Distressed market stronger, still muted on new issues; Catalyst Paper jumps on redemption news

By Stephanie N. Rotondo

Portland, Ore., Jan. 12 - Strength returned to the distressed debt marketplace Wednesday, but new issues continued to steal the limelight, traders reported.

"It continues to get stronger overall, which I'm sure will eventually lead to a crash," one market source speculated.

Catalyst Paper Corp. got a boost in mid-week dealings, gaining as much as 4 points on the day. The bonds were also among the most active as investors responded to news out Tuesday regarding an early redemption.

Meanwhile, K-V Pharmaceutical Co.'s convertible notes were pressured by word the company's main drug candidate had been delayed and, as such, the company was evaluating its liquidity. According to one source, the converts have been drifting for the last few weeks and have lost almost half of their value since the beginning of December.

Catalyst notes pop

Catalyst Paper announced an early redemption on its 8 5/8% notes due Feb. 11 on Tuesday and come Wednesday, the company's other bonds were up by as much as 4 points, according to trader.

One trader called the 7 3/8% notes due 2014 "probably the most active bond aside from Sallie Mae," quoting the paper at 86 bid, 86¼ offered. That compared with 81½ bid, 82 offered the day before and to 84 bid, 85 offered at Wednesday's open.

"It was very active for a bond that didn't trade much last year," he said.

The trader also saw the 11% notes due 2016 trading around "102-ish," which he called up 1 to 1½ points.

Still, the trader was unclear why the redemption of the just over $26 million of notes would have such an effect.

At another desk, a trader placed the 7 3/8% notes around the 86 mark, while another called that level the "recent new high" for the debt.

"It's one we like and one we think will be refi'd," the latter source said.

The source added that the news of the redemption - at par - also likely "made people more comfortable.

"It just cleans up one more thing and clears the ramp for a refi," he said.

He noted that it could be a "self-fulfilling prophecy."

"If these guys are under 3x levered, they will be able to get something done," he opined.

Among other papermakers, NewPage Corp.'s 11 3/8% notes due 2014 were seen up half a point at 971/2.

Catalyst Paper is a Richmond, B.C.-based papermaker.

K-V Pharma pressured

St. Louis-based K-V Pharmaceutical's 2½% convertible notes due 2033 lost ground as the company announced that the Food and Drug Administration had delayed one of its drug candidates.

One market source said the $200 million issue - and the company's primary debt, according to the source - has been dropping rapidly in the last few weeks. At the beginning of December, the notes were trading in the mid-50s, but by Wednesday, the debt had fallen all the way to 35.

Another source pegged the notes at 35 bid, 36 offered, down from 42 bid, 43 offered on Tuesday.

The FDA has requested more information about Gestiva, a "treatment for the prevention of preterm birth in women with a singleton pregnancy who have a history of singleton spontaneous preterm birth," the company said in a statement. As such, the Jan. 13 action date was delayed until April 13.

"The company remains confident in the approval of Gestiva and believes a positive action by the FDA is likely," the statement said.

The first source agreed, stating that the drug "is expected to be a homerun" once it gets approved and hits the market.

But in the press release regarding the delay, the company also said that it was evaluating its liquidity outlook and that it would provide an update as soon as "appropriate."

A&P drifts, Travelport steady

Elsewhere in the distressed debt arena, Great Atlantic & Pacific Tea Co. Inc.'s 11 3/8% notes due 2015 were called "a little lower" by a trader, who placed the bonds in the high-80s.

"It's been drifting down," he said.

The trader also saw Travelport LLC's variable-rate notes due 2014 trading actively at 84 bid, 85 offered. He called that "about unchanged," but said that the debt "has been getting more active recently."

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