Distressed debt market posts gains; iStar Financial notes firm; Dynegy continues to gain steam

By Stephanie N. Rotondo

Portland, Ore., Sept. 28 - Distressed bonds had a positive feel during Tuesday's trading session.

The firmer market helped iStar Financial Inc.'s debt gain as much as 2 points on the day. The company is currently considering its restructuring options, including a potential bankruptcy filing.

Dynegy Holdings Inc.'s bonds were also stronger, continuing the trend seen Monday on chatter that the Blackstone Group is considering increasing its buyout offer for the company.

Meanwhile, First Data Corp. saw its bonds closing out the day mixed. The company announced a new chief executive officer on Tuesday.

iStar bonds head up

iStar Financial bonds were "pretty active," and better, according to a market source.

The source pegged the 5 5/8% notes due 2016 at 751/2, up a deuce.

New York-based iStar is struggling to stay afloat as it carries a debt burden of upwards of $8.5 billion - with over $2.5 billion of that coming due in June 2011. A recent Bloomberg article claimed that the company is considering a pre-packaged bankruptcy filing in order to restructure its debt.

The bankruptcy chatter came after the company's creditors blocked a proposed loan amendment.

Talks with creditors regarding the potential filing are expected to begin next month and a Chapter 11 filing could come early in 2011.

iStar Financial is a real estate investment trust.

Dynegy debt continues rally

Power producer Dynegy saw its bonds continuing to gain ground on rumors that the Blackstone Group is considering upping its bid.

A trader called the bonds up half a point to almost a point, the 7¾% notes due 2019 at 68½ and the 7½% notes due 2015 at 791/2.

Another market source deemed the 7¾% notes up nearly a point at 69 bid.

Last month, Blackstone offered to buy the Houston-based company for $4.7 billion, or $4.50 per share. However, even though Dynegy did not receive any competing bids for its assets, the market is speculating that the private equity firm might increase its bid in order to appease shareholders.

Dynegy shareholders will meet Nov. 17 to vote on the proposed sale.

First Data mixed

First Data's debt ended the day mixed after the company announced it had selected a new chief executive officer.

A trader said the 9 7/8% notes due 2015 moved up about a point, closing around the 81½ level. However, he also saw the 10.55% notes due 2015 falling over a point to finish around 811/2.

Another source pegged the 9 7/8% notes at 81 bid, a 1-point increase on the day.

Jonathan J. Judge will take the top spot at the Atlanta-based electronic payment processor on Oct. 1. He will take over for Joe Forehand, who was acting as the interim CEO.

Forehand will remain on as chairman of the board.

Previously, Judge was president and CEO of Paychex, Inc., a publicly traded, leading provider of payroll, human resources and benefits outsourcing solutions for small- to medium-sized businesses located in Rochester, N.Y.

Tribune debt slips

Tribune Co.'s paper traded down following news that the company had come to terms with two key creditors in its quest to exit bankruptcy.

A trader said the bonds closed around 44.

The bonds tend to trade on top of one another.

Two of Tribune's hedge fund lenders - Angelo Gordon & Co. and Oaktree Capital Management LP - have come up with a plan that would allow for a Chapter 11 exit while creditors duke it out over the company's 2007 leveraged buyout.

The plan is a modification on a proposal that was rejected on Monday. However, court documents do not go into detail about how the plan was changed.

Broad market gains ground

Among other distressed bonds, Clear Channel Communications Inc.'s 10¾% notes due 2016 were deemed "very active," though up "only a half" at 761/2, according to a trader.

Another trader said the paper was "up a touch" at 76½ bid, 77 offered.

Rite Aid Corp.'s 8 5/8% notes due 2015 meantime firmed to 86½ bid, up a point on the day.

Also in the retail world, Blockbuster Inc.'s 11¾% senior secured notes due 2014 were "pretty much unchanged" around a "56ish" level, the same as the past two sessions, a trader said, adding that he "didn't see much activity" in the bankrupt Dallas-based video rental company's bonds.

Harrah's Entertainment Inc.'s 10% notes due 2018 closed "basically unchanged" around 79, another trader said.

And, yet another trader said that NewPage Corp.'s 11 3/8% senior secured notes due 2014 "seemed unchanged," situating the bonds at 90 bid, 91 offered. "There was some activity" right around 90½ bid, he said, but he added that the Miamisburg, Ohio-based coated-paper manufacturer's bonds were "for the most part unchanged."

Sector peer Catalyst Paper Corp.'s 11% notes due 2016 bonds - which had been moving up over the past several sessions, - were at 82 bid, 83 offered, while its 7 3/8% notes due 2014 were at 41 bid, 43 offered. A trader said the Richmond, B.C.-based papermaker's bonds were "pretty much" unchanged.

Paul Deckelman contributed to this article

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