Buzz boosts Quebecor bonds; Delphi, Metaldyne quiet; AbitibiBowater continues to decline

By Stephanie N. Rotondo

Portland, Ore., Feb. 20 - Distressed bond traders were cautiously optimistic on Wednesday's session, following Tuesday's lackluster performance.

"It was better," a trader said of the trading day. "There was a little more activity and a little bit of a rally late in the day."

"I think people were just more focused," he said, citing the lack of activity on the first day back from the long holiday weekend.

Another trader agreed that the day was "a little better" but followed that with "but not much."

Trading in the high-yield and distressed sectors has been anything but booming, a trend that began about mid-2007. Despite hopes that more defaults and more market correction would propel investors into the junk arena, those dreams have yet to come to fruition.

Among the day's notable names, Quebecor World Inc.'s debt regained some of the losses it incurred in the previous session. A trader said that the company's recent restructuring update probably had something to do with the move, as well as "chatter" about potential asset sales.

In the autosphere, both Delphi Corp. and Metaldyne Inc. remained on the quiet side despite fresh news in both names. On Tuesday, Delphi posted a narrower fourth-quarter loss.

But it seemed strange - at least to one trader - that Metaldyne paper was not lower after Moody's Investors Service cut the company to distressed. Another trader, however, said the downgrade was "a little late."

In an industry where consolidation seemed the key to survival, the merger of Abitibi and Bowater gave investors something to look forward to. However, since the two forest products companies melded into one, it has been nothing but a downhill slide for the corporate debt. Traders reported that Abitibi Consolidated Inc. - also referred to as AbitibiBowater - paper continued to drift lower.

Buzz boosts Quebecor

Market buzz is that there are interested buyers for certain parts of Quebecor World's business. As potential asset sales could generate much-needed cash for the struggling printer, investors saw a glimmer of hope.

As a result, traders quoted the company's debt better. One trader said the 6 1/8% notes due 2013 gained about 3 points, trading with a 44 handle. Another source placed the 4 7/8% notes due November 2008 at 43.5, up 2 points.

Earlier in the week, Quebecor announced that it received an extension on its stay under creditor protection. The company now has until May 12 to complete its restructuring objectives.

Delphi, Metaldyne quiet

Despite posting a narrower quarterly loss Tuesday, Delphi's debt saw "very little action," according to one trader.

The trader deemed the company's bonds - which tend to trade within a point or two of one another - unchanged in the mid-30s. Another source quoted the 7 1/8% notes due 2029 at around 35, up 1 point.

The Troy, Mich.-based company reported a net loss of $542 million for the fourth quarter, compared to a net loss of $853 million the previous year. Revenue fell to $5.3 billion from $5.5 billion in the fourth quarter of 2006.

In its filing with the Securities and Exchange Commission, Delphi said it is continuing its quest to find $6.1 billion in exit financing. However, the company said it remains determined to emerge from bankruptcy by the end of March. If Delphi fails to get out from under Chapter 11 protection by that time, its entire plan of reorganization could be in jeopardy.

Among all other things automotive, Moody's cut Metaldyne to distressed Wednesday, with its 10% notes due 2013 falling to Caa1 from B3 and its 11% notes due 2012 to Caa3 from Caa2.

Still, the downgrade did little to spark any price movement - which surprised at least one market player.

"I would think that they would have tried to go lower, but there really wasn't much activity [in the name]," a trader said.

The trader said there was "not much reaction" to the news and "virtually no volume." He said the 10% notes remain at around 60. He did note that the debt "popped" in the previous session before "settling back in."

Moody's said the downgrade reflected Metaldyne's disappointing operating performance, among other things.

However, one trader called the downgrade "a little late."

"I mean, the bonds are in the 40s," he said. "Seems like they are a little late to the party."

The 'disaster' that is AbitibiBowater

The so-called "disaster" that is AbitibiBowater is continuing to see its debt drift lower, a trader said.

"Guys are scared of that one," the trader said of the just one-year-old merged company.

The trader called the 7.95% notes due 2011 "worse" at 67.5 bid, 68 offered. The trader noted that some of the company's bonds are trading in the mid-40s.

The forest products sector has seen some troubling times. The idea of industry consolidation seemed like just the ticket to keep afloat.

So when Abitibi and Bowater announced in January 2007 that they would combine into one company, it seemed like a great idea, and investors were excited. Some even speculated that the merger would be just the first, and definitely not the last in that sector.

But the merger has proven more difficult than expected. The combined company's debt has steadily deteriorated and investors are further troubled by the twice-postponed fourth-quarter results.

"It was taking two struggling companies and turning them into one disaster," the trader said. "It was a tough day for these guys."

Still, "people are playing the short end and think they can make it," he said.

On Tuesday, Gimme Credit lowered its rating on the company to deteriorating from stable.

"We are mostly concerned that the company hasn't announced a new bank credit facility that we originally expected would be completed by the end of January," Kim Noland, analyst at Gimme Credit, wrote in a research note. "This delay/uncertainty combined with a likely decrease in liquidity over the last few months motivates our change in score."

Broad market unchanged to weaker

Trump Entertainment Resorts Inc.'s 8½% notes due 2015 were called unchanged at around 69. However, Tropicana Entertainment LLC's 9 5/8% notes due 2014 were deemed "a little lower, but not all that active," at around 52. Tropicana is seeking a delay of a $750,000 penalty it was slapped with at the same time it lost its gaming license. The charge was due to the company's lack of securing an auditing company, which is required by the gaming commission.

A trader said retailers were generally unchanged, with Bon-Ton Stores Inc.'s 10¼% notes due 2014 closing at around 67.5 and Blockbuster Inc.'s 9% notes due 2011 ending at 80.5. The trader also quoted Sally Beauty's 10½% notes due 2016 at 90.

Countrywide Financial Corp.'s paper was seen a little lower, its 6¼% notes due 2016 "closer to 85," a trader said, as opposed to the previous session when it was "closer to 86."

Idearc Inc.'s 8% notes due 2016 continue to weaken, closing the session at 68 bid, 68.5 offered. A trader said that issue has lost 5 points in the last week and 2 points since Thursday.

"That's a big move," he said, noting that if the bonds continue to lose ground at that rate, by mid-summer they would be worth zero.

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