Distressed market seen lower; NewPage improves; OPTI stays low; Caesars seen easier

By Paul Deckelman

New York, June 20 - Traders said that the market in bonds of companies or industries considered in distress was mostly easier on Monday, in line with a squishy high-yield bond market.

Despite the overall soggy tone, they did see a little improvement versus Friday's levels in the battered bonds of coated-paper manufacturer NewPage Corp. However activity in NewPage's bonds shrank to almost nothing.

The traders also saw not much going on in the bonds of NewPage sector peer Catalyst Paper Corp.

Away from the paper names, bonds of OPTI Canada Inc. languished around levels at or under 40, as market participants continued to evaluate the company's decision to not make its coupon payment on its notes.

Gaming remained under pressure, with the bonds of Las Vegas casino operator Caesars Entertainment Corp. continuing to ease on investor angst about the sector, which is sensitive to the ups and downs - these days, mostly downs - of the U.S. economy.

Traders in the bank loan market did not see any activity Monday in distressed-company paper.

NewPage does not much

A trader said: "I don't think I saw a print go by today" in either NewPage Corp.'s beleaguered 10% second-lien senior secured notes, which have recently been trading at around 30 bid, or its 11 3/8% first-lien senior secured notes due 2014, which have traded recently in a 90-92 bid context.

"They go funky," he said of the Miamisburg, Ohio-based coated-paper manufacturer's bonds. "They go all over and then disappear for a few days."

The bonds fell in heavy trading over several sessions at the beginning of last week on investor concerns that the company might have trouble paying the roughly $100 million coupon on the 11 3/8s on that's due on June 30. The trader saw them get as low as "down into the 20s, around 28, then they caught a little bid."

He said there had been fewer trades in the name on Friday, around 30 bid, 31 offered, and then just one trade on Monday at 301/2.

"They had 30 [round-lot] trades, 50 trades, 60 trades at mid-week through Thursday, then they fell off the table [activity-wise] and then there was one traded today, but it looks like they fought their way off the lows."

He saw one trade in the first-lien bonds at 92 bid, 92½ offered, which was "kind of in line" with where they had been. He saw the bonds go as low as 90½ bid, but then come up off their lows in Monday's dealings.

He said he saw no fresh news or speculation about the company, "so maybe that buzz [about the coupon payment] died down a little bit."

He noted that NewPage bonds "had really dropped pretty good in a short time, but this bond does that. This bond gets crushed five points and then another three the next day, and then it will kind of fight its way back."

Catalyst paper steady

The slight improvement in the NewPage bonds did not translate over into a gain for NewPage sector peer Catalyst Paper Corp.

The Richmond, B.C.-based paper manufacturer's 7 3/8% notes due 2014 traded in a wide 58¾ bid, 61¾ offered context, a trader said, calling that "about where they had been" on Friday.

He also saw its 11% senior secured notes due 2016 at an equally wide 88 bid, 91 offered, opining that "that's not going to change."

Caesars seen lower

Away from the paper industry, a trader saw Caesars Entertainment's 10% notes due 2018 continuing under pressure on Monday, trading between 86½ bid, 87½ offered.

On Friday, the bonds of the Las Vegas-based gaming giant more familiarly known as Harrah's Entertainment, got as high as 88, he said, with most trades taking place in an 871/4-88 context.

Another trader saw the Caesars bonds "down a bit, with the 10s trading down to 86¾ bid from Friday levels around an 87½ bid 88 range, which itself was down from recent levels above 90 bid, "so they've had a hell of a retracement" on "a fair amount of activity, so they're down at least a point today."

Traders said that Harrah's/Caesars have lost ground as recent economic indicators showed no improvement in the employment picture and other signs of a slowing economy, which work against discretionary consumer spending, the main driver for the gaming industry.

Higher gasoline prices in effect until recently have also worked to reduce auto traffic going to gaming destinations like Las Vegas, Atlantic City and Tunica and the Gulf Coast in Mississippi.

OPTI Canada stays lower

A trader said that OPTI Canada's 8¼% notes due 2014 and its 7 7/8% notes, also due 2014 remained below the 40 level, quoting both tranches of the bonds at 39 bid, 40 offered.

A second trader said that the bonds - which traded above the 40 mark on Friday, going home at 40 bid, 42 offered - were seen on Monday at 39¾ bid, 40 offered.

OPTI's bonds have been on the slide for several sessions, following the announcement after the close of trading on Tuesday that the Calgary, Alta.-based oilsands producer is skipping the $71 million June 15 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 subordinate notes or else it will be in default.

In response, S&P dropped its long-term corporate credit rating on the company to SD from CCC-. The rating on the second-lien debt was also dropped, to D from CCC.

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 Frères & Co. LLC, Scotia Waterous Inc. and TD Securities Inc. to develop a strategic plan to deal with its overleveraged balance sheet.

Distressed market quiet, down

Apart from such high-profile names, a trader said that trading in distressed paper was "generally lower," in line with a soggier high-yield bond market.

A junk trader admitted that he was not sure about where the market because there were so many unanswered questions - "is it oversold? Will cash come back in this week? Or are we still in the process of re-pricing?"

A second trader said that there "wasn't a ton of stuff going on - I think a lot of it was just still trading off a little bit today. It seemed like it kind of recovered in the afternoon." But he characterized things as "pretty sluggish."

He said that "it seemed like there was a little bit of bid-wanted activity in some names that you can't find. I didn't think that as many people were willing to put out bids on stuff as they normally do, so I don't know - maybe it's turning a little bit - but that outflow last week..."

He referred to the $1.6 billion outflow from junk bond mutual funds reported by Lipper/AMG for the week ended last Wednesday. It was the biggest hemorrhage of cash from mutual funds in over a year, since May 2010.

The flow of money into and out of the mutual funds is seen as a reliable barometer of overall junk market liquidity trends.

-Stephanie N. Rotondo contributed to this report

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