Verso bonds jump on revised exchange offer; NQ Mobile convertibles steady despite stock slide

By Paul Deckelman

New York, July 3 – Distressed-debt investors went home for the three-day July 4th holiday break after having seen a mostly quiet market on Thursday – with one major exception.

Verso Paper Corp.’s various bonds were seen trading multiple points higher, on brisk volume, in the wake of the new and improved exchange offer the Memphis-based maker of specialty coated papers announced on Wednesday – a key step towards getting its long-delayed merger with sector peer NewPage Holdings Inc. approved. The company is hoping the new debt-swap proposal attracts more support than an earlier plan that was withdrawn back in February due to a lack of investor support.

Elsewhere in the distressed bond space, traders saw at best a mixed bag on light activity.

There were only a few trades seen, mostly small pieces, in such coal names as Walter Energy Inc. and Alpha Natural Resources, Inc. and in normally busy retailers like J.C. Penney Co. Inc.

There were a few trades in the bonds of Texas Competitive Electric Holdings Co. LLC, which were pretty much unchanged on the session, although they ended the week up from where they had been a week earlier. The power-producer’s bonds gyrated around at higher levels earlier in the week against the backdrop of courtroom arguments for and against bankrupt parent Energy Futures Holdings Corp.’s proposed $1.9 billion loan, which has sparked some opposition from other creditors who feel they will be disadvantaged.

In the convertibles market, NQ Mobile Inc.'s 2018 paper was quiet Thursday despite a 30% plunge in the underlying shares of the Beijing- and Dallas-based mobile software company after news that its independent auditor has asked to expand the scope of its work in examining the company’s financials.

Verso very strong

With only limited activity in the pre-holiday market – many participants took the whole day off to extend their holiday weekends from three days to four, while others made an early exit well before the official 2 p.m. ET early close recommended by the Securities Industry and Financial Markets Association – traders said that the movement in Verso’s bonds stood out dramatically.

The biggest winner on the day was Verso’s 8¾% second-priority senior secured notes due 2019.

One trader pegged the bonds in a 61 to 62½ range, with a last print at 61½ bid, and more than $10 million of the notes traded in round-lot transactions.

The bonds were up 14½ points from Wednesday’s close around 47, though the gain when compared to Wednesday’s final round-lot trade was closer to 10½ points, according to another market source. He saw volume of more than $11 million in the credit, putting it high on the list of the most active names in the junk and distressed-debt markets.

Verso’s $417 million of 11¾% senior secured notes due 2019 pushed up by 1 1/8% to end at 107¾ bid, on volume of over $6 million.

Verso’s separate $271 million tranche of 11¾% secured notes due 2019 – which are junior in the capital structure to the other 11¾% paper but senior to the second-priority bonds – gained 7 points on the session to go home at 95 bid, on over $5 million traded.

Its 11 3/8% senior subordinated notes due 2016 closed above 56 on Thursday, up from 50 bid late Wednesday and well up from the most recent round-lot close at 41½, but there were only a handful of small-sized trades in that credit.

The Verso paper zoomed in the wake of the company’s announcement on Wednesday of a new exchange offer for the 8¾% notes and the 11 3/8% notes connected with its efforts to acquire Miamisburg, Ohio-based sector peer NewPage.

Verso tried to exchange the existing notes for new paper earlier in the year, but the effort fell flat as few noteholders went along with its terms and Verso rejected the noteholders’ counterproposal. Verso withdrew that earlier offer in late February.

The new offer has considerably sweetened terms, including a greater adjusted principal amount of the new bonds per $1,000 principal amount of the old bonds tendered, once the merger is completed, than the original exchange offer gave and giving the noteholders warrants convertible into Verso’s equity, a provision that could give the 11 3/8% noteholders almost 5% of the equity and the 8¾% noteholders 15%.

Each exchange offer also has a lower participation threshold for consummation – 75% versus 85% in the earlier offer.

The company said that as of July 2, holders of $213 million of the outstanding $396 million 8¾% notes had agreed to tender their securities under the revised offer. In contrast, holders of only $8.1 million of those note had agreed to go along with the earlier offer before it was terminated.

The company did not give any details on whether holders of the $142.5 million of 11 3/8% notes had agreed yet to the swap, which is scheduled to expire at midnight ET on July 30. The early tender deadline is midnight ET on July 16.

Holders of only $2.8 million of the 11 3/8% notes had tendered them before the prior offer was canceled.

Besides Verso bonds, the company’s New York Stock Exchange-traded shares zoomed on the news of the new debt-swap offer and the prospect that it could bring the NewPage merger closer. The shares rose by 46 cents on Thursday, or 20.09%, to close at $2.75, on volume of 1.2 million shares, more than 10 times the daily average.

Limited market activity

Away from the Verso bonds, traders said not much was going on among the distressed issues.

One quipped that “the biggest order of the day is deciding what we’ll have for lunch –and then leaving.”

He did see a little trading in the Texas Competitive Electric issues, with “a couple of transactions,” but he said that the bonds were pretty much staying around the same levels they’ve been holding for most of the week.

He saw its 10¼% notes due 2015 in a 17-to17½ context, on around $5 million traded, while its 15% notes due 2021 were still hanging around a 50-to-51 context on less than $5 million of turnover.

“The quotes were pretty unchanged, and there really was no volume,” he declared.

Another market source, though, noted that the 10¼% notes were trading well above the 14 7/8 bid level at which they had ended the previous week, while the 15% paper likewise had moved up from its closing level the previous Friday at 46¼ bid.

The Texas Competitive bonds had risen earlier in the week amid renewed activity at the U.S. Bankruptcy Court in Wilmington, Del., which has been hearing the reorganization case of its parent, Dallas-based utility operator and wholesale power generating company Energy Future Holdings – the company formerly and still familiarly known as TXU. The company unveiled more information about a planned $1.9 billion loan it has lined up from some of its lender creditors, but other creditors not participating in the loan cried foul, warning that plans to give lenders of the new loan control of the company’s valuable and profitable Oncor regulated utility business would unfairly disadvantage them.

Elsewhere, a trader said he had seen no real trading in such names as Alpha Natural Resources, a Bristol, Va.-based coal producer, or St. Louis-based sector peer Arch Coal Inc. He saw Birmingham, Ala.-based coal company Walter Energy’s 9 7/8% notes due 2020 unchanged at 61½ bid, 62½ offered, though on “no volume.”

“They haven’t been active all week,” he said.

Troubled Plano, Texas-based retailer J.C. Penney’s 5¾% notes due 2018 firmed to 93 3/8 bid from prior levels around 92 bid, but round-lot volume only amounted to $1 million.

NQ Mobile calm as stock slides

In the convertibles market, NQ Mobile's 4% notes due 2018 were quiet Thursday despite a 30% plunge in the underlying shares of the company after news that its independent auditor has asked to expand the scope of its work in examining the company’s financials.

NQ – a global provider of mobile internet services including mobile security and games and advertising for the consumer market and consulting, mobile platforms and mobility services for the enterprise market – said in a news release that it is considering the request of PricewaterhouseCoopers to perform additional procedures and expand the scope of its work in performing its 2013 annual audit.

NQ’s 4% convertibles weren’t seen to have traded Thursday but were last quoted at 66 bid, 67 offered.

The notes “have been in that ballpark for some time,” a Connecticut-based trader said.

Meanwhile, NQ’s NYSE-traded shares fell $2.18, or 32%, to $4.58. Volume of 35.2 million shares was about six times the usual turnover.

As for whether trades of the NQ convertibles were imminent, the trader said, “I would expect someone would want to do something in these, but no one is trying to do much at all today.”

The company also announced changes to its board of directors including the appointment of two new independent directors.

NQ said that following the June 4 release of summary findings of its independent investigation conducted by the independent special committee of the board of directors, PricewaterhouseCoopers said that it would need to expand the scope of its work.

Rebecca Melvin contributed to this review

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