Kodak bonds take hit as patent declared invalid; NewPage notes stay weak; Springleaf hangs in

By Stephanie N. Rotondo

Portland, Ore., May 21 - Distressed bonds attempted to rally Monday after last week's volatile trading, a trader said, but was "drifting again" by the end of the day.

"The tone was heavy even though the stock market was raging," he said.

Eastman Kodak Co. paper "got hammered," one trader reported, following an unfavorable preliminary ruling in its patent infringement case against Apple Inc. and Research in Motion Ltd. Traders estimated the bonds lost 10 to 12 points on the news.

Meanwhile, NewPage Corp. debt continued to deteriorate during the session. A trader said the bonds had dropped at least 10 points since last week, spurred by "pretty bad" earnings from sector peer Verso Paper Corp.

Kodak paper gets punished

An International Trade Commission judge ruled Monday that Eastman Kodak's digital imaging patent at the center of an infringement lawsuit against Apple and Research in Motion was invalid.

The preliminary ruling - a final ruling is expected by Sept. 21 - punished the bankrupt company's debt, according to traders.

The bonds "got hammered," one trader said, seeing the 7¼% notes due 2013 at 15 bid, 16 offered and the 9¾% notes due 2018 at 69 bid, 70 offered.

Another trader said the debt "got destroyed," dropping 10 to 12 points on the day. He pegged the 7¼% notes at 12 bid, 14 offered and the 9¾% second-lien notes around 70.

"That was the biggest mover of all today," he said.

A third source called the 7¼% notes down 10 points at 15½ bid.

Though the administrative judge deemed the patent in question to be invalid, he also said that Apple and RIM had in fact infringed on the patent. The U.S. Patent and Trademark Office confirmed the validity of the patent in December 2010, according to a statement issued by Kodak on Monday.

The company also said in the statement that a previous ITC judge ruled that the same patent was valid in an infringement case against Samsung.

Kodak won that case.

The Rochester, N.Y.-based company said it intended to appeal the validity ruling.

NewPage losses continue

NewPage's 11 3/8% first-lien notes due 2014 were pressured again Monday, according to a trader who saw the paper lose another 2 to 3 points.

He further noted that the debt had dropped at least 10 points since last week.

The trader placed the issue around 631/2, down from levels around 65 on Friday.

Another trader quoted the notes at 63 bid, 65 offered, calling that "down a bunch."

The first trader said that the Miamisburg, Ohio-based papermaker's debt had begun dropping last Monday when sector peer Verso Paper reported earnings that were "pretty bad." He speculated the continued losses were a response to the dismal report.

On May 14, Memphis-based Verso reported a nearly 10% decline in total sales, due in part to a decrease in sales volume and a decline in prices. Net loss was almost double at $73.9 million, or $1.40 per share, compared to a loss of $44.6 million, or 84 cents per share, the year before.

Springleaf hovers, Ambac rises

Among financial issuers, Springleaf Finance Corp.'s debt "has been volatile," a trader said. He saw the 5.40% notes due 2015 - "not usually one of the ones that trades a lot," he said - end unchanged around 82.

The Evansville, Ind.-based mortgage servicer has been laying off employees left and right since the beginning of the year, resulting in a loss of about 600 jobs. The company has also said that it might have to consider a bankruptcy filing if it is unable to generate enough cash to service its debt.

Elsewhere, Ambac Financial Group Inc.'s paper was "up a couple points since last week," a trader said.

He placed the bonds around the 21 mark.

Edison powers down

Edison International Inc.'s Edison Mission Energy-linked debt was down considerably Monday, though in "minimal trading," a trader said.

He called the 7½% notes due 2013 down over 4 points at 65 and the 7¾% notes due 2016 down nearly 4 points at 61.

The power producer is based in Rosemead, Calif.

Tousa higher as ruling upheld

A trader said that an appeals court last week upheld a previous ruling in Tousa Inc.'s fraudulent transfer case, agreeing that money transferred between units just months ahead of a Chapter 11 filing was indeed a fraudulent conveyance.

Since the news of the ruling, he said, the homebuilder's bonds have "rallied up." Paper is now being quoted around 40, he said, compared to "25-30-ish" previously.

However, he added that there were no trades in the name.

In June 2007, Tousa - then known as Technical Olympic USA Inc. - took $421 million from a group of lenders in order to pay down existing debt. The old debt had been guaranteed by the parent organization, but the new debt was then guaranteed by subsidiaries.

Just six months later, Tousa filed for bankruptcy and it was realized that the subsidiaries guaranteeing the new debt were insolvent at the time of issuance and also received negligible benefit or value from backing the debt. Creditors then launched a fraudulent transfer lawsuit, which was originally decided in 2011.

Exide weakens

A trader said that Exide Technologies Inc.'s 8 5/8% notes due 2018 was trading around a 741/2-to-75½ context, going home around 75 bid, which he said was down by 1½ points.

He said that the Milton, Ga.-based automotive and industrial battery maker's bonds were "not really a big trader," although the more than $9 million that changed hands being enough to put it on the day's junk bond most actives list.

The trader did not see any fresh news out on the company.

Momentive falls

A trader saw Momentive Performance Materials Inc.'s 9% notes due 2021 trading down 1 point, around the 76 bid level, estimating about $5 million of volume. During the day, he said, the bonds had traded between 75½ and 77½ during the day.

A second trader saw the bonds get as good as 78½ on Friday before going home that session at 77½ bid, and then saw them retreat further on Monday to around 76.

The Columbus, Ohio-based specialty chemical and materials maker's existing bonds have dropped from their previous level around 83 bid over the course of several days starting last Wednesday, after the company announced plans for its new secured bond deal, which would rank senior to the existing bonds in the capital structure.

"Obviously [the new bonds] would have to be a lot senior, given the price difference," the second trader said.

Paul Deckelman contributed to this article

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