Overseas Shipholding bonds sink as CDS settlement levels set; Kodak firms on patent news

By Paul Deckelman

New York, Dec. 6 - Overseas Shipholding Group Inc.'s bonds fell by several points on Thursday, traders said, down to about the level at which credit default swaps linked to the bankrupt oil tanker company's bonds were reported to have settled.

Gaming giant Caesars Entertainment's bonds were traded actively, as the company floated a big new junk bond issue.

Beleaguered photography giant Eastman Kodak Co.'s bonds firmed a little in the wake of news reports indicating that a group of buyers has offered to pay more than $500 million for some of the company's digital imaging patents, which would fulfill one of the key conditions of a proposed exit funding arrangement.

But traders said that apart from a handful of well-known names, there was not a lot of actually distressed bond debt trading around, with many distressed-debt accounts having to satisfy themselves by trading in not-so-distressed junk issues.

In the bank loan market, debt at Dex One Corp.'s subsidiaries Dex West, Dex East and R.H. Donnelley Inc., and SuperMedia Inc.'s term loan headed higher as news came out that an agreement has been reached on a revised set of amendments to the companies' credit agreements as part of their proposed merger.

Overseas Shipholding sinks

Probably the most notable distressed name of the session was bankrupt New York-based oil tanker operator Overseas Shipholding Group, whose already battered bonds took on a little more water on Thursday on news of the settlement of credit default swaps contracts linked to its bonds.

"That shipping stuff has gotten beat up," one trader said. "It was in the 40s last week and it's in the 30s this week."

He quoted OSG's 8 1/8% notes due 2018 at 35½ to 35¾ bid - down 1¾ points on the session and 2½ to 3 points from where they were at the start of the week.

"It's been down here for a while, in the 30s and the 40s, and it's staying there."

A second trader also saw the bonds at 35 to 36, although he estimated that the issue had fallen 4 points from prior levels.

The slide came as CDS trades brought a final price of 35.5 at an auction held Thursday, according to a notice from auction administrators Markit Group Ltd. and Creditex Group Inc.

As previously reported, the International Swaps and Derivatives Association, Inc. said on Nov. 15 that its Americas Credit Derivatives Determinations Committee determined that a bankruptcy credit event occurred for OSG, following its Nov. 14 Chapter 11 filing with the U.S. Bankruptcy Court in Wilmington, Del.

Caesars up on new-deal news

Elsewhere, the news that Caesars Entertainment was doing a big new bond deal apparently helped the Las Vegas-based gaming giant's older existing paper, issued by predecessor company Harrah's Operating Co. Inc.

Its 10% notes due 2015 "had some activity today," ending up trading in an 88 to 89 bid range, with the last trade at 881/2, "up a couple of points today."

He saw the 10% notes due 2018 in a 65-66 context on "pretty decent volume." He called those levels about unchanged.

Kodak firms on patent report

A trader said that there "there was news on Eastman Kodak yesterday [Wednesday], but I don't think there was much response [Thursday]."

Still, he saw the bankrupt Rochester, N.Y.-based photographic products and digital imaging technology company's 9¾% senior secured notes due 2018 and 10 5/8% second-lien notes due 2019 both "slightly higher" at 81 bid, 82 offered, versus 80 bid, 82 offered on Wednesday.

He said that the company's subordinated paper, such as its 7% and 7¼% notes, " are not really doing much at all," both languishing in a 9½ to 10½ context, pretty much unchanged on the day.

On Wednesday, The Wall Street Journal reported that a group of bidders has offered Kodak over $500 million for some of its digital imaging patents.

Citing unidentified "people familiar with the matter," the newspaper said that the bidders in question were made up of Silicon Valley technology companies and firms that specialize in buying patents, but did not specifically identify any. It said that the deal - which must be approved by a bankruptcy court judge - was submitted in the past few weeks and has not yet been finalized.

Kodak recently lined up commitments for $830 million of financing from a group of bondholders to help it emerge from bankruptcy, conditioned upon the sale of Kodak's treasure trove of valuable digital imaging patents for at least $500 million.

SuperValu holding steady

A trader saw SuperValu Inc.'s 8% notes due 2016 ending around 95 bid, 96 offered, which he said was about where the bonds had ended up on Wednesday, on $6 million or $7 million in volume.

The underachieving Eden Prairie, Minn.-based supermarket operator's bonds have recently been volatile, first dropping sharply around a week ago on news reports indicating its talks with would-be buyer Cerberus Capital Management LP had run into a major hurdle over possible financing for such a deal.

However, the bonds firmed off their recent lows to go back to around where they were pre-news, after Cerberus indicated the talks were still continuing and SuperValu said that it was in talks with several different parties.

Coal bonds little changed

A trader said that "coal paper is still pretty low," seeing Patriot Coal Corp.'s 8¼% notes due 2018 at 49 bid, 51 offered. He called those levels "pretty unchanged - they've been right around that area for the last couple of days."

He said that the St. Louis-based coal producer's bonds were "a small deal. So there was very little volume. It's more quoted than anything else."

Junk supplants distressed

Looking at the overall market in distressed bonds, one of the traders said that "high yield is where it's at," adding that "there are not a lot of things trading at a discount.

"With rates as low as they are, a lot of distressed guys seem to be trading things that are higher and higher in dollar prices."

Dex One units up on merger news

In the bank debt market, a trader said that loans at Dex One's subsidiaries Dex West, Dex East and R.H. Donnelley, and SuperMedia's term loan headed higher in trading on Thursday as news came out that an agreement has been reached on a revised set of amendments to the companies' credit agreements as part of their proposed merger.

Dex West's term loan was quoted at 70½ bid, 72½ offered, up from 68½ bid, 70 offered, Dex East's term loan was quoted at 67¾ bid, 68¾ offered, up from 65½ bid, 67½ offered, R.H. Donnelley's term loan was quoted at 66½ bid, 67½ offered, up from 64½ bid, 66 offered, and SuperMedia's term loan was quoted at 69½ bid, 71½ offered, up from 66 bid, 67 offered, the trader said.

The progress on the merger front is that the companies have reached an agreement with a steering committee representing senior lenders of both companies on a revised set of amendments to their credit agreements.

As a result of the credit facility amendments, the maturity dates of the Dex West, Dex East, R.H. Donnelley senior secured debt would be extended by 26 months to Dec. 31, 2016 and the SuperMedia laon would be extended by one year to Dec. 31, 2016.

In addition, the amendment would provide for tighter financial covenants - which include a leverage ratio and an interest coverage ratio.

The revised amendment would significantly reduce restricted payment and acquisition baskets as well, and restrict open market repurchases of subordinated notes during the credit agreement period.

Also, under the amendment, Dex West loan pricing would be Libor plus 500 basis points with a 3% floor, as opposed to the original amendment proposal that called for pricing of Libor plus 425 bps, stepping up to Libor plus 450 bps in 2015, with a 3% Libor floor. Current pricing is Libor plus 400 bps with a 3% floor.

Dex East pricing would be Libor plus 300 bps with a 3% floor, whereas under the initial proposal it would have been Libor plus 250 bps, with a step-up to Libor plus 300 bps in 2015, with a 3% Libor floor. Current pricing is Libor plus 250 bps with no floor.

R.H. Donnelley pricing would be Libor plus 675 bps with a 3% floor, compared to the prior proposal of pricing of Libor plus 625 bps with a step-up to Libor plus 650 bps in 2015, with a 3% Libor floor. Current pricing is Libor plus 600 bps with a 3% floor.

And, SuperMedia loan pricing would be Libor plus 860 bps with a 3% Libor floor, versus the prior proposal for pricing remaining at Libor plus 800 bps with a 3% floor.

The Dex and SuperMedia credit facilities amendments require 100% approval from the senior lenders, and the companies are working with the steering committee to obtain the requisite approval from the remaining senior lenders.

As previously reported, if the companies obtain sufficient, but not unanimous, support from the remaining lenders, either or both companies may seek to finalize credit agreement amendments and complete the merger through a pre-packaged bankruptcy.

Under the merger proposal, Dex One and SuperMedia shareholders will exchange their shares for shares in a new company, Dex Media. Dex One shareholders will get 0.2 share for each Dex One share they own, and SuperMedia shareholders will get 0.4386 share for each SuperMedia share they own.

The merger is expected to be completed in the first half of 2013.

Dex One is a Cary, N.C.-based marketing services provider. SuperMedia is a Dallas-based directory publisher.

Sara Rosenberg contributed to this report

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