Distressed names seen active but featureless; Kodak off peaks; Dex loans better

By Paul Deckelman

New York, Dec. 7 - Traders saw some activity in the bonds of distressed or underperforming companies on Friday - but said that trading was generally featureless, with nothing really standing out.

For instance, while there was some activity in the bonds of money-losing supermarket operator SuperValu, Inc., they were largely unchanged.

That was also the case with Nokia Corp.'s bonds, after several sessions which saw the cellphone maker's debt improve on the news that it will sell its headquarters building and sell phones to customers of China's biggest wireless operator.

Eastman Kodak Co.'s bonds were continuing to come down from the peak levels the bankrupt photography and digital imaging company's paper hit earlier in the week on the news that there were potential buyers for many of its valuable digital patents.

ATP Oil & Gas Corp.'s deeply distressed bonds showed a little bit of improvement.

But traders continued to note a real dearth of truly distressed issues, citing the sharp lessening of refinancing risks amid the current easy primary market conditions.

In the bank-debt market, Dex West, Dex East and R.H. Donnelley - all subsidiaries of Dex One Corp. - and SuperMedia Inc. were once again better, continuing their run up from Thursday that was spurred by news of revised amendment proposals.

SuperValu bonds trade around

A trader in distressed issues said that he thought that Friday's market "was a snoozer," at least as far as secondary trading in distressed issues was concerned.

"New issues were the active names" in the junk bond precincts, he said.

Among the more distressed names - or, at least, those of underperforming companies - he saw SuperValu's 8% notes due 2016 as "pretty active," and trading in a 96 bid context, calling that about unchanged.

A second trader saw the bonds at 95¾ bid, calling them up ¼ point. Over $10 million of the bonds had traded by around mid-afternoon, a third market source said.

The Eden Prairie, Minn.-based supermarket operator's bonds have recently been volatile, first dropping sharply around a week ago on news reports indicating its talks with would-be buyer Cerberus Capital Management LP had run into a major hurdle over possible financing for such a deal.

However, the bonds firmed off their recent lows to go back to around where they were pre-news, after Cerberus indicated the talks were still continuing and SuperValu said that it was in talks with several different parties.

Kodak off recent peaks

The trader said that Kodak's secured bonds, like its 9¾% senior secured notes due 2018 and 10 5/8% second-lien notes due 2019 "popped the other day and were quoted higher" on a report in Wednesday's Wall Street Journal that a group of bidders has offered Kodak over $500 million for some of its digital imaging patents.

"So the bonds got quoted up a bit, to around 82-84."

After hitting those peaks, he said, "they've kind of been coming in.

"I'd say at best they went out around 801/2-811/2, so they've given up some of their recent gains since that news."

The bankrupt Rochester, N.Y.-based photographic products and digital imaging technology company's subordinated paper, such as its 7% and 7 ¼% notes, continued to languish in a 9½ to 10½ context, pretty much unchanged on the day.

Broader market steady

In the broader market, Overseas Shipholding Group's 8 1/8% notes due 2018 were unchanged around 35½ bid, the level to which the bankrupt New York-based oil tanker operator's bonds fell on Thursday after credit default swaps linked to its bonds were settled there.

"There was no rebound in the levels today," a trader said.

He said Nokia's 5 3/8% notes due 2019 "have been pretty active this week," helped by news that the underachieving Finland-based wireless phone handset maker has agreed to sell its headquarters building to augment its liquidity, and that a major Chinese wireless carrier likes Nokia's new Lumina phone and wants to sell it.

On Thursday, he said the bonds were active around the 92 -to-92 ½ area. He called that unchanged to "perhaps up a tick or two."

Elsewhere , ATP Oil & Gas 11 7/8% second-lien bonds - which several weeks ago had fallen into single-digit territory when they moved slightly below 10 cents on the dollar - have come back lately, and were trading on Thursday at their recent highs around 12 bid.

"It had popped a little [Thursday], so it went out straddling 11, and today was up another point," to around 12.

Distressed volume off

A trader noted a common theme heard these days in the distressed precincts - that there just was not a lot of paper available to trade.

"With the new-issue window [in the junk market] open, there's been so much balance-sheet repair that credits that were levered have extended out maturities. It's given them a lot more runway, so all of that stuff tends to gravitate higher," out of the traditional definition of a distressed issue as one that is trading 1,000 basis points or more above comparable Treasuries.

"So there's slim pickings in terms of double-digit-type returns. So there's just not as much distressed product out there.

"We need some blow-ups, so to speak," he said, tongue only half in cheek.

Dex loans trade better

In the bank-debt market, Dex West, Dex East and R.H. Donnelley - all subsidiaries of Dex One Corp. - and SuperMedia Inc. were once again better, continuing their run up from Thursday that was spurred by news of revised amendment proposals, according to a trader.

Dex West's term loan was quoted at 72½ bid, 74 offered, up from 70½ bid, 72½ offered on Thursday and from 68½ bid, 70 offered prior to the amendment news.

Dex East's term loan was quoted at 68½ bid, 70 offered, up from 67¾ bid, 68¾ offered in the prior session and 65½ bid, 67½ offered before that, the trader said.

R.H. Donnelley's term loan was quoted at 66½ bid, 68 offered, up on the offer side from 66½ bid, 67½ offered on Thursday, and better from 64½ bid, 66 offered on Wednesday.

And, SuperMedia's term loan was quoted at 71½ bid, 72½ offered, versus 69½ bid, 71½ offered in the previous day and from 66 bid, 67 offered prior to that, the trader added.

Under the revised Dex/SuperMedia amendments, the maturity dates of the Dex West, Dex East, R.H. Donnelley debt would be extended by 26 months to Dec. 31, 2016 and the SuperMedia loan would be extended by one year to Dec. 31, 2016, which is what the original proposal would have done.

However, Dex West pricing would be Libor plus 500 bps with a 3% floor, as opposed to the original amendment proposal that called for pricing of Libor plus 425 bps, stepping up to Libor plus 450 bps in 2015, with a 3% Libor floor. Current pricing is Libor plus 400 bps with a 3% floor.

Dex East pricing would be Libor plus 300 bps with a 3% floor, whereas under the initial proposal it would have been Libor plus 250 bps, with a step-up to Libor plus 300 bps in 2015, with a 3% Libor floor. Current pricing is Libor plus 250 bps with no floor.

R.H. Donnelley pricing would be Libor plus 675 bps with a 3% floor, compared to the prior proposal of pricing of Libor plus 625 bps with a step-up to Libor plus 650 bps in 2015, with a 3% Libor floor. Current pricing is Libor plus 600 bps with a 3% floor.

And, SuperMedia loan pricing would be Libor plus 860 bps with a 3% Libor floor, versus the prior proposal for pricing remaining at Libor plus 800 bps with a 3% floor.

The amendments are being sought in connection with the merger of Dex One and SuperMedia, under which shareholders will exchange their shares for shares in a new company, Dex Media. Dex One shareholders will get 0.2 share for each Dex One share they own, and SuperMedia shareholders will get 0.4386 share for each SuperMedia share they own.

The Dex and SuperMedia credit facilities amendments require 100% approval from the senior lenders, and the companies are working with the steering committee to obtain the requisite approval from the remaining senior lenders.

If the companies obtain sufficient, but not unanimous, support from lenders, the companies may seek to finalize the amendments and complete the merger through a pre-packaged bankruptcy.

The merger is expected to be completed in the first half of 2013.

Dex One is a Cary, N.C.-based marketing services provider. SuperMedia is a Dallas-based directory publisher.

Sara Rosenberg contributed to this report

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