NewPage second-liens pop; Dynegy gets hit with lawsuits, bonds gain; Nortel notes stay strong

By Stephanie N. Rotondo

Portland, Ore., July 22 - Distressed debt remained firm to close out the week, though a heat wave spreading across the East Coast brought "a pall of lethargy" over the marketplace.

"There was a firm tone to the market, but nobody wanted to play," a trader said.

Another trader said there wasn't any particular credit that "really stood out" on the day.

NewPage Corp.'s second-lien notes continued to gain ground, though there was no news out to explain why. The bonds have been slowly climbing up over the week, with no catalyst to speak of.

Meanwhile, Dynegy Inc. debt was also heading upward, despite news that two hedge funds had filed lawsuits against the company.

The lawsuits were in regard to the company's plan to secure new loans to restructure old bank debt.

Nortel Networks Corp. was also stronger, as the paper has been steadily moving up since announcing its patent auction results.

NewPage climbs higher

A trader said NewPage's 10% notes due 2012 were "better for some reason," as he had not seen "any particular news" that would cause the increase.

Another trader said the paper has been "gaining momentum in the last couple days."

The first trader said the notes were "up a good bit," around 25. The second trader quoted the issue at 24¼ bid, 25¼ offered. He added that the bonds had been around 21½ on Thursday.

Though the Miamisburg, Ohio-based papermaker made a $100.7 million coupon payment on its 11 3/8% first-lien notes due 2014 this month, the company is still looking into its options regarding repaying or refinancing the 10% second-liens before the end of the year. If NewPage fails to do so, other outstanding debt could be accelerated.

Dynegy gains despite lawsuits

Dynegy debt was powering up modestly as news outlets reported that the Houston-based energy producer was getting sued by hedge funds because of the company's $1.7 billion loan restructuring plan.

One trader said there were "a handful of trades" in the 7¾% notes due 2019, which he pegged at 71 bid, 71 3/8 offered. That compared with 70¼ bid, 70½ offered the day before.

Another trader also deemed the debt better around "71-ish," which he called up half a point.

On Thursday, news reports began to surface that two hedge funds - Public Service Enterprise Group Inc. and LibertyView Credit Opportunities Fund LP - had filed lawsuits against Dynegy over the company's plan to secure $1.7 billion in new loans to take out old loans.

Under the plan, Dynegy would create two new entities and transfer assets to them. The funds allege that in doing so, the company is stripping assets away from other creditors.

"The value of the funds' certificates already has been damaged as a direct result of DHI's proposed gutting of the guaranty, as evidenced by the market's reaction to the announcement of the planned restructuring," LibertyView said in its complaint.

Dynegy is claiming that the lawsuits are without merit and that its planned restructuring should go forward without any obstacle.

Nortel edges up again

Nortel Networks' 10 1/8% notes due 2013 and its 10¾% notes due 2016 continued to firm in Friday trading, traders reported.

One trader placed the notes around the 115 level, though he added that there was "no significant amount of bonds trading."

Another trader said the bonds were a point better at 114½ bid, 115 offered.

The bonds have been moving into higher territory ever since the company completed an auction of its patent portfolio, awarding a consortium led by Apple Inc.

The group is paying $4.5 billion for the patents, $2.6 billion of which was footed by Apple.

Nortel, based in Toronto, filed for bankruptcy protections in January 2009.

Broad market firms

Elsewhere in the world of distressed debt, OPTI Canada Inc.'s 8¼% notes due 2014 were deemed "unchanged" at 64½ bid, 65 offered on just a "handful" of trades.

Another trader said Clear Channel Communications Inc.'s 10¾% notes due 2016 continued to improve, moving up to 911/2.

"That was another bond that was higher," he said.

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