Quebecor seeks more time under protection; Vesta settles, stub debt quiet; Transmeridian slips

By Stephanie N. Rotondo

Portland, Ore., Feb 19 - After a long weekend, distressed bond traders were back in their desks for Tuesday's trading session - if only in body.

"Corporate [debt] seemed to be very quiet," said one trader, who opined, "It will only get worse."

At another desk, a trader said it was "just one of those days," as the junk sector attempted an early rally. But by afternoon, the market "came to its senses and turned south." The trader speculated that the rest of the week would continue to "bring more pain."

But one thing that was working during the "sorry excuse of a day," as one trader put it, was the rumor mill.

First, there was the one about RBC Financial closing its high-yield department and also looking to get rid of its convertible trading desk.

Then there was the one that had Societe Generale exiting the bank loan business and closing its New York trading desk.

Yet another hedge fund, this time a Boston-based firm, is rumored to be imploding.

And, last, but certainly not least, there was the one about Morgan Stanley laying off traders, with more cuts planned soon.

However, even as the gossip scattered throughout the marketplace, a trader called the buzz "standard issue holiday short week rumors."

But nothing, neither rumors nor facts - such as oil prices spiking to more than $100 per barrel - could inspire investors to get involved in distressed debt.

With little to no trading activity during the session, Quebecor World Inc.'s debt dipped as the company asked for - and received - more time under creditor protection.

Meanwhile, a trader said he was "trying" to trade some of Vesta Insurance Group Inc.'s bonds, as the company's trustee reached a settlement with certain creditors.

Transmeridian Oil Exploration announced Monday that certain requirements under its definitive merger agreement with Trans Meridian International Inc. had not been met and was therefore engaging in talks with an alternative buyer for its oil and gas drilling business. The company's bonds slipped about a point during trading, adding to its nearly 15-point loss from the first of the year.

Activity lacking

It could have been that it was the first day after a long weekend. It could also just be the typical start of the week trading.

But distressed traders were particularly frustrated with the lack of activity in the market - and no one seemed optimistic that the drought would end any time soon.

Since about the summer of 2007, the distressed sector has seen a steady decline in interested investors, as the risk keeps getting bigger. What began with a housing slump was exacerbated by a mortgage crisis, resulting in a tight credit markets. The incredibly low default rate of 2007 did not help much either.

But as 2008 began, it seemed that there was potential that things would pick up. With one default after another - and many projecting even more to come - some market players expressed hesitant optimism that activity would return.

Tuesday's session, however, turned those previously optimistic players into pessimistic observers.

"I think people are angry at being back and are taking it out on us," said one trader.

"There was more trading done at the flea market yesterday than in this market today," he quipped.

The trader said that the quiet trading day turned weaker after an early attempt to move up, speculating that the rest of the week would not get much better.

"It should go down all week," he said.

The trader opined that the ever-elusive "bottom" was coming, despite the attempts by some to pretend it was not.

"Once they accept that, it should go better," he said.

Still, there is more to be done, including a tightening of bond spreads.

"High yield and distressed is way too tight in relation to bank debt," the trader said. In order for order to be restored, the leveraged loan market - which gained popularity in early 2007, only to see its fame tank - "needs to clean up."

But until that happens, it seems things will remain "very frustrating," as one trader put it.

"It's terrible," he said. "Dead."

Quebecor seeks more time under protection

Quebecor World extended its stay under creditor protection until May 12, as the commercial printer attempts to restructure.

A trader quoted the Canadian company's debt lower, its 4 7/8% notes due 2008 at 40 bid, 41 offered, its 8¾% notes due 2016 at 48 bid, 19 offered and its 6 1/8% notes due 2013 at 41 bid, 42.5 offered.

Another market source placed the 4 7/8% notes around 41.5, down half a point, and the 6 1/8% notes at 41.25, down almost 2 points.

It was also announced that sellers of protection on defaulted debt would receive 41.25% of par at auction. According to news reports, there are more sellers than buyers of the debt.

Vesta settles, bonds quiet

It has been a long time coming, but Vesta Insurance's plan trustee has settled with XL Specialty Insurance Co.

The settlement provides the estate of Vesta with an $800,000 payment from XL.

Now, a trader said the company is "just hoping for proceeds from D&O policy lawsuits."

The trader quoted the 8¾% senior notes due 2025 at 2.5 and the 8 5/8% notes due 2027 at 0.5.

Vesta's involuntary Chapter 7 case was converted to a Chapter 11 case in August 2007. The now defunct company emerged from bankruptcy in December 2007.

Transmeridian bonds slip

Trans Meridian International (TMI) has yet to complete financing for its planned takeover of Transmeridian Exploration, the company announced Monday. While TMI has said that it hopes to obtain the financing soon, Transmeridian has said that it is looking at other offers.

Initially, the definitive merger agreement resulted in a spike of Transmeridian's debt, and its 12% notes due 2010 hit near par. But since the first of the year, as the agreement seemed to lose steam, the bonds have come off those highs.

During Tuesday trading, a source pegged the bonds around 81, down almost a point from the previous session. That adds to the nearly 15-point loss the debt has incurred since the beginning of the year.

Housing, mortgage names mostly unchanged

A trader saw Beazer Homes USA Inc.'s 8 5/8% notes due 2011 at 77 bid, 79 offered, essentially unchanged.

The trader also saw Hovnanian Enterprises Inc.'s 6½% notes due 2014 and 6 3/8% notes due 2011, among several other bonds, "all offered around 70," with some two-sided trades at 68.25 bid, 69.75 offered.

Standard Pacific Corp.'s 7% notes due 2015 were also deemed unchanged at 69 bid, 71 offered.

Construction equipment rental operator Neff Corp.'s 10% notes due 2015 were 2 points lower at 44 bid, 46 offered.

In the mortgage sector, a trader saw Residential Capital LLC's several issues of bonds at 60 bid, 62 offered, down from 62 bid, 63 offered, while ResCap parent GMAC's 8% bonds due 2031 fell 2 points to 79 bid, 81 offered.

Countrywide Financial Corp.'s 6¼% notes due 2016 closed at 87.5 bid, while its 3¼% notes due 2008 were at 97.5 bid, 97.75 offered.

Another trader said that Countrywide's 6¼% notes were "active recently" but unchanged on the day at 85.5 bid, 87.5 offered.

Paul Deckelman contributed to this article.

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