Nortel Networks, Energy Future debt and Verso Paper bonds continue to be driven by recent news

By Stephanie N. Rotondo

Phoenix, July 28 – Recently topical distressed names such as Nortel Networks Corp., Energy Future Holdings Corp. and Verso Paper Corp. continued to trade around on Monday.

However, even liquidity in those names was thin.

“It’s really the summer doldrums, for sure, especially on Mondays,” one trader said.

“Nobody was really that active,” said another trader.

Nortel was making headlines at the end of last week as the company said its U.S. unit, Nortel Networks Inc., had agreed to a deal with bondholders on a $1.01 billion interest cap. The news came out after the market closed on Thursday, resulting in a 4- to 5-point gain for the debt in after-market dealings.

A trader said the name remained on the active side Monday, but ended “basically the same” as where it went out Friday.

Energy Future Holdings, or TXU as it is more commonly referred to, was meantime weaker by Monday’s close. The bankrupt energy producer was also in the news late last week, after having to scrap a pre-bankruptcy agreement with creditors.

And, Verso Paper’s bonds were coming in a little as well. Last week, the papermaker amended an exchange offer in order to get more participation. The exchange offer must meet required minimum thresholds in order for the company’s proposed merger with NewPage Corp. to go through.

Nortel holds steady

A trader said Nortel Networks’ debt remained active, though he said it closed “basically the same” as where it went out on Friday.

The trader pegged both the 10¾% notes due 2016 and the 10 1/8% notes that came due last year at 119½.

Nortel said late Thursday that its U.S. unit, Nortel Networks Inc., had agreed to pay just over $1 billion in interest owed to bondholders owning about $3.9 billion of debt. If approved by the U.S. bankruptcy court overseeing the case, the deal could irk retirees in Canada and the United Kingdom, who claim that U.S. holders should get no more than $90 million in accrued interest, or none at all.

Under the terms of the deal, the bondholders will receive $876 million of accrued interest. That amount could increase to $1.01 billion if Nortel has not made the payout by June 30, 2015.

As soon as the news came out Thursday, Nortel’s debt jumped 4 to 5 points. The name was actively traded on Friday, but held close to the levels reached in Thursday’s after-market dealings.

Nortel is a defunct Canadian company that manufactured telecommunications equipment.

TXU falters

TXU bonds “weakened” during Monday trading, according to a trader.

He said the 15% notes due 2021 linked to the company’s unprofitable Texas Competitive Electric unit dipped to 39½ bid, 40½ offered, while the 10¼% notes due 2015 and 10½% notes due 2016 declined to 14½ bid, 15 offered.

On Thursday, TXU said it had to scrap a reorganization plan agreed upon prior to its April bankruptcy filing as creditor groups objected to the terms of the deal.

The company had inked a deal with a group of eight lenders, including Fidelity Investments, in which Oncor Electric Delivery Co. LLC and Texas Competitive would be separated, leaving Oncor with Energy Future Intermediate Holdings.

The lenders would have taken control of Energy Future Intermediate.

But other creditors decried the deal, claiming that Oncor has more value than previously estimated and that the proposed plan would limit their recovery prospects.

Currently, Energy Future has until Aug. 27 to file a plan of reorganization. It is expected that the company will look to push that out until early next year as it comes up with another plan.

That plan could include an outside takeover of the Oncor unit.

Verso comes in

Verso Paper’s 8¾% notes due 2019 fell almost a point to 58¾, a trader said.

Another trader said the 11 3/8% notes due 2016 were also soft, seeing tendered bonds at 70 and untendered notes at 75.

Both issues are currently part of an exchange offer the company has launched in connection with its proposed merger with NewPage. On Thursday, the Memphis-based company said it had amended the terms of that exchange, as it had not gotten as much participation as it had hoped.

The early tender deadline for both exchanges passed on July 16. At that time, less than 70% of subordinated bondholders had participated.

Per the terms of the exchange, 70% of holders of each issue must participate in order for the exchange and subsequent merger to go through.

In order to meet its threshold, Verso said Thursday that it was giving both groups of bondholders until July 30 to tender their holdings – at the same consideration given to those who participated by the early deadline.

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