Sprint Nextel slips on analyst warning; Kodak paper creeps up; Overseas Shipholding debt rises

By Stephanie N. Rotondo

Portland, Ore., March 19 - There was an aura of strength in the distressed debt market Monday, but traders noted that it was still slow going.

"It was a pretty quiet day," a trader said. "Volume was pretty low."

"It was generally very slow," said another trader. "He attributed the muted performance to a "very fatigued market," that continued to focus on new issues.

But of the day's goings-on, Sprint Nextel Corp. paper was "fairly active," a trader said. The bonds were trading softer as a stock analyst said there was a "very legitimate risk" of the company filing for Chapter 11 protections within the next five years.

Meanwhile, Eastman Kodak Co.'s notes were inching higher, though there was no fresh news to prompt the gains.

Overseas Shipholding Group Inc. was also on the rise yet again. The paper had moved up Friday on news that shipping rates had spiked in recent weeks. Still, on Monday, Moody's Investors Service downgraded the company, citing a weaker near-term liquidity profile.

Sprint dips on warning

Sprint Nextel paper was "more active" and "a little lower," a trader said.

Another trader also said they were lower, as there was "a lot of negative news coming out."

The first trader deemed the debt down about a point, seeing the 8¾% notes due 2032 at 87 bid, 87½ offered and the 6% notes due 2016 at 91 bid, 911/2.

The second trader called the 6% notes down over a point around 91, while the 8¾% notes dipped a point to 871/4.

He also saw the 6.9% notes due 2019 at 873/4, down 1¼ points.

In a research note out early Monday, stock analyst Craig Moffett of Sanford C. Bernstein said there was "a very legitimate risk" that the Overland Park, Kan.-based wireless telecommunications provider could fall into bankruptcy.

Moffett downgraded the stock to underperform. By day's end, the stock (NYSE: S) had fallen 13 cents, or 4.5%, to $2.76.

In his analysis, Moffett said that it could go one of two ways for Sprint: One, it could follow through on its network upgrades and help its Clearwire Corp partner get on firmer financial footing; or two, it could be further impaired by its contract with Apple Inc. and face a heavy debt burden.

Moffett noted that Sprint has the ability to service its debt obligations through 2013, though it gets a little dicey come 2014. He also said that the credit-default swaps were indicating a 50/50 risk on a bankruptcy filing.

"To be clear, we are not predicting a Sprint bankruptcy," Moffett wrote in the note. "We are merely acknowledging that it is a very legitimate risk."

Kodak paper firms

Bankrupt photo imaging company Eastman Kodak saw its bonds rising in Monday trading, though traders saw no news to act as catalyst.

One trader placed the 7¼% notes due 2013 at 29. A second trader called the paper up a point a 29½ bid, 30 offered.

Kodak is based in Rochester, N.Y.

OSG rising with tides

Overseas Shipholding Group's 8 1/8% notes due 2018 "continue to creep up," according to a trader.

He saw the bonds closing around 73 on Monday, versus 71½ bid, 72 offered on Friday.

The bonds had gained 3 to 5 points in Friday trading, due in part to a positive industry research note put out by Wels Fargo Securities LLC on Thursday.

Another trader called the 8 1/8% notes a point higher around 73.

In the research note put out Thursday, Wells Fargo said that tanker rates for very large crude carriers on single voyages had jumped 87% in a week. Smaller carriers saw prices gain 82%.

"According to our channels, the physical tanker market is still seeing upward pressure in the Atlantic Basin intraday, with relatively thin supply, which could continue putting some near-term upward pressure on day rates and potentially tanker stocks," New York-based analyst Michael Webber said in the note.

However, Webber noted that he was not sure the recent price moves were a signal to a longer-term recovery for the tanker shipping industry.

And, come Monday, Moody's indicated that it had some concerns about OSG's financial status in the near term. The rating agency cut the company's speculative grade liquidity rating to SGL-4 from SGL-3, citing tightened liquidity due to a step-down of its unsecured revolving credit facility to $900 million from $1.5 billion.

OSG is a New York-based bulk shipping company engaged mainly in the ocean transportation of crude oil and petroleum products.

Circus and Eldorado ink deal

A trader said just a "small piece" of Reno, Nev.-based Circus and Eldorado Joint Venture's 10 1/8% notes due 2012 traded Monday at 813/4.

He noted that he did not think the trade was "indicative" of value, as a new restructuring agreement inked with noteholders on Monday valued the bonds around 89, the trader said.

Under the terms of the deal, noteholders will receive $100 million in cash, $27.5 million in new 5 1/2-year senior second-lien notes and interest payable on the existing notes. The restructuring will either take place via an out-of-court exchange offer or via a bankruptcy filing.

"We believe that execution of the support agreement is an important milestone toward restructuring our outstanding mortgage notes," chief executive officer Gary Carano said in the release. "We are pleased with the progress that we have continued to make in reaching an agreement with the holders of our notes. At the same time, our business continues to generate positive cash flow and we have sufficient cash to meet our operating needs."

More strength for distressed issues

In other distressed issues, Lupatech Finance Ltd.'s 9 7/8% notes were 2½ points higher around 741/2, according to a trader.

The trader also saw Empresa Distribuidora y Comercializadora's 9¾% notes due 2022 up a point at 611/2.

Also higher were Bon-Ton Stores Inc.'s 10¼% notes due 2014, which rose 1½ points to close around 83.

At another desk, a trader said Residential Capital LLC's 9 5/8% notes due 2015 were "pretty quiet," hanging around the 83 bid, 84 offered level.

A third trader said Ambac Financial Group Inc.'s 7½% notes due 2023 were 'a bit stronger," hitting a high of 17.

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