Distressed debt left in cold by new issue flurry; Catalyst gives up some gains; Sbarro weakens

By Stephanie N. Rotondo

Portland, Ore., Jan. 13 - It was "status quo" in the distressed debt market on Thursday, at least according to one trader.

"I'd say it was pretty much flat," he said. "Some stuff was up, some stuff was down."

Another market source said he had heard 11 new deals came to market during the day's session, leaving little room for distressed plays.

Catalyst Paper Corp., however, remained on the active side. Traders saw the bonds giving back a little bit of the gains incurred the day before - which still had some scratching their heads.

Meanwhile, Sbarro Inc. debt was succumbing to the pressure as investors reacted to news the company was exploring its restructuring options. The company is currently operating under a forbearance agreement and also recently received a notice of default on its senior notes.

Catalyst gives back gains

A trader said Catalyst Paper's 7 3/8% notes due 2014 gave up a point of its Wednesday gains as profit takers swept in.

He pegged the notes around the 85 mark, down a point.

"I don't know why they were up so much," he said, referring to Wednesday's 4-point increase spurred by news of an early redemption of the company's 8 5/8% notes coming due Feb. 11. "I didn't think it was a big deal; it was only $26 million bonds."

Another source said the issue was "basically unchanged" at 85 bid, 86 offered. However, he added that trades were trending toward the bid side, whereas on Wednesday the trades were leaning toward the offered side.

Yet another trader said that Catalyst's bonds "didn't give anything back, but they didn't really gain anything today, either."

And another trader said that "they're holding at the higher levels" seen Wednesday, with the 7 3/8% notes at 84 bid, 85 offered, and its 11% senior secured notes due 2016 at 101½ bid, 102½ offered.

"There was decent activity" right around the 85 level on the 7 3/8s. "It was well-bid, at 85, with some trading, and holding at the levels."

Other market watchers previously told Prospect News that the early redemption was helping investors to feel better about the company's financial outlook, if not the condition of the paper industry as a whole. The paper sector was hit hard by the economic crisis as advertising revenues declined and pulp prices increased.

Elsewhere in the sector, NewPage Corp.'s 10% notes due 2012 were deemed active and better by about 2 points, ending around 60.

Sbarro restructuring looms

Sbarro bonds came under pressure again as investors reacted to news the company had hired Kirkland & Ellis LLP to advise on restructuring options, including a potential bankruptcy filing.

One trader said the 10 3/8% notes due 2015 were "way down from a week ago" around 41. He said that was a 6- to 7-point slip.

Another market source saw the bonds falling over 5 points to 42 bid, while, at another desk, a source said there were only odd-lot trades in the credit.

However, the source noted that the trades were drifting lower, as Thursday saw trades between 39 and 42, versus between 41 and 44 on Wednesday.

"There's not a ton to trade," said another source. "It's tied up with just a couple of guys."

The Melville, New York-based fast food Italian eatery inked a forbearance agreement with its first-lien lenders and Bank of American NA in regard to its first-lien credit facility on Jan. 3. The forbearance was done as Sbarro expected it would fall out of compliance under its original agreement.

The forbearance expires Jan. 31.

In late December, Sbarro also received notice of default from a bondholder, AFII US BD Holdings, L.P. The bondholder alleged that the company's March 2009 second-lien credit agreement violated certain provision of the senior notes, according to a Jan. 5 regulatory filing.

Sbarro said it was in ongoing discussions with bondholders and other stakeholders regarding "long-term capital structure and potential strategic alternatives to address its long-term needs" and that it has hired Rothschild Inc. as a financial advisor.

Nebraska Book drops

A trader saw Nebraska Book Co., Inc.'s bonds trading down about 5 points on the day, citing an online news story about the company, although he said that to him, "there wasn't any new news in the story - but obviously some people had concerns." He saw the Lincoln, Neb.-based school textbook company's 8 5/8% notes due 2012 trading down around 85 bid.

A market source at another desk said that the bonds - which on Wednesday had risen nearly 1½ points, to 90½ bid - fell some 5 3/8 points on Thursday to end at 85 1/8 bid.

Yet another trader said that the company's 11% notes due 2013 were trading around 55 bid, 57 offered, in large-block trading, although late in the day, he saw them having traded as high as around 70, "but only in small pieces."

He also saw the company's 10% notes coming due on Dec. 1 right around par. He said that we saw "a lot of quotes, but I don't see a lot of trading" around those two issues.

However, he saw "a lot more activity" in the 8 5/8s, seeing the bonds right around 85 bid, 86 offered, estimating them down 5 or 6 points.

"They were in the low 90s the last couple of days," he said, but he saw "no current news" that might explain the credit's gyrations, though "obviously something happened." The company had no fresh news that could spark such price movements on its website and there were no new regulatory filings.

At another shop, a trader deemed the 8 5/8% notes 5 points weaker around 85.

Broad market teeter-totters

In the rest of distressed debt land, a trader saw First Data Corp.'s 10.55% notes due 2015 inching up a point to 981/2.

Another trader said Ahern Rentals Inc.'s 9¼% notes due 2013 "moved around," finishing in a 57-58 context.

"They moved up a little bit, but there was not a lot of volume, only modest volume" in the Las Vegas-based equipment rental company's bonds. "But they were quoted higher."

Paul Deckelman contributed to this article

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