Distressed market steals attention from new issues; Kodak disappoints, bonds drop; paper gains

By Stephanie N. Rotondo

Portland, Ore., Jan. 26 - The distressed debt market "still feels pretty good," a trader said Wednesday.

Another trader said there were "lots of all sorts of different things going on" and, more specifically, things were going on "away from new issues."

Eastman Kodak Co. reported disappointing earnings during the session, resulting in a good amount of activity for the company's debt. The convertible issues garnered the most attention, but even the straight bonds traded in decent size. The debt was weaker across the board.

On the upside, paper names like Catalyst Paper Corp. and NewPage Corp. continued to gain ground. Those credits have been grinding higher since Monday, when the market learned of a merger between Rock-Tenn Co. and Smurfit-Stone Container Corp.

OPTI Canada Inc. also continued to be an active name as investors waited to see what quarterly results will look like for the oilsands sector.

Kodak falls on earnings

Eastman Kodak debt dropped after the company announced weaker-than-expected fourth-quarter and full-year results.

The convertible issues were the most active of the Rochester, N.Y.-based company's debt, according to one trader. He saw the 7% convertible notes due 2017 falling "way down" to around 88, compared with previous levels in the mid-90s.

"They moved so much because of their stock sensitivity," he said. The stock (NYSE: EK) fell 17.92% to close at 81 cents.

The trader also saw the straight bonds dipping, calling the 7¼% notes due 2013 3 to 4 points softer around 94.

Another trader said about "$10-odd million" of the 7¼% notes changed hands at 941/2, which he deemed down "a couple points."

At another desk, the 7¼% notes were seen falling nearly 3 points to 94½ bid.

For the fourth quarter, Eastman Kodak reported revenues of $1.93 billion, a 25% decline from 2009's fourth quarter. Net income came to $33 million, or 12 cents per share, down from $430 million, or $1.36 per share, a year earlier.

For the year, revenues declined 6% to $7.19 billion. Net loss was $58 million, or 22 cents per share. However, that was better than 2009's full-year net loss of $232 million, or 87 cents per share.

The company had $1.6 billion in cash and equivalents as of Dec. 31, compared with $1.4 billion as of Sept. 30. Total carrying value of the company's debt was $1.2 billion.

Following the numbers, Standard & Poor's placed the company's rating on CreditWatch with negative implications.

Earlier in the week, Eastman Kodak lost an International Trade Commission case against Apple Inc. and Research In Motion Ltd. The company had previously filed a patent-infringement complaint against the defendants.

Kodak will hold an institutional investor meeting in New York City on Feb. 3.

OPTI remains active

OPTI Canada bonds continued to be "busy, but not quite as much as [Tuesday]," a trader said.

The trader said the bonds were up slightly, seeing the 7 7/8% notes due 2014 at 63½ bid, 64½ offered and the 8¼% notes due 2014 about a quarter-point above those levels.

But another trader said the bonds "continued to tick down," seeing the paper around 63 bid, 63½ offered on both issues.

OPTI debt has been trading actively in recent sessions, but traded in massive size on Tuesday. A trader speculated that investors were "posturing" ahead of earnings season for oilsands producers, which begins Thursday with Canadian Oil Sands Ltd.'s quarterly release.

Paper still on fire

Paper sector credits continued to firm in response to the news out earlier this week regarding Rock-Tenn Co.'s acquisition of Smurfit-Stone Container Corp.

A trader said Catalyst Paper's 7 3/8% notes due 2014 were better by a couple points at 87 ½ bid, 88 offered, while NewPage's 10% notes due 2012 were "maybe up a little bit" around 65.

Another trader said the Catalyst notes "traded a bunch," closing "up a good 2 points," also around that 88 level.

The trader also said NewPage was busy, with about $20 million to $25 million of the 10% notes turning over at 65.

"They grinded all the way down into the 50s, now they are grinding back up," he said.

At the beginning of the week, Rock-Tenn said it had entered into a definitive agreement with Smurfit-Stone to take the business over for $35 per share, a 27% over Smurfit's Jan. 21 closing share price. The amount will be paid half in cash and half in Rock-Tenn stock and the total value of the deal is estimated around $3.5 billion.

Cinram loan pops

Cinram International Income Fund's term loan was 85½ bid on Wednesday, up from 78 bid, 80 offered, as investors reacted to the company's late Tuesday announcement that it will be moving forward with a proposed refinancing and recapitalization with its current lenders, according to a trader.

Under the proposal, the maturity of the company's senior secured credit facility would be extended to Dec. 31, 2013, the amount of term loan debt outstanding would be reduced to $247 million from $367 million and the revolver commitments would be reduced to $35 million from $100 million.

The term loan reduction would be done through a $30 million cash paydown and an exchange of $90 million of the debt for $90 million second-lien secured debt that is mandatorily exchangeable into equity on Dec. 31, 2011 if not earlier repaid from equity proceeds.

Cinram is a Toronto-based provider of pre-recorded multimedia products and related logistics services.

Broad market strong

Also in the distressed realm, a trader said there was "good buy interest" for Harrah's Entertainment Inc./Caesar's Entertainment Inc.'s 10% notes due 2018. He called the paper up "a solid point" at 91 bid, 91½ offered.

MGM International Resorts Inc.'s 5 7/8% notes due 2014 meantime closed around 95, on $15 million to $20 million traded.

Dynegy Inc.'s 8 3/8% notes due 2016 were seen "absolutely unchanged" at 79¼ by a trader, while First Data Corp.'s 11¼% notes due 2016 were "up another point, just shy of 94."

Sara Rosenberg contributed to this article

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