Local Insight attempts minor rally; Dynegy, Harrah's quiet down; NewPage notes lose more weight

By Stephanie N. Rotondo

Portland, Ore., Aug. 18 - Distressed bonds were generally better during Wednesday trading, though a trader said that trading volume was "a little off from yesterday."

Local Insight Regatta Holdings Inc. might have benefitted from the generally positive tone, as the company's bonds gained about 3 of the 40 points it had lost on Tuesday. The company had announced its second quarter results and warned that it would likely breach bank covenants by the end of September.

Meanwhile, Dynegy Inc. and Harrah's Entertainment Inc. were not quite as busy as they had been, sources reported. Dynegy even changed direction, losing as much as 2 points on the day, though Harrah's debt was essentially unchanged.

NewPage Corp. was another active one, as has been pretty typical of late. Traders saw the papermaker's debt losing ground yet again.

And, Transocean Inc. shrugged off a rating downgrade and at least one trader said the company's debt might have even gained a tad. However, sources also noted that trading activity was thin.

Local Insight attempts rally

Local Insight Regatta Holdings saw its bonds creeping back up after losing approximately 40 points in the previous session, according to traders.

One trader said about $14 million of the 11% notes due 2017 changed hands, gaining "almost 3 points" to end around 26.

Another trader quoted the bonds at 25½ bid, 26½ offered, on some "$20-odd million" traded. While he agreed that the debt was "better today," he added that the notes had gotten "creamed" during Tuesday's session.

"They had been in the 60s" prior to Tuesday, he said, adding that the credit doesn't trade all that often. At its lows, the bonds were trading around 233/4, he estimated.

In its earnings release - which came out around mid-day on Tuesday - the Denver-based provider of local search solutions said "the continued effects of the economic downturn, [the company's] declining revenue and its continued expenditures in connection with the rollout of Berry Leads have increased pressure on [the company's] ability to maintain compliance with its financial covenants.

"This pressure has further increased because the financial covenants contained in the company's credit facilities will become more stringent for the period July 1, 2010 through June 30, 2011," the company said. "As a result of these factors, it is likely the company will breach the covenants under its credit facilities at September 30, 2010 and at December 31, 2010."

Local Insight is evaluating its options as to how to deal with the expected breaches.

Second quarter results

For the second quarter ending June 30, Local Insight posted revenues of $131.6 million, down from $145 million the year before. For the six months ending June 30, revenues came to $266.1 million, versus $290.1 million in 2009.

Net loss was $2.1 million, the same as the loss reported in 2009. For the first half of the year, net loss shrunk to $9.2 million, which compared with a loss of $11.3 million the previous year.

"We generated stronger EBITDA in the second quarter than the first quarter of 2010, primarily the result of cost reductions we initiated early in the year," said Scott Pomeroy, president and chief executive officer, in the earnings release.

"In the majority of our markets, however, we continue to experience bad debt pressure and economic weakness, which dampened second quarter ad sales."

Adjusted EBITDA was $20.1 million in the second quarter of 2010, compared to 2009 levels of $25.7 million.

At the end of the second quarter, the company had a total of $537.4 million of debt on its books.

Dynegy, Harrah's quiet down

Trading in Dynegy and Harrah's Entertainment paper backed off during the midweek session, traders reported.

Dynegy's bonds were weaker on the day, reversing its two-day rally. One trader called the notes down 1 to 1½ points, depending on the issue.

He saw the 8 3/8% notes due 2016 around 761/2, the 7½% notes due 2015 around 80 and the 7¾% notes due 2019 around 67.

"None of them were really active though," he said.

Another source called the 7¾% notes down a deuce at 67 bid.

In Harrah's debt, the 10% notes due 2018 were about unchanged around the 81 level, traders said. One source said about $20 million to $25 million of the bonds turned over. That compared with trading volumes in the $300 millions on Tuesday.

Dynegy had been trading actively ever since the company announced late last week that Blackstone Group was acquiring it in an all-cash deal. On Tuesday, Harrah's 10% notes were dubbed one of the day's most active issues, if not the most active. The action came after the Las Vegas-based casino operator's owner, Apollo Management, unloaded a big chunk of the debt and other investors followed suit.

NewPage loses more weight

NewPage notes were "active again and down some more," a trader reported Wednesday.

The 11 3/8% notes due 2014 were seen around 83, with about $25 million to $30 million changing hands, he said.

Another trader also said the debt was "pretty active," seeing the bonds around 821/2. He called that down "almost 4 points" day over day.

There was no fresh news out on the Miamisburg, Ohio-based coated papermaker that would explain the declines.

Transocean shakes off downgrade

Transocean's notes were unfazed by a rating downgrade from Moody's Investors Service.

A trader said the 6.80% notes due 2038 were "busy," and "up a little" at 95 7/8. Another trader echoed that level, seeing "$15-odd million" trading.

"All the other little scraps that traded were basically completely unchanged," the second trader said.

Moody's lowered the Houston-based drilling rig operator's senior unsecured rating to Baa3 from Baa2, citing its exposure to liabilities associated with the Macondo well disaster in the Gulf of Mexico.

Still, other market watchers are hopeful about the company's ability to go forward.

"Until recently, [Transocean] was enjoying the best business conditions in its history," wrote Gimme Credit LLC analyst Philip C. Adams in an afternoon note to clients.

"Conditions are tougher now, but [Transocean's] backlog of long-dated business, as well as its proficiency in cyclically-resistant deepwater drilling, enable it to bridge cyclical troughs."

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