Distressed debt trading focused on OPTI Canada, driving bonds lower; Rite Aid debt ends mixed

By Stephanie N. Rotondo and Paul Deckelman

Portland, Ore., Feb. 2 - Distressed debt investors remained almost singularly focused on OPTI Canada Inc. debt Wednesday, sending the bonds further into the abyss.

The company's subordinated paper fell nearly 10 points during the mid-week session, which followed an about 5-point decline on Tuesday. The losses have come in the wake of news the company had hired yet another financial adviser to evaluate its books.

Elsewhere, Rite Aid Corp. was on the quiet side, though one trader said he expected the notes to trade more. By the end of the day, the company's various issues were trading mixed.

There was little going on in Yankee Candle Co. Inc. paper after the company announced its plans for a new issue and also released unaudited financial results. Some in the market remain optimistic about the candle maker's future, while others are aghast at the company's plan.

OPTI bonds sinking

Investors continued to put pressure on OPTI Canada bonds a day after the company announced it had hired a third financial adviser.

"That was the big thing everybody focused on," said one market watcher. "It feels like that is heading towards some kind of restructuring."

He added that the second-lien notes had fallen into the high-40s, down from the mid-50s on Tuesday and around 60 before that.

Another trader quoted the 7 7/8% and 8¼% notes due 2014 at 47 bid, 48 offered, down from around 56.

"That's a pretty big slide," he said. "Lots of good volume too."

Yet another trader said the bonds were "down a boatload of points," to around a 48-49 context, versus Tuesday's already depressed levels in the lower 50s.

He said that just as had been the case on Tuesday, and indeed, over the past few sessions, "there was good size again." He saw "all kinds of activity" in them, estimating a loss of at least 6 points, and probably more.

"OPTI was the big mover of the day," he declared. "It was on everybody's run, every page of offerings."

Questions abound

Another market participant agreed that OPTI "was the big trader today. "

He opined that "there are a lot of questions [among investors] about what's going on there. The bonds have been very active over the last two weeks," calling them down 15 to 20 points total in the last week or so, "on really no news. I think a lot of people are getting the sense that the company is in kind of dire straits."

He said that operations at the oil-sands joint-venture in Long Lake, Alta., that is 35% owned by OPTI and 65% controlled by senior partner Nexen Inc. "aren't working as advertised, and they're having to put more money into more steam production" to get the thick, gooey bitumen crude oil out of the ground so it can be processed into the much more commercially valuable and desirable light, sweet grade of crude.

He said that "there are some credit questions going on and people have been talking about restructuring. There was some talk earlier about a dealer blowing out of a position, and that put pressure on them. I think a lot of people are just starting to take a look at the story." And as a result, he said, the bonds had gone from levels around 72 bid at the start of the year down to current levels in the upper 40s, getting as low as 451/2-46 during Wednesday's dealings.

He said OPTI's two senior secured first-lien issues - the 9% notes due 2012 and 9¾% notes due 2013 - are still trading up in the 90s, around 97 bid on the 9s and a 94-ish level on the 9 3/4s.

Another trader saw the 7 7/8s down over 7 points on the session, pegging them around 48¾ bid, while the 8 1/4s lost 8¾ points, with a last trade at 47. He said that "north of $50 million of each of those issues were trading."

Relative to junk players in the U.S., he quipped that "they're up in the far north - but the bonds are definitely heading south."

Another adviser hire

The Calgary, Alta.-based oilsands producer said Tuesday it had hired Lazard Freres & Co. LLC to assess its strategic alternatives. Lazard will work alongside Scotia Waterous Inc. and TD Securities Inc., which were hired as financial advisoers in November 2009.

Moody's Investors Service downgraded OPTI on Wednesday, leaving its corporate family rating at Caa3 - down from Caa2 - and the second-lien notes at Ca - down from Caa3.

The outlook is negative.

Moody's said its action was due to the company's declining liquidity and "our view that the company will be unable to meet all of its cash requirements in 2011.

We estimate that at the end of December 2010, OPTI had $175 million of cash. In 2011, cash interest will be $180 million and OPTI's share of Long Lake capex will be $150 million, with another $50 million for their share of the phase 2 SAGD site (Kinosis) possible, and we expect only breakeven to slightly positive operating cash flow from the Long Lake project," Moody's said in a statement.

The rating agency did not that OPTI's C$190 million revolving credit facility was fully available, but as it comes due in December of this year, "we do not consider it an available source of liquidity."

"The negative outlook reflects our view that OPTI's capital structure is unsustainable and will likely need to be restructured."

Rite Aid ends mixed

A trader said Rite Aid debt "should have been a lot busier, but it was not at all."

He noted that less than $25 million of the company's various issues changed hands, the largest trader being the 10¼% notes due 2019. He called the issue almost a point better at 1071/4.

The 7.70% notes due 2027 meantime dipped half a point to 641/2.

At another desk, a source saw the 8 5/8% notes due 2015 gaining half a point, closing at 89½ bid.

There was no news out on the Camp Hill, Pa.-based drugstore chain.

Yankee issuing more debt

Yankee Candle's 8½% notes due 2015 and 9¾% notes due 2017 were "super quiet," according to a market source, even as the company readied to launch a new issue.

On Thursday, the South Deerfield, Mass.-based candle maker will start a roadshow for $300 million of five-year senior notes. The proceeds will be used to fund an equity distribution.

The company also released unaudited financial results for its fourth quarter and full fiscal year. Based on the projections, Yankee will post somewhat better numbers than it did the year before.

However, retail traffic continues to be depressed. Evan Mann, an analyst with Gimme Credit LLC, believes that will change as the retail environment improves. But he also changed his outlook on the company to deteriorating from improving, given that the new issue will increase pro forma leverage to 6.2x from 4.7x.

Another market follower did not share Mann's optimism and expressed amazement at the company's decision to issue more debt in order to pay an equity distribution.

"This is the kind of market you can get that kind of [crap] done," he said.

A trader said the 9¾% notes traded at 106, on just $1 million traded.

Nortel up on patent sale

Among other distressed names from north of the border, a trader saw Nortel Networks Corp.'s 10¾% notes due 2016, calling them up between 2 and 2½ points on the day at 91 bid, 92 offered, on "good volume," particularly at the end of the day.

The Wall Street Journal reported on Wednesday that the Toronto-based telecommunications systems manufacturer expects to select an initial stalking-horse bidder for a massive portfolio of some 4,000 patents, probably within three weeks. Nortel filed for bankruptcy in 2009 and has been liquidating its far-flung assets one by one since then through court-supervised sales, choosing to wind down the company rather than attempt a reorganization.

The Journal quoted unidentified sources said to be familiar with the situation that among the pool of at least five potential buyers are such high-tech heavyweights as Apple Inc. and Google Inc.

The patents are expected to go for at least $1 billion, with the proceeds to be distributed among Nortel's various creditors.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.