Verso Paper continues to surge; retail sector a mixed bag; Fannie, Freddie preferreds firm

By Stephanie N. Rotondo

Phoenix, Jan. 9 - It was another strong day for the distressed debt space on Thursday.

Verso Paper Corp. bonds were popping again during the session. The debt had jumped at the start of the week on news the company was acquiring NewPage Corp. in a transaction valued at $1.4 billion.

The retail sector, however, continued to be a bit of a mixed bag. J.C. Penney Co. Inc. rebounded some after falling in the previous session, but RadioShack Corp. remained on the heavy side.

Toys 'R' Us Inc. meantime slid after the company put out its holiday sales results.

Verso's surge continues

Verso Paper got another shot in the arm on Thursday as investors continued to react to news out earlier in the week regarding the company's merger with NewPage.

A trader said the 11 3/8% notes due 2016 jumped 8 points to 723/4, while the 8 3/8% notes due 2019 increased nearly 6 points to trade with a 58 handle.

Verso said on Monday that it will acquire Miamisburg, Ohio-based NewPage for $1.4 billion. NewPage shareholders will receive $250 million in cash, $650 million of new first-lien Verso debt to be issued at closing and a 20% equity stake in the company.

Memphis-based Verso has secured $750 million for the purchase. Those funds will be used for the cash portion of the sale and to refinance NewPage's $500 million term loan.

NewPage filed for bankruptcy in 2011 and exited in 2012. During that process, Verso made a bid for the company, but management maintained that it wanted to remain independent.

The value of the transaction was then valued at just over $1 billion.

Closing of the deal is expected in the second quarter.

In connection with the merger, Verso is exchanging the 8¾% notes and the 11 3/8% notes due 2016 for new second-priority adjustable senior secured notes and new adjustable senior subordinated notes.

Retail arena mixed

After declining on Wednesday, JCPenney debt experienced a small rebound on Thursday.

One trader called the 5.65% notes due 2020 up over a point at 78. Another market source pegged the issue at 78 bid, up a point.

"There was a bit of activity, but the levels for the most part were unchanged," said a third trader. He saw the 5.65% notes trading around 78.

He also noted that the stock was "up a little bit."

The Plano, Texas-based retailer saw its bonds dipping on Wednesday after the company put out a release stating that it was "pleased" with its holiday sales, but it failed to provide any numbers to back up that statement. That caused already jittery investors some concern.

Meanwhile, RadioShack's 6¾% notes due 2019 remained weak, with one trader deeming the debt off 1¾ points at 58. Another trader said paper was holding in in a 58 to 59 zip code.

As for Toys 'R' Us, a trader called the 10 3/8% notes due 2017 off 3½ points at 831/4.

The toy store reported same-store sales for the period ended Jan. 4 on Thursday, showing a 1.8% gain overall in the United States. However, the company saw a 1.1% decline in international sales.

Elsewhere in the space, a trader said Claire's Stores Inc.'s 8 7/8% notes due 2019 fell more than 2 points to 991/2, while Logan's Roadhouse Inc.'s 10¾% notes due 2017 climbed up 1½ points to 691/4.

Fannie, Freddie rise

Fannie Mae and Freddie Mac preferreds were seeing some follow-through after Wednesday's run up. A trader said comments made at the Financial Services Roundtable on Wednesday indicated that the government and the agencies' preferred holders were working on a compromise that could give said holders some recovery.

"That's why they rallied so strongly yesterday," he said.

Freddie's 8 3/8% fixed-to-floating-rate noncumulative perpetual preferreds (OTCBB: FMCKJ) closed up 2 cents at $10.20. Over 23.2 million shares changed hands.

Fannie's 8¼% series S fixed-to-floating-rate noncumulative preferreds (OTCBB: FNMAS) were up 3 cents at $10.03 early in the day, but they finished off a penny at $9.99. The 8¼ % series T noncumulative preferreds (OTCBB: FNMAT) were meantime up 15 cents, or 1.36%, at $11.20.

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