Verso Paper bonds slip on exchange offer; ResCap parent provides no new details on unit's fate

By Stephanie N. Rotondo

Portland, Ore., April 26 - The distressed debt market was "generally better," a trader remarked Thursday.

But topical names such as Verso Paper Corp. and Residential Capital LLC were not buoyed by the firm tone of the broader marketplace.

Verso said Wednesday that it was tendering for up to $157.5 million of its 11 3/8% senior subordinated notes due 2016. The company will exchange the issue for 11¾% notes due 2019.

Meanwhile, ResCap paper was "a little more active," after its parent company, Ally Financial Inc., reported earnings. The parent posted a larger profit year over year, but also noted that it was still considering options for the money-losing mortgage unit.

As previously reported, the New York Post said in an article published Wednesday that Ally actually is planning to put the unit into bankruptcy - an event that might have been foreshadowed by Michael Carpenter, Ally's chief executive, in its earnings conference call.

"We think that the single most important thing that we can do to preserve and enhance shareholder value is to distance Ally from the mortgage business," Carpenter said during the call.

Verso slips on tender

Verso Paper announced an exchange offer Wednesday for its 11 3/8% notes due 2016.

Come Thursday, paper was trading downward.

One trader saw the notes trading in a 66-67 context, down from levels around 68 on Wednesday.

However, another trader said the issue was up 1½ points at 67, though the 8¾% notes due 2019 were down 3 points at 49.

Under the terms of the exchange offer, the Memphis-based papermaker will exchange up to $157.5 million of the 11 3/8% notes - $300 million of which is currently outstanding. If holders tender their debt by the May 8 early deadline, they will receive $665 of new 11¾% notes due 2019 plus $110 in cash. If tendered after the early tender date, holders will get $665 of new notes and $60 in cash.

The deadline is May 22.

Verso is also in process of exchanging its second-priority senior secured floating-rate notes due 2014. Holders of that paper will also receive the new 11¾% notes. In the same press release announcing the new exchange, Verso said that it had also secured an amendment to the floating-rate note exchange offer, which increased the coupon to 11¾% from 9¾%. The maturity of the new debt was also shortened to Jan. 15, 2019 from Feb. 1, 2019.

On the news, Moody's Investors Service said the new exchange had no effect on the company's ratings.

ResCap sees no update

ResCap's parent company released quarterly results Thursday that showed an increase in profit from the previous year.

However, Ally did not provide an update on what it was planning to do about the troubled ResCap unit and bonds traded down in response.

A trader said the 9 5/8% notes due 2015 were active, "but kind of unchanged, maybe down a quarter" at 921/2.

Another trader quoted the notes at 92½ bid, 92¾ offered.

As previously reported, an article in the Post on Wednesday indicated that Ally had in fact already made a decision to place Minneapolis-based ResCap into bankruptcy within a matter of weeks. Though Ally gave no specific details as to its plans, its top executive did make a telling remark.

"We think that the single most important thing that we can do to preserve and enhance shareholder value is to distance Ally from the mortgage business," Carpenter said during a conference call.

In addition to Carpenter's remarks, a look at the looming payments ResCap faces within the next month only serve to fuel chatter that there will be no other way to deal with the subsidiary than to bankrupt it. Last week, ResCap missed a $20 million interest payment. Though it has 30 days to make the payment until a default actually occurs, there is also a more than $300 million payment coming due May 4. On top of that, a loan made to ResCap by Ally - in the amount of $2.1 billion - matures May 14.

For the first quarter, Ally reported a net profit of $310 million, compared to a profit of $146 million the year before.

Strength in distressed

Elsewhere in the distressed arena, a trader said Caesars Entertainment Corp.'s 10% notes due 2018 rose a point to 75.

Among financial issuers, DJO Finance LLC/DJO Finance Corp.'s 7 3/8% notes due 2018 gained 2½ points, closing at 821/2, while the 9¾% notes due 2017 earned over a point to end at 741/2.

Genworth Financial Inc.'s 6.15% notes due 2066 meantime improved a deuce, finishing at 63.

In energy names, James River Coal Corp.'s 7 7/8% notes due 2019 gained a point to 65, while ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 moved up over a point to settle in at 77.

Another trader said that AMR Corp.'s debt "continues to move up," seeing the benchmark 6¼% convertible notes due 2014 at 53 bid, 55 offered.

After getting a boost in the previous session, Bon-Ton Stores Inc.'s 10¼% notes due 2014 began to descend again, falling 1¼ points to 821/4, according to a trader.

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