Verso Paper reports smaller loss, bonds dip; Fannie up on record earnings, Freddie also higher

By Stephanie N. Rotondo

Phoenix, May 9 - The distressed debt market remained positive overall on Thursday, though some names did not manage to hang in there.

Verso Paper Corp. reported first-quarter results during the session. Despite a narrower loss, the bonds were seen softening, though in thin trading.

In the land of distressed preferred stock, Fannie Mae reported yet another record profit on Thursday, following Freddie Mac's own earnings release on Wednesday. Both agencies saw their preferreds gain ground as a result.

Verso slips despite tighter loss

Verso Paper posted a narrower loss for the first quarter of 2013, but that didn't do much to boost the Memphis-based papermaker's debt.

A market source saw the 11¾% notes due 2019 falling to 74¾ from 77 previously. The 8¾% notes due 2019 slipped to 41½ from 433/4.

For the quarter, Verso reported a net loss of $38.4 million, or 72 cents per share. That compared to a loss of $73.9 million, or $1.40 per share, the year before.

Net sales dropped 11.2% to $42.1 million. The decline was primarily driven by the closure of the Sartell Mill in the third quarter of 2012.

The mill was shuttered after a fire raged through the property.

Interest expense for the quarter was $34.7 million, versus $32.1 million for the same quarter of 2012.

Fannie earnings a record

Fannie and Freddie preferreds were again dominating the secondary preferred space, following Fannie's earnings release.

Over 6.9 million of Freddie's 8.375% fixed-to-floating noncumulative perpetual preferreds (OTCBB: FMCKJ) changed hands, rising 35 cents, or 7.45%, to $5.05.

In Fannie paper, the 8.25% series S fixed-to-floating noncumulative preferreds (OTCBB: FNMAS) saw trading of over 15.9 million shares. The issue put on 36 cents, or 7.84%, to end at $4.95.

And, Fannie's 8.25% series T noncumulative preferreds (OTCBB: FNMAT) closed up 65 cents, or 12.15%, at $6. Over 1.3 million shares were traded during the session.

Fannie reported pretax income of $8.1 billion in the first quarter. Because of a $50.6 billion reverse write-down on assets, net income came to $58.7 billion.

The mortgage agency had posted a $2.7 billion profit in the previous quarter.

The firm is expected to pay $59.4 billion to the Treasury Department due to its return to prosperity.

Fannie's earnings came on the back of Freddie's numbers, which came out on Wednesday. Freddie reported net income of $4.6 billion for the first quarter of 2013, its second best quarter ever. The agency's net worth totaled $10 billion. Under the rules of its conservatorship, the mortgage guarantor must pay anything over $3 billion to the U.S. Department of Treasury.

Freddie also announced on Thursday that it was planning to issue up to $1 billion of non-agency mortgage bonds this month. Another $1 billion are expected to be sold in June and the agency could sell as much as $5 billion this year.

The sales will help Freddie reduce its holdings of illiquid assets, as per regulatory requirements.

Broad market remains firm

Among other distressed issues, Clear Channel Communications Inc.'s LBO bonds "keep moving higher," a trader said, seeing the 11% notes due 2016 gain another point to close around 93.

Momentive Performance Materials Inc.'s 11½% notes due 2016 "continued to be active," the trader added. The paper inched up to trade around 84.

And, MBIA Inc.'s 0% surplus notes due 2033 "continue to be volatile," he said. The notes "went out better" yet again, closing in the low-80s.

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