OPTI skips coupon, bonds trading flat; DirectBuy drops as customers wane; NewPage bonds softer

By Stephanie N. Rotondo and Paul Deckelman

Portland, Ore., June 15 - The distressed debt market suffered along with the equity markets Wednesday, and a round of negative news did not help matters.

OPTI Canada Inc. announced late Tuesday that it would not make a coupon payment on its subordinated debt that was coming due Wednesday. As a result, the bonds were trading softer and without accrued interest.

Meanwhile, a trader said a massive loss in memberships weighed on DirectBuy Holdings Inc.'s debt. He opined that the bonds could fall below the 30 mark by the end of the week.

NewPage Corp. continued to be an actively traded credit, though there remained no fresh news out. According to one market source, the lack of news was part of the problem.

OPTI sags on skipped coupon

OPTI Canada's subordinated paper was down a point or so - though also trading flat of accrued interest - after the company said it would not make its June 15 coupon payment.

The trader pegged the 7 7/8% and 8¼% notes due 2014 at 44 bid, 44 ½ offered. The bonds had been trading around 46 and the trader noted that the interest was "worth almost 3 points."

The Calgary, Alta.-based oilsands producer said late Tuesday that it was skipping the $71 million payment on the subordinated issues, though it did intend to make a $24 million payment on its 9% first-lien notes due 2012.

The company has 30 days to make the payment on the subs or else it will be in default.

As of June 15, OPTI has C$220 million in cash and equivalents, the company said in a statement. There is also $73 million available in an interest reserve account.

OPTI said it was continuing to work with Lazard Freres & Co. LLC, Scotia Waterous Inc. and TD Securities Inc. to develop a strategic plan to deal with its overleveraged balance sheet.

DirectBuy loses customers, value

A trader said DirectBuy Holdings' 12% notes due 2017 took a dive after the company came out with numbers that were "terrible in terms of new customers signing up."

He quoted the notes at 36 bid, 37 offered, down from 41 bid, 42 offered.

"So that's a pretty good drop for an already low-dollar price piece of crap," he said, speculating that the bonds would go "sub-30" in the next few days.

"It's hard to see how they will get out of their own way," he added.

The trader said that memberships declined 45.3% in May, deeming it a "lights out" scenario for the Merrillville, Ind.-based home improvement club.

"There's nothing there other than memberships," he said, noting that the massive loss in memberships came despite the company offering incentives to get and keep clients.

"It's an ugly situation," he said.

DirectBuy is currently dealing with a class-action lawsuit that alleged improper sales practices. Though a settlement had been proposed, the deal was denied by a judge in May for being "too meager."

NewPage bonds trade heavy

NewPage's debt remained "hugely active," a trader said, though there was still no news out on the Miamisburg, Ohio-based coated papermaker to cause the declines.

"That's the weird thing," the trader said. "It's partially that there is no catalyst to move it up."

That was especially a problem for the subordinated issues, which some players are beginning to think might not be "money good," he said.

"They have had huge volume over the last couple of days," he noted of the subs. During Wednesday trading, about $60 million to $75 million of the 10% notes due 2012 turned over, falling to around 30.

The 11 3/8% senior notes due 2014 were also slightly weaker at 91 ½ bid, 92 offered, on volume of $50 million to $60 million.

Another trader said that speculation about the coupon "seems to scare some folks." He saw the 10% notes as low as 29 bid, 30 offered near the end of the day, with the 11 3/8% notes at 91½ bid, 92½ offered. "There were a lot of quotes, a lot of trading - and they're all down."

The trader also said that NewPage sector peer Catalyst Paper Corp. "was also down, definitely, though on not as much volume" as the NewPage notes.

He saw the Richmond, B.C.-based paper manufacturer's 7 3/8% notes due 2014 fall 1 or 2 points to end at 58 bid, 59 offered, while its 11% senior secured notes due 2016 eased a point or two to 88½ bid, 89½ offered, from previous levels in a 90-91 context.

Several market participants attributed the latest drop in NewPage's two series of actively traded bonds to rumors and speculation - at this point strictly unofficial scuttlebutt not confirmed by the company - that the financially stressed papermaker might have trouble making the $91 million interest payment due on the $1.6 billion of 11 3/8s on June 30. A trader ironically allowed that "not making an interest payment," should it happen, "even in this market, is still a big deal."

Clear Channel gets clipped

A trader said Clear Channel Communications Inc.'s 10¾% notes due 2016 "were down a good bit" at 87½ bid, 88 offered. He said that there were "a lot of quotes" in the San Antonio, Tex.-based media company on Wednesday, though only "moderate [trading] volume, not a lot of volume, but down a couple of points."

He also saw its 11% notes due 2016 "same thing, down a couple of points" at 86 bid, 87 offered, "but not a whole lot of trading, though."

Chrysler softens

A trader saw continued erosion in Chrysler Group LLC's recently priced $3.2 billion of senior secured eight-year and 10-year notes, which have steered steadily lower after a little bit of short-lived upside movement immediately following their May 18 pricing.

He saw its $1.5 billion of 8% senior secured notes due 2019 at 94¼ bid, 94¾ offered and its $1.7 billion of 8¼% senior secured notes due 2021 at 94¾ bid, 95¼ offered. On Tuesday, a trader had seen both of those tranches trading on either side of 96 bid.

The Auburn Hills, Mich.-based No. 3 U.S. automaker priced its two-part mega-deal on May 19, with both halves coming to market at par. The offering had originally been announced as a $2.5 billion transaction, which was then upsized to $3.5 billion, only to be whittled back down to $3.2 billion total at the pricing.

After the bonds came to market at par, the eight-years initially moved up to 100½ bid, 100¾ offered, while the 10-years firmed to 100 ¾ bid, 101 offered, but have since skidded off into a ditch and languish at current levels.

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