower," perhaps half a point, versus Wednesday.

Paul Deckelman contributed to this article

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