Catalyst Paper pummeled on numbers; NewPage busy; OPTI Canada's rebound off lows continues

By Paul Deckelman

New York, April 28 - Catalyst Paper Corp.'s bonds took a beating, distressed-debt traders said, after the Canadian paper manufacturer reported quarterly numbers that showed deterioration in financial performance from the previous quarter even though they actually showed year-over-year improvement.

Catalyst sector peer NewPage Corp.'s bonds meantime remained actively traded, although levels were little changed on no news.

OPTI Canada Inc.'s bonds were likewise busy, with the oil-sands energy company's subordinated notes, which gyrated wildly on Wednesday after OPTI warned that it would not be able to hit its previously announced annual production target, tacking on another point or two to return to pre-news levels.

Another busy name was Caesars Entertainment Corp. - the old Harrah's Entertainment - although there was no fresh news about the casino operator, other than its chief executive officer calling for the legalization of online poker.

DirectBuy Holdings' bonds continued to move around in the mid-50s, well down from levels the members-only buying club's paper had held just a couple of weeks ago.

And the bonds and bank debt of iStar Financial Inc. were seen better during the session following the real estate lender's report of quarterly numbers, even though its adjusted EBITDA fell sharply year over year.

Catalyst gets creamed

A trader said that Catalyst Paper's 7 3/8% notes due 2014 "were trading a lot," plunging 5 points on the day to 69 bid. Volume was heavy at over $27 million almost right at the top of the most-actives list.

He meantime saw its 11% senior secured notes due 2016 down 1 point at 99 bid, par offered.

He attributed the slide in the subordinated bonds and the easing in the secureds to the Richmond, B.C.-based paper manufacturer's release of disappointing quarterly numbers.

"I don't know what they were expecting," he said, "but it looks like it was bad."

The bonds fell even though the company actually reported less red ink in the quarter than it had a year ago. In the first quarter ended March 31, Catalyst posted a net loss of C$12.9 million, or 3 Canadian cents per share, on sales $303.6 million. In contrast, a year earlier, the company had a C$44.1 million net loss, or 12 Canadian cents per share, on sales of $273.3 million.

However, while improving from a year ago, Catalyst's numbers deteriorated on a sequential basis from last year's fourth quarter, which had seen a net profit of C$9.6 million, or 2 Canadian cents per share. Sales also fell in the latest quarter from fourth-quarter levels of $333.6 million. The company attributed the sequential slide to a leveling off in paper demand, foreign exchange fluctuations and increased costs.

Catalyst "saw a lot of activity," another trader said, quoting the bonds as having retreated to around 69 bid from 73½ bid, 74 offered on Wednesday, which he called "a nice drop, on the back of their numbers."

A trader meantime saw Catalyst sector peer NewPage's bonds "still real active," though there was no fresh news out on the Miamisburg, Ohio-based coated-paper manufacturer that would explain the continued busy activity of its bonds. He estimated that between $40 million and $50 million of the NewPage bonds were traded Thursday, "or maybe a little more."

He saw "good-sized trading" in the 10% subordinated notes due 2012 around 541/2-55.

The company's 11 3/8% senior secured notes due 2014 fell below the par level at 99½ bid.

Another trader saw the latter bonds at 99¼ bid, up a quarter-point on the day, although he thought that they "weren't very active today."

OPTI bounce continues

OPTI Canada's bonds, a trader said, were "surprisingly resilient after bad numbers [Wednesday]. He said there was "a lot of paper trading in the subs [i.e., the company's subordinated issues], but not so much the seniors, which are both still north of 101."

He saw those subordinated bonds - the 7 7/8% notes and 8¼% notes, both due in 2014 - trading in a 531/2-54 context.

He estimated that between $60 million and $70 million bonds traded across OPTI's capital structure on Thursday, terming that "pretty good, considering that the price hasn't moved significantly, which kind of surprised me."

OPTI, a second trader said, "was the big one," seeing the 2014 bonds around 54 bid, a 2-point gain on the day, in contrast to Wednesday, when the bonds slid from the mid-50s down to around 48½ bid in busy dealings, but then came off those lows to end around 52 bid, down around a deuce.

OPTI Canada "pretty much stabilized" on Wednesday, with the bonds moving back up to around the levels they'd held before the company's release of numbers on Wednesday.

The Calgary, Alta.-based oil sands energy producer 's subordinated bonds gyrated wildly at lower levels on Wednesday after OPTI reported its fiscal first-quarter earnings - and although it showed a smaller first-quarter loss versus a year ago (C$27 million, or 9 Canadian cents per share, versus C$41 million in the year-earlier period), it also warned that it likely will not meet its 2011 previously announced production goal of 38,000 to 45,000 barrels of bitumen crude oil per day.

The first trader said, "It's not only a case that they did not meet their [output] targets - for more than a year, they have continuously, on every one of their conference calls, been forced to reduce, or give a reason why they haven't hit their targets.

"Once or twice? OK. Seven or eight times? You start to have to question everything that they do or say."

He further opined that the OPTI subordinated bonds "should actually be trading lower. The fact that they're almost back to where they were the day before is a testament to two things: one, I think there are some pretty large blocks [of bonds] held in a few places that are trying very hard to keep it, with the expectation of [eventually] owning the company; they're going to end up with equity, but that's what they want. This is a 'loan-to-own' kind of a situation."

He said that "there are a lot of people that think that while the oil sands have a value, [OPTI's] ability to extract it is not very strong and that there are better technologies."

The other factor, he continued, "is probably counter-intuitive, but as gas and oil prices rise even more, there are other sources that will be able to kick in because it's affordable to do. Clearly, OPTI is not the best operator in the space, and they've struggled, so I think these [bonds] will kind of drift around here, but it wouldn't surprise me for it to be in the 40s two months from now."

At the same time, he said, the senior secured bonds "are fine to a certain extent," particularly the 9% notes due 2012 currently trading around 101½ bid, 102 offered, while the 9¾% notes due 2013 were at 101 bid, 101½ offered.

Caesars seen busy

A trader said that there was "a lot of Harrah's action today," using the older and more familiar name for the Las Vegas-based gaming giant now known as Caesars Entertainment Corp.

The company's 10% notes due 2018 were seen down by one-half point at 93 bid. Over $12 million of the notes changed hands, putting it high on the most-actives list for the day.

Gaming industry watchers were meantime discussing Caesars CEO Gary Loveman's opinion piece published earlier in the week on CNNmoney.com that recently announced federal indictments against PokerStars, Full Tilt Poker and Absolute Poker - the three largest on-line poker companies - won't dissuade the millions of Americans who want to play online poker.

He called for the U.S. to "seize the moment to legalize online poker, permit a safe and legitimate industry in the U.S., and bring these jobs and revenues home."

Numbers boost iStar

iStar Financial's bonds were seen having firmed smartly following the release of quarterly numbers, "trading well," one market source said.

He quoted the Caa1-rated 5.85% notes due 2017 up 2 points at 88½ bid, 89½ offered.

On the bank debt side, the New York-based finance and investment company's term loan A-1 was better and its term loan A-2 was wider after the release of first-quarter results that showed a year-over-year improvement in income but a decrease in adjusted EBITDA, according to a trader.

The term loan A-1 was quoted at 99 3/8 bid, 99 5/8 offered, up from 99¼ bid, 99½ offered, and the term loan A-2 was quoted at par ¼ bid, par ¾ offered, compared to Wednesday's levels of par 3/8 bid, par 5/8 offered, the trader said.

For the quarter, net income was $67.4 million, or 71 cents per diluted common share, compared with a loss of $25.4 million, or 27 cents per share, in the prior year, and adjusted EBITDA was $94.9 million, down from $173.2 million in the 2010 first quarter.

Direct Buy languishes

A trader said that DirectBuy Holdings' 12% issue due 2017 "was moving around again today" at 56 bid, 57 offered.

"That's interesting to me because it was 77 two weeks ago."

The Merrillville, Ind.-based "members only" buying club's bonds, $335 million of which priced at 97 on Jan. 24, were still trading above 90 in mid-March, but then fell precipitously over several sessions on the unexpected departure of the company's chief financial officer.

After climbing back from the depths, they were hit again recently on the news that attorneys general from more than three dozen states plus the District of Columbia had filed suit to block a proposed class-action settlement the company had negotiated with some of its customer members, claiming it did not really compensate the customers for damages they had suffered due to company policies and only enriched their lawyers.

"The one thing you've got to love about a bond at 50-something is that it won't be there a month from now," speculating that the notes will likely go even lower.

He noted that unlike companies with tangible assets - for instance, OPTI Canada's 35% owned oil-shale plant in Alberta - a company like DirectBuy "is almost a virtual business," with most of its assets on paper.

"They have no warehouses full of goods for their customers that you can put a lien against - when a customer places an order, they go out and get it for him from a supplier.

"The trouble with Direct Buy is there's nothing there," he noted, adding that it's not like you have inventory, or like you have a lot to go after.

"There's not a lot of recourse to the bondholder, so if they run into trouble [from the lawsuit] and can't continue to charge a pretty hefty fee to get people in the door, it's likely not sustainable."

He said that if the bonds "were a more borrowable security, they would be trading below where they are" as investors shorted them.

Bullish on distressed bonds

A trader said that people are still interested in distressed junk even with all of the attention being paid to the new issue market because "in general, the stuff is still the cheapest game in town. While, yeah, some of it may end in tears, the fact that there's an LBO market again and that there's ways of refinancing" means that the market "will go for a little while."

Sara Rosenberg contributed to this report

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