Earnings drive distressed market trading; Catalyst pops on numbers; NewPage active, unchanged

By Stephanie N. Rotondo

Portland, Ore., Nov. 3 - Traders reported a busy trading day on Wednesday, as "earnings really drove it," a distressed trader said.

"It was an interesting day," he added. "It got really busy in the morning, then the Fed came [announcing yet another buyback of Treasuries to stimulate the economy] and it got even busier in the afternoon."

A boost in profits helped Catalyst Paper Corp.'s bonds jump 8 points on the day, in "very active" trading. Sector rival NewPage Corp. also saw its bonds trading actively - though about unchanged - ahead of its Thursday earnings release.

Meanwhile, "more clarity" regarding General Motors Corp.'s initial public offering - combined with decent preliminary third-quarter results and an increase in October auto sales - resulted in huge trading volume for GM paper. Still, the bonds continued to gyrate as they had in the previous session, but managed to end toward the day's highs.

Catalyst Paper pops

"Really good numbers" helped Catalyst Paper bonds gain about 8 points on the day, according to a trader.

The trader said the 7 3/8% notes due 2014 were "very active" around 69, up 8½ points. The 11% notes due 2016 were less active, but also better by 8 points around 94.

Another trader quoted the 11% senior notes at 95 bid, 96 offered and the 7 3/8% subordinated notes at 68 bid, 69 offered.

For the third quarter, the Richmond, B.C.-based papermaker reported net profit of C$6 million, or 2 cents per share. That compared with a new loss of C$368.4 million, or 96 cents per share, in the second quarter.

The turn to profit was due in part to a gain in sales. Catalyst had sales of C$322.3 million in the third quarter, up from C$299.4 million in the previous quarter.

The improved bottom line was also helped by "better paper market conditions and operational performance," the company said in its earnings release.

"Business conditions are tough but showing signs of improvement," said Kevin J. Clarke, president and chief executive officer, in the release.

"Sales volumes and prices were up as North American paper demand stabilized. Our mills and machines ran well enabling us to get the most out of the modest market recovery. And we're beginning to realize the fixed cost savings from the permanent closures of the Elk Falls and Paper Recycling facilities. In addition, we made significant progress in expanding existing customer commitments and have successfully sold into new markets."

Over the course of the quarter, Catalyst also attempted to delever its balance sheet, repurchasing $9.5 million of its 8 5/8% notes due 2011 for $8.9 million.

Liquidity, however, was weaker at C$183.9 million versus C$208.3 million the quarter before.

Still, Catalyst expects to see "further improvement in benchmark prices across all Catalyst paper products" in the fourth quarter and beyond. Pulp prices are also expected to decline, in part because of weakened Chinese demand.

NewPage active pre-earnings

Also in the paper sector, NewPage's debt traded actively - but "basically unchanged," a trader said - as the Miamisburg, Ohio-based company prepared to release its earnings on Thursday.

The trader pegged the 10% notes due 2012 at 641/2, the 11 3/8% notes due 2014 at 96¼ and the 125 notes due 2013 at 35.

At another shop, a market source said the 10% notes were the "big trader," also placing the paper around the 64½ level.

He added that $30 million to $40 million of the 12% notes changed hands at 35½ bid, 36 offered.

Earlier in the week, a trader told Prospect News that the market was expecting "reasonable" numbers from NewPage. Catalyst's improved quarterly results likely fueled that belief.

GM closes toward highs

General Motors continued to be active and "all over the place," according to a trader, as investors got a "little more clarity" regarding the company's planned initial public offering.

The trader saw the benchmark 8 3/8% notes due 2033 closing at 34¾ bid, 35¼ offered, around the day's highs. He added that the bonds had traded as low as 32½ during the midweek session.

Another trader placed the 8 3/8% notes around 35, up 1½ points from the day before. The 7.20% notes due 2011 meantime gained 1¼ points, ending around 331/4.

GM officially announced the terms of its IPO, which will include the sale of 365 million common shares for proceeds up to $13 billion. The shares are expected to sell between $26 and $29 each.

Additionally, GM will sell 60 million of series B mandatorily convertible junior preferred stock at $50 per share.

The IPO includes an over-allotment option of 54.75 million common shares and 9 million preferreds.

The sale is expected to help the U.S. Treasury Department reduce its stake in the Detroit automaker to 43.3% or lower. The Treasury will sell 263.5 million of its equity holdings, and the United Auto Workers union will sell 71 million of its shares.

The IPO is expected to price Nov. 17, with trading to begin Nov. 18.

Also on Wednesday, GM lauded preliminary quarterly results. The company expects to see a profit between $1.9 billion to $2.1 billion, with revenue expected to gain 21% to $34 billion.

Those figures will come out Nov. 10.

And, GM also announced its October sales report, which showed a 3.5% increase form the year before.

Broad market mostly firm

In the rest of the distressed debt arena, OPTI Canada Inc.'s 8¼% notes due 2014 were "kind of active" and up about half a point around 761/2, according to a trader.

Dynegy Inc.'s bonds, however, were unchanged to up about a point, the 7¾% notes due 2019 around 70 and the 8 3/8% notes due 2016 around 763/4.

Another trader said there was "lots of trading" in First Data Corp. paper, with about $60 million to $70 million of the 10.55% notes due 2015 turning over. He called the notes "up a bunch of points" at 87¾ bid, 88 offered.

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