TXU bonds end mixed as company faces default allegations; Solo Cup debt crumbles; OPTI rallies

By Stephanie N. Rotondo

Portland, Ore., Feb. 28 - Month-end activities and a bevy of JPMorgan Chase & Co. conferences this week made for subdued distressed debt trading Monday, though a trader noted that "in general, the world is a lot better."

"It was a nothing-special month-end day," another trader said.

Still, the overall market performed better than it did in the previous week, likely helped in part by gaining equities.

Energy Future Holdings Corp. was the nom du jour as the company fought allegations of default. The news - which first came out on Friday - resulted in mixed trading in the power producer's debt.

Meanwhile, in the no news is not good news department, Solo Cup Co. bonds continued to be in freefall. There hasn't been anything out to explain the recent declines and several traders also said they were clueless as to what was causing the slip.

As the overall market closed with a generally firmer tone, so did OPTI Canada Inc.'s subordinated issues, according to traders. Without any fresh news, the bonds tend to fluctuate with the market.

As for the coming week, trading might remain muted due to the slew of conferences scheduled. JPMorgan's High Yield and Leveraged Finance Conference in Miami goes through Wednesday and two other conferences - the Emerging Market Corporate Conference in Miami and the Capital Goods Blue Chip Forum in Las Vegas - start Wednesday and end Thursday.

TXU notes diverge

Energy Future Holdings, or more commonly referred to by its former moniker TXU Corp., was "probably the most notable" credit of the day, according to a trader.

Traders reported a mixed capital structure on Monday as the company dealt with allegations of default from noteholder Aurelius Capital Management LP.

A trader said the 10¼% notes due 2015 closed at 55 bid, 56 offered, up from levels in the low-50s previously. The 11¼% notes due 2017 were also seen up a couple points in the low-80s.

Another trader said the 10¼% notes were "busy" and about 3½ points higher at 561/2.

A third trader said both the 10¼% and 11¼% notes were "up a solid couple points" at 56 bid, 57 offered and 81 bid, 81½ offered, respectively. However, he also saw the 5.55% notes due 2014 and the 6.55% notes due 2034 "down a solid couple points" at 66 bid, 66½ offered and 44 bid, 44½ offered, respectively.

News of the default allegations, which TXU reported in a regulatory filing on Friday, "definitely got people looking at it," the third trader said. "Guys are just trying to figure out which one is likely to be hurt the worst or benefit the most."

The trader added that there was "no clear answer" because "there's no true event."

In an 8-K filed Friday, TXU said Citibank NA as administrative agent had received a letter from Aurelius, which alleged that intercompany loans made by Texas Competitive Electric holdings Co. LLC to Energy Future Competitive Holdings Co. did not comply with Texas Competitive's senior secured credit facilities agreements. Aurelius said the agreements maintain that such loans be made on an arms-length basis and, as they were not, the company was in default on $24 billion in debt.

In the regulatory filing, TXU said the claims were "without merit," as the loans were in fact made on an arms-length basis.

But despite its dismissal of Aurelius' claims, Citigroup and TXU held a lender call Monday to discuss the situation.

Aurelius holds about $50 million of the debt in question, which comes to about 0.2% of the total amount. According to the 8-K, no other creditor was listed in support of Aurelius.

TXU is also slated to present at JPMorgan's high-yield conference this week.

TXU is a Dallas-based energy producer.

Solo Cup under pressure

A trader said Solo Cup's 8½% notes due 2014 were still "getting hammered," though there hasn't been any news out to explain the recent weakness in the credit.

He called the notes down 3 points at 831/2.

Another trader also placed the bonds at that level, on some "$20-odd million" traded.

A third trader quoted the paper at 84 bid, 85 offered, but noted that there were some late day prints around "83 and change."

"Seems like it keeps going lower," he said, adding that the issue had traded around 87 last week.

Solo Cup is a Lake Forest, Ill.-based manufacturer of single-use food and beverage packaging products.

OPTI bonds rally

After taking a hit on Friday, OPTI Canada's 7 7/8% and 8¼% notes due 2014 "bounced back," according to a trader.

He quoted the notes at 54½ bid, 55 offered, up from opening levels around 53½ bid, 54 offered.

The senior notes, however, "haven't budged," he said.

Another trader deemed the debt up nearly a point at 543/4.

There was no news out on the Calgary, Alta.-based oilsands producer.

Market mainstays mixed

Elsewhere in the market, NewPage Corp.'s 10% notes due 2012 were seen ending half a point better at 661/2.

In the autosphere, General Motors Corp.'s benchmark 8 3/8% notes due 2033 were called unchanged at 32½ bid, 33½ offered.

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