OPTI subs try to recover losses; NewPage replaces CFO, bonds dip; Sino-Forest takes backseat

By Stephanie N. Rotondo

Portland, Ore., June 10 - Friday's session brought more weakness for the distressed debt market, as the equity markets closed their sixth consecutive week in the red.

Still, a trader said that volume in the secondary space - which includes high-yield credits - was "not that bad," though he did note that action was "mostly in a few issues."

Despite the overall softer market, OPTI Canada Inc. paper managed to stage a 3-point rally, traders reported. There was no fresh news out on the company, but there is a coupon looming next week and the market is wondering if the payment will be made or not.

Meanwhile, NewPage Corp. remained an actively traded issue. The bonds continued on their downward course, even as the company announced an executive addition.

In other forest-products related names, Sino-Forest Corp. activity quieted down, just more than a week after the company's debt - and stock - began a major decline based on allegations of fraud by short-seller Carson Block.

Also, a Gimme Credit LLC analyst showed no love for Hovnanian Enterprises Inc. in a research report put out Friday. The homebuilder released dismal earnings on Tuesday and the bonds have been on the decline ever since.

OPTI debt stages rally

OPTI Canada's subordinated debt "rebounded," a trader said.

"It just seemed like a [general] rebound," he said. "They have been trading down a lot lately."

He placed the 7 7/8% and 8¼% notes due 2014 around the 46 mark.

Another trader said the 8¼% notes "popped up" 3 points to the 46 level, while the 7 7/8% note also gained 3 points to close around 453/4.

As previously reported, Friday is the record date for the upcoming coupon on the subs on June 15. With all of the operational issues OPTI has been experiencing at its Long Lake joint venture project with Nexen Inc. - which have in turn pressured the company's overall financial health - the market is speculating on whether or not the payment will get made.

The bonds are next callable on Dec. 15 at $102.06.

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

NewPage dips, CFO replaced

NewPage bonds "continue to trade," according to a trader.

He pegged the 11 3/8% notes due 2014 at 94½ bid, 95 offered and said that there were "not trades" in the 10% notes due 2012. However, he did see a 38 bid, 39 offered market, which he deemed about unchanged.

Another trader said the 11 3/8% notes were a point lower at 941/4.

Late Thursday, the Miamisburg, Ohio-based coated papermaker said that it had hired Jay A. Epstein to take over the role of chief executive officer.

The position was vacated by David Prystash on May 11. Curtis Short, chief accounting officer, served in the role on an interim basis.

Prystash's departure marked the fourth executive exit since last summer when NewPage's president and chief executive, E. Thomas Curley, announced his resignation. Mark A. Suwyn, chairman and director, and Michael Edicola, vice president of human resources, also left their posts with Curley.

Sino action quiets

A trader said there was "not much action" in Sino-Forest's debt on Friday.

He saw the 10¼% notes due 2014 move up to 663/4, which he deemed up nearly a point.

Another trader, however, said the 4¼% convertible notes due 2016 and the 5% convertible notes due 2013 traded "down a couple points" to 50 bid, 52 offered.

"I didn't see much of anything in them," he said.

In Friday's dealings, another trader said that the company's 10¼% notes were down 1 point on the day at 65 bid, although its 6¼% notes were up 3 points to end at 591/4.

He also saw its shortest-dated issue - the $87 million of 9¼% notes slated to come due on Aug. 17 - trading at 92, an extremely low price for a piece of paper that is scheduled for redemption so soon. "If you own that [issue], it's going to be a sweaty next two months," he observed.

The 2017 bonds were trading around 94 and the other paper above par as recently as June 1, before the devastating report from Muddy Waters alleging all kinds of financial chicanery and even at one point invoking the name of disgraced financier Bernard Madoff as a comparison, was made public.

Management of the company vehemently denied the allegations and noted that Block and his company stand to make substantial amounts of money by driving the company's share price down. Sino-Forest has called for authorities in Canada, where the company has headquarters in Mississauga, Ont. and where its shares trade on the Toronto Stock Exchange, to investigate Muddy Waters.

Those shares, along with the bonds, have shown wild volatility, hammered down by investor reaction to the initial report, then recovering some of those losses after a detailed company rebuttal of the charges and commissioning an independent assessment of its finances by PriceWaterhouseCoopers, only to fall again after Moody's Investors Service warned that it was considering a downgrade in the company's credit ratings.

On Friday, the shares - which have lost more than three-quarters of their value from the C$18.21 level they stood at on June 1, the day before the report surfaced - were down another 68 Canadian cents on the day, or 13.20%, to close at C$4.47, their lowest level of the session. Volume of 18.6 million shares was more than five times the norm.

RBC Capital Markets came out in favor of the Hong-Kong and Mississauga, Ontario-based timber company Friday and attempted to cast doubt upon the controversial June 2 research report published by Muddy Waters Research.

Sino-Forest will release its earnings on Tuesday.

No love for Hovnanian

Hovnanian Enterprises' 8 5/8% notes due 2017 were "quoted lower," though trading in the name in general was quite thin, according to a trader.

"That paper has definitely been weak," a trader said.

He saw the 8 5/8% notes quoted at 64 bid, 65 offered.

"The hammer came down on Hovnanian this week as the market was somehow surprised - again - that the company reported disappointing results for its fiscal second quarter ended April 30 with a net loss of $74 million versus the $29 million loss last year," wrote Gimme Credit LLC analyst Vicki Bryan in a morning report.

Bryan noted that the Red Bank, N.J.-based homebuilder speculated that the housing market would improve in 2013, though even then at a modest level. Despite the lack of recovery in the near term, "the company expects to generate stronger results later in the year on increased home sale and a growing community count.

"Hovnanian has demonstrated a poor track record of projecting market conditions throughout the decline and judging its performance capability," she wrote.

"We see no relief in the coming quarters and estimate 2011 revenue down 20% to $1.1 billion, EBITDA at -$24 million and CFFP of -$175 million," she said.

Paul Deckelman contributed to this article

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