Distressed market softens by day's end; market tone helps NewPage; TXU up as new issue shopped

By Stephanie N. Rotondo

Portland, Ore., Oct. 14 - Distressed debt started to weaken toward the end of Thursday's session, even as the equity market attempted a rally.

"There was definitely some weakness this afternoon," a trader said. "Things were definitely coming off of their highs."

But there was still firmness to be found, according to traders.

"Everything is just running," a market source said. "You're seeing everything trade up, offers are getting lifted."

That could be what is behind recent gains in NewPage Corp. paper. Those bonds have slowly but steadily been climbing higher in recent weeks, though there has been no news out to act as a catalyst.

Meanwhile, Energy Future Holdings Corp.'s debt traded higher as the company was heard to be shopping a new issue. Rival Dynegy Inc., however, ended the day about unchanged.

Ahern Rentals Inc.'s notes gave back some of its recently incurred gains. Traders said the paper had come off of the highs seen on Wednesday, though the bonds were still higher than levels seen last week.

NewPage remains firm

With still no news out, NewPage bonds continued to gain ground - although this time, it was the subordinated issue that was climbing, according to traders.

A trader said "a lot" of the 10% notes due 2012 traded around the 58 mark, which was up a deuce on the day. The 11 3/8% notes due 2014, however, were "down a half or unchanged" around 953/4.

Another trader said the 10% notes were "up a bunch," also around the 58 level. He called that "up a couple points."

And, another trader said that "paper was strong again," seeing the 11 3/8% senior secured notes get up to 96½ bid, about a half-point gain on the day, but with "a lot traded."

He also saw the Miamisburg, Ohio-based coated-paper manufacturer's 10% notes firm to 56½ bid, 57½ offered.

Sector peer Catalyst Paper Corp. was also better. The trader saw the Richmond, B.C.-based paper manufacturer's 11% notes due 2016 around 88 bid, while its 7 3/8% notes due 2014 at 53 bid, 54 offered, calling both up 1 point.

TXU bonds trade up

Energy Future Holdings' 10¼% notes due 2015 ended about 1½ points firmer than the previous day, a trader said.

The trader pegged the paper around 65.

At another desk, the notes were deemed unchanged around 64.

The movement came as the company was heard to be shopping a new $300 million issue of senior secured second-lien notes. Price talk had the bonds at a 15% coupon, with a 101/2-year maturity.

Citigroup is said to be leading the deal, along with JPMorgan, Goldman Sachs and Credit Suisse. Official pricing was expected late Thursday or early Friday.

Proceeds from the new issue will be used to repay term loan debt, as well as to repurchase note maturing in 2015 and 2016.

In the last month, the Dallas-based power producer has scooped up more than $475 million of its 2015 and 2016 paper, issuing $336 million of 15% senior secured second-lien notes due 2021 in exchange for the older debt.

The company also recently said that its value had dropped by $4 billion amid a decline in natural gas prices.

Dynegy holds tight

Elsewhere in the energy sphere, Dynegy's bonds were "not all that active," and "basically unchanged," a trader said.

The 8 3/8% notes due 2016 were seen around 78¾ and the 7½% notes due 2015 at 791/4.

Another market source said the 7¾% notes due 2019 closed up modestly at 68 bid.

Yet another trader said the 7¾% notes were "maybe a quarter lower" around 67.

Dynegy is currently in the process of being acquired by Blackstone Group LP in a $4.7 billion - or $4.50 per share - bid. Several investor groups, however, are potentially gearing up to fight the acquisition.

The opposing groups include a group led by billionaire investor Carl Icahn, who recently disclosed a 9.95% equity stake in the Houston-based power company.

Ahern comes off highs

After gaining 10 points in the last week, Ahern Rentals' 9¼% notes due 2013 gave back some, market sources reported.

One source placed the paper around 511/2, which was down from Wednesday's high around 54, but still well up from levels in the 40s last week.

Another source called the notes down over 2 points at 51 3/8, though he added that trading was thin.

"Somebody's been buying these things up," the first source said, accounting for the debt's recent climb. Still, the Las Vegas-based construction equipment rental company's fate remains uncertain.

"That's a restructuring coming down the road," he said, speculating that the bonds "will be equitized" in such a scenario.

MBIA, Ambac gain

A trader saw MBIA Inc.'s 14% surplus notes due 2033 "a little higher" at 52 bid, 53 offered, gaining a point for a second consecutive session, perhaps helped by a sharp rise in the Armonk, N.Y.-based mortgage insurer's shares. The company's New York Stock Exchange-traded equity zoomed on Thursday by $1.81, or 16.18%, on volume of 19.7 million shares, nearly five times the norm.

MBIA, along with other mortgage-insurer names, got a boost from the escalating problems of big banks that are accused of improper procedures in the handling of home loans and foreclosures. Emboldened by the news that attorneys general all across the country are investigating the banks, investors speculate they will be able to put back private mortgage insurance claims on big banks.

MBIA in particular is already at war with the banks, suing mortgage sellers such as Bank of America's Countrywide Financial unit, and Credit Suisse Group AG over loans that failed to meet their promised quality - but that were securitized anyway into bonds, which MBIA insured and took a loss on.

Among other financial names, Ambac Financial Group Inc.'s 6.15% notes due 2037 were "a bit higher" around 31/2.

He called that a gain of 1½ points on the day.

Paul Deckelman contributed to this article

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