Swift Transportation bonds take a hit; Nortel notes unchanged; McClathy steady on swap failure

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., June 26 - Market sources deemed the distressed debt market mostly unchanged Friday, except for Swift Transportation Co. Inc.

The trucking company's bonds got beaten down, traders reported, on talk that the company had completely drawn down its revolving credit facility. However, the bank debt moved higher on the news, as the draw could be a boon for lenders.

Meanwhile, both Nortel Networks Corp. and McClatchy Co. were largely unchanged despite negative news hitting the wires. In Nortel, word was that creditors were objecting to auction rules of its network phone business, while in McClatchy, the company's recently expired tender offer was considered a failure.

Continued talk of a potential bankruptcy filing caused Lear Corp.'s term loan to dip some. On Thursday, the Wall Street Journal had reported that the automotive parts supplier was preparing to file for Chapter 11 protections.

Market sources were already preparing for what is expected to be a light week next week, as the Fourth of July holiday means no work next Friday. There will not be an early close Thursday, but at least one trader noted that many were planning to take off ahead of the bell - that is, if they showed up at all.

Swift takes a hit

Swift Transportation's bonds "got beaten down," a trader said, on chatter that the company had drawn down its revolving credit facility in its entirety.

The trader quoted the 12½% notes due 2017 at 35 bid, 37 offered. He noted that the drawdown "indicated possible problems in the future."

Another trader said the bonds were "down a good bit," the 12½% notes in the mid-30s and the floating-rate notes due 2015 lower than that, around 33 bid, 35 offered.

However, the transportation company's term loan B moved higher on the news.

The term loan B was quoted at 74¾ bid, 76¼ offered, up from 69¼ bid, 70¼ offered on Thursday, traders said.

One trader explained that the term loan B rose on the drawdown chatter because people started to think that the company might be facing covenant non-compliance and it borrowed the funds before it could lose access to the revolver as a result of a default.

If the company is indeed facing covenant issues, then it would likely have to try to amend its credit facility, which would likely result in higher pricing, the trader remarked.

Another possible reason for Swift Transportation's term loan B's performance on Friday was the rumor that Swift Transportation could potentially be doing a bond deal, the trader continued.

According to the chatter, this possible bond offering would be used to pay down bank debt.

The trader also said that he didn't see anything to make him think that the bond rumor is true, but maybe some investors were lifting trading levels on the term loan B as a result of this hope of a paydown in the future, and because of the idea that any secured bond deal would be good for the bank debt.

Calls made to the company seeking comment went unreturned Friday.

Swift Transportation is a Phoenix-based truckload carrier.

Nortel notes unchanged

Nortel Networks' debt finished the day about unchanged, despite news that the company's creditors were objecting to an auction of its network phone unit.

One market source pegged the 9% notes due 2011 and the 10 1/8% notes due 2013 at 33 bid, 33.5 offered. Another quoted the notes at 33 bid, 35 offered, but added that there was "not much turnover."

Creditors of the bankrupt telecommunications company filed their objections with the court overseeing the company's case. In court documents, the group alleged that "certain aspects of the bidding procedures serve to stifle, rather than encourage, active bidding."

The creditors also state that the auction rules favor a $650 million offer made by Nokia Siemens Network. According to the current procedures, bidders must offer at least $5 million more than Nokia's bid. Also, other bidders are required to put up deposits, but Nokia is not required to do so.

"Such discrimination will in all likelihood result in an auction that will not maximize value," the objections stated.

The matter is scheduled for a hearing on June 29.

McClathy steady on failed swap

McClatchy's notes were little changed - or traded - on reports that the newspaper owner's debt exchange had failed.

A market source saw the 7.15% notes due 2027 around 10, unchanged on the day.

Another source said he had not "seen any quotes or trades" in the name.

Under the terms of the exchange, McClatchy offered to swap $1.15 billion of notes to $60 million in cash and $175 million in new notes.

About 9% of the company's bondholders - holding about $102.9 million of debt - tendered their holdings. The end result of the tender means a $75 million reduction in the company's overall debt.

However, had the exchange been more successful, McClatchy could have cut its debt load by $832 million.

Holders of credit-default swaps might have been the cause of the transaction's failure, a Bloomberg report said. It is considered more fruitful for CDS holders to allow the company to default, the article explained.

Following the news, Fitch Ratings updated its rating on the company to C from RD. Other ratings were also reassigned.

"Fitch has believed that McClatchy has an untenable capital structure relative to the prospects for its future cash flow generation," the agency said in a statement. "The ratings reflect Fitch's belief that default is imminent or inevitable. Fitch notes that more than five newspaper groups have filed for bankruptcy protection in the past six months."

Lear loan slips

Lear's term loan was down a little bit during market hours as there was a lot of chatter that the company may file for Chapter 11 protection and that a filing could come as early as next week, according to traders.

The term loan was quoted by one trader at 71½ bid, 73½ offered, down from 72 bid, 74 offered, and by a second trader at 70 bid, 72 offered, down from 70½ bid, 72½ offered.

"Not really seeing people selling it. Heard there was a private amendment and private call yesterday. We're public on the name, so not sure what's going on," the first trader remarked.

The trader went on to explain that since there is all this uncertainty surrounding the company, people appear to be holding on to the paper until some clarity surfaces.

Currently, Lear is operating under a waiver of existing defaults and an amendment of the financial covenants under its credit facility, but that agreement with lenders is only good until June 30.

In addition, on June 1, the company opted to use a 30-day grace period for making the $38 million in semiannual interest payments due that day on its 8½% senior notes due in 2013 and 8¾% senior notes due in 2016.

The non-payment of interest on June 1 was a condition of the loan waiver and amendment.

With the waiver and amendment expiring shortly and the bond interest payments grace period coming to an end, talk about a bankruptcy filing has become more and more common.

The company has said in the past that it remains in active discussions with lenders regarding further modifications to the credit facility in light of existing and projected industry conditions.

Lear is a Southfield, Mich.-based supplier of automotive seating systems, electrical distribution systems and electronic products.

Broad market mixed

Elsewhere in the world of distressed debt, Spectrum Brands Inc.'s 7 3/8% notes due 2015 fell to 67 bid, 69 offered, as "a few sellers came in," according to a trader.

The bonds had previously been moving higher, first on news that the company had reached a deal with its lenders and then on confirmation of the company's reorganization plan. Under the lender agreement, bank lenders agreed to drop their objections to the plan.

Meanwhile, Aventine Renewable Energy Inc.'s 10% notes due 2017 gained 4 points "for no reason" to close at 32 bid, 34 offered, a trader said.

Another trader said that Fairpoint Communications Inc.'s 13 1/8% notes due 2018 saw "a lot of trading," quoting them at the 20 level, "which is up. Yesterday [Thursday], they were around 16. Now, they're trading nicely." But he was unaware of any news developments that might have pushed the bonds higher.

Another market source saw Fairpoint as the busiest junk bond at mid-afternoon, with more than $12 million traded.

In homebuilders, KB Home's 6¼% notes due 2015 were seen unchanged at 85.5 bid, 86.5 offered, even with the builder having quarterly numbers out. Its 5 7/8% notes due 2015 were down a point, at 85.

However, sector peer Hovnanian Enterprises Inc.'s 8 7/8% notes due 2012 were "up 4 or 5 points," a trader said, to around the 60 to 63 area. He saw no news on the builder but suggested "something may be going on there."

Paul Deckelman contributed to this article.

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