Bon-Ton bounces on exchange offer; Chesapeake churns on board shakeup; Dendreon declines

By Paul Deckelman

New York, June 4 - Distressed-debt issues, and those of underperforming companies, were seen generally lower in quiet trading Monday, although some notable names were higher on specific news.

The Bon-Ton Department Stores Inc.'s bonds firmed smartly in active dealings on news that the retailer is offering to exchange new secured bonds for its current unsecured bonds in order to extend the maturity of that debt obligation.

Chesapeake Energy Corp.'s bonds were seen better, in line with a rise in its shares following a personnel shuffle on the embattled natural gas producer's board of directors.

ATP Oil & Gas Corp.'s bonds firmed in the wake of the energy company's Friday announcement of a new chief executive officer.

Traders saw some higher quotes, but not much in the way of real-size trading, in the bonds of Reddy Ice Group, Inc. after the company's exit from Chapter 11 late last week.

In the convertibles market, biopharmaceuticals maker Dendreon Corp. traded down 2 to 3 points as the underlying shares got slammed on Johnson & Johnson's positive clinical data for a prostate medication that competes with Dendreon's Provenge drug.

Bon-Ton buoys on exchange bid

"Bon-Ton was in the news," a trader said about the non-new deal names. "They tried to creep up, big time," he said.

He saw the York, Pa.-based department store chain operator's 10¼% notes due 2014 move up to a closing level of around 73¾ bid, 74 offered. He said that was off from its highs for the day around 75¾ bid, 76 offered, but was well up from its previous levels in the mid- to upper-60s.

He noted that the bonds rose on news of the company's exchange offer to lengthen its debt maturity. That is "good for the holders, for sure," the trader said.

A second trader estimated the bonds up as much as 5 points on the day at 73½ bid, 74 offered, versus Friday's levels around the upper 60s.

Yet another trader said Bon-Ton "had a lot of volume," estimating that at least $16 million to $17 million changed hands on the day, making it one of the busiest issues in Junkbondland.

Bon-Ton announced that it will give holders of its existing $464 million of the 101/4s who tender their bonds in the exchange offer new 10 5/8% senior secured second-lien notes due 2017.

Holders who tender their bonds by the early deadline of 5 p.m. ET on June 15 will receive $1,000 principal amount of the new bonds for each $1,000 principal amount of the existing bonds they tender; those who tender after that will get $970 principal amount of new bonds per $1,000 principal amount of the outstandings tendered.

The exchange offer expires July 3.

Chesapeake up after changes

Chesapeake Energy's recently volatile bonds were seen on the upside Monday after the embattled Oklahoma City-based natural gas company announced that it will replace four of its independent directors with nominees named by its two biggest shareholders - 13% owner Southeastern Asset Management and 7½% holder Carl Icahn, who has been very critical of the recent course that management has followed.

The news sent Chesapeake's 9½% notes due 2015 up a point to 105.5, while its 6 7/8% notes due 2018 were also 1 point better, at just under 95 bid. The company's actively traded 6 5/8% notes due 2020 firmed to 99½ bid, on volume of more than $10 million.

In recently announcing that he took a large position in Chesapeake, Icahn said Chesapeake collected some of the best oil and gas assets in the world. But he also took a slap at current management, charging that the company's stock was undervalued due to "the enormous risk associated with an ever-changing business strategy, enormous capital funding gap, poor governance and unchecked risk-taking."

Icahn is thought of by some as a corporate raider, but others laud him for championing shareholder activism and holding management of companies he invests in accountable for their actions.

"We suspect a reconstituted board will likely clamp down on land acquisitions and capex and perhaps be more open to a broader array of solutions to [Chesapeake]'s capital issues - maybe including the sale of the entire company," said analyst Philip C. Adams of the Gimme Credit independent advisory service.

Adams also noted Chesapeake's surrender to demands by Icahn and Southeastern that they be allowed representation on the board.

Wall Street apparently agreed because Chesapeake's New York Stock Exchange-traded shares rose 94 cents, or 6.03%, to close at $16.52. Volume of 37.9 million was more than 20% above the norm.

ATP up on new CEO

Also in the energy sphere, traders saw ATP Oil & Gas' 11 7/8% second-lien senior secured notes due 2015.

One trader saw the Houston-based offshore energy exploration and production operator's up around 1 point on the session, at 54 bid, 55 offered, on volume of about $16 million, putting it high up on the junk-bond most-actives list.

Several other traders also saw ATP's bonds in the mid-50s, well up from recent levels around or even slightly below the 50 bid mark.

The bonds were seen better at least partly in response to the news late Friday that the company had tapped a new chief executive officer, Matt McCarroll, who previously ran Dynamic Offshore Resources LLC.

McCarroll takes over the CEO position from T. Paul Bulmahn, who founded the company and who remains its chairman.

ATP had a double-dose of good news for investors Friday as it announced that completion efforts resumed at one of the company's wells in the Gulf of Mexico's Mississippi Canyon area. Progress on that well was delayed by a stranded piece of pipe.

Ready to go with Reddy?

Traders said they saw Reddy Ice Group's bonds quoted higher - although on not a lot of actual trading activity - following news that the Dallas-based provider of packaged ice emerged from Chapter 11 at the end of last week.

"Everybody keeps checking me on this one," he said, "Everybody quotes it, but there are very few trades."

He said that Reddy's first-lien 11¼% notes due 2015 "really kicked up today."

He said the bonds recently traded in a round lot at 97 5/8 bid, 98 1/8 offered some days ago, but nothing since then.

"There are no real trades in it, that's the problem," he said. "I know they're feeling firm and there are a couple of guys shorting it and all of that nonsense. I know that they're definitely firmer - but I can't substantiate that with a quote."

He said the company's 13 1/3% second-lien notes due 2015 "can't get out of their own way," trading around 28-29 bid, up a point or so. "But only on odd-pieces - very light volume. No size," the trader said.

The trader added that the company "did a real quick turnaround." He said they were only in bankruptcy for about seven weeks. "So they're to be commended," he said.

Under the plan approved by the U.S. Bankruptcy Court in Dallas, holders of first-lien notes will retain those notes, which will be governed by an amended first-lien notes indenture, provided that the plan sponsor's first-lien notes are subject to sponsor equitization in the event of a termination of the company's planned acquisition of substantially all of the operations and assets of Arctic Glacier Income Fund and its subsidiaries.

Second-lien notes will be exchanged for each holder's share of 6.09 million shares of reorganized Reddy Ice common stock and the right to purchase shares of reorganized Reddy Ice.

Dendreon extends losses

In the convertibles market, Dendreon's 2.875% convertibles due 2016 traded down 2 to 3 points to about 68 on Monday from 70 bid, 71 offered previously.

Shares of the Seattle-based biotech company fell 85 cents, or 12.6%, to $5.91 in heavy volume.

Dendreon has "competitive issues," one trader said.

On Monday, Johnson &Johnson said that patients who took its Zytiga pill lived twice as long before their cancer worsened compared with patients who took a dummy pill, according to clinical trial data.

The patients also appeared to live longer in general although full data was not yet available. The study tested Zytiga in men who had not yet been treated with chemotherapy. Zytiga has a $5,500-a-month price tag.

Dendreon's Provenge, which received regulatory approval in April 2010 with great promise for success, has encountered difficulties getting off the ground perhaps due to its high price tag of $93,000 per patient and also because it doesn't extend patients' lives a great deal.

Patients who were treated with Provenge lived about four months longer on average in studies.

The Dendreon convertibles came off from close to 90 early in the year and the slide doesn't look likely to slow any time soon. But one strategist pointed out, "Someone will probably step in to buy them eventually."

Rebecca Melvin contributed to this report

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