Sino-Forest moves up following earnings, call; OPTI firms as coupon looms; NewPage stays busy

By Stephanie N. Rotondo and Paul Deckelman

Portland, Ore., June 14 - Many distressed issues climbed Tuesday as equities gained ground.

It "continues to be the stock show," however, a distressed debt trader said Tuesday.

Sino-Forest Corp. got a boost following the company's earnings conference call on Tuesday. Though the company reported a swing to loss, it also addressed the recent fraud accusations made by Muddy Waters Research and said that its largest shareholder was still in its corner.

Meanwhile, OPTI Canada Inc.'s bonds inched up as well. The debt has been moving modestly higher since late last week, ahead of a Wednesday coupon.

As usual, market mainstay NewPage Corp. continued to be an active one. The bonds were unchanged to stronger, still on no real price-moving news.

Sino-Forest higher post-call

Sino-Forest was again a "popular name," a trader said, following the company's earnings conference call on Tuesday.

The trader said the bonds ended "a few points better," the 6¼% notes due 2017 around "61-ish" and the 10¼% notes due 2014 at 68 bid, 69 offered.

Another trader saw the company's 10¼% notes up 2 points on the day, at 68 bid, while seeing its 6¼% notes 1½ points higher, at 61 bid,

He saw "lighter volume" in its 9 1/8% notes that are scheduled to come due on Aug. 17 - "call them two-month paper, if you will," he said - pegging those bonds up by 1 point at 91½ bid.

He meantime saw the company's 5% convertible notes due 2013 offered at 63 bid and its 4¼% converts due 2016 offered at 52.

At another desk, a market source saw the 10¼% notes ending the day at 66½ - but throwing out the several smaller late-session trades that dropped the bonds to that level, the bonds ended at 68 bid on a round-lot basis, up 2 points on the day, with $16 million having changed hands.

The 6¼% notes were even busier, with over $22 million having traded. Those bonds closed at 61 bid - up 1½ points from Monday's closing level, but a 5-point jump from the previous round-lot close at 56, last Friday. Most of the upside activity took part in the latter part of the day.

But even with the advances, the company's bonds still remain well below the trading levels near or even above par which they had held before the June 2 release of the Muddy Waters Research report, which caused the notes to swoon precipitously and which absolutely devastated its Toronto Stock Exchange - traded shares. Those shares have lost around 75% of their pre-report strength from levels above C$18.21.

Sino-Forest addresses charges

On Tuesday, Sino-Forest's shares - which had plunged on Friday more than 13% on over five times the usual volume, but then rebounded on Monday, gaining back 11% on about twice the normal activity level - returned to the downside, plummeting by C$1.62, or 32.53%, to close at C$3.36. Investors were apparently dismayed by the company's warning, delivered during the conference call, that it would take several months for an independent committee appointed to review the company's finances in the wake of the Muddy Waters report to complete its task. Volume of 16 million shares was more than four times the average daily turnover.

Though Sino-Forest has called the accusations "inaccurate, spurious and defamatory," it went ahead and formed an independent committee to examine the charges more closely.

Sino has also asked the Toronto Stock Exchange to investigate trading of its stock by Block and anyone else associated with Muddy Waters. The Ontario Securities Commission has also opened an investigation.

"We are very disappointed for our stakeholders about the significant drop in the value of their investment in Sino-Forest due to the inaccurate and unfounded allegations reported by Muddy Waters, a self-serving short seller," said Allen Chan, chief executive and chairman, in the earnings release.

"It is shocking that a little-known short seller, who is not listed with the Ontario Securities Commission nor the Securities Exchange Commission as a registered advisor, could reduce so much market value created after 17 years of hard work and global stakeholder investment."

According to a Bloomberg article, Sino-Forest has also been in contact with its largest shareholder, Paulson & Co., and that the company has been "very supportive."

Paulson, owned by John Paulson, holds about a 14% stake in Sino-Forest.

Also, the Hong Kong- and Ontario-based timber products company reported earnings for the first quarter ending March 31, showing a net loss of $22.1 million, or 8 cents per share. That compared to a profit of $15.9 million, or 7 cents per share, the year before.

Revenues, however, improved 35% to $338.9 million. EBITDA was 34% higher at $192.1 million.

OPTI up ahead of coupon

OPTI Canada's debt traded up "a little bit," according to a trader.

He saw the subordinated paper - the 7 7/8% and 8¼% notes due 2014 - close around 46. Another trader also pegged the notes around 46, though he said that was in the "same sort of context" that they had been in previously.

The market is waiting to see if the Calgary, Alta.-based oilsands company will make a coupon payment on Wednesday.

"I think they do," the first trader said. At the end of the last quarter, the company had about C$300 million on the balance sheet, the trader said. He remarked that he thought the coupon totaled about C$60 million, "so they should have plenty of dough."

The bonds "traded off then started to rebound [recently]," the second trader said. Given such, "I would think there are more people in the camp thinking they are going to make a payment."

The company has struggled to bring its Long Lake joint venture project with Nexen Inc. up to full production, due to operational issues. Earnings have disappointed time and time again and OPTI has said it has been reviewing its strategic alternatives since 2009, with no plan yet announced.

NewPage strengthens

A trader said NewPage's bonds "continued to be somewhat active," seeing the notes "bouncing all around."

He said the 10% subordinated notes due 2012 ended around 34, though he added that there were "a couple prints late in the day that were lower."

Still, "they were kind of in line with where they went out [Monday]," he said.

Another trader said the bonds were "stronger with the stock [market]," pegging the 10% notes around 34 and the 11 3/8% senior notes due 2014 at 92½ bid, 93 offered.

Late Thursday, the Miamisburg, Ohio-based coated papermaker said that it had hired Jay A. Epstein to take over the role of chief executive officer.

The position was vacated by David Prystash on May 11. Curtis Short, chief accounting officer, served in the role on an interim basis.

Prystash's departure marked the fourth executive exit since last summer when NewPage's president and chief executive, E. Thomas Curley, announced his resignation. Mark A. Suwyn, chairman and director, and Michael Edicola, vice president of human resources, also left their posts with Curley.

North Atlantic gets a boost

North Atlantic Trading Co. Inc.'s 9¼% notes due 2012 traded up to close around 96, a trader said.

He said the gains came in the wake of tobacco-related news, specifically news that the Food and Drug Administration had no plans to alter a recent report on menthol cigarettes.

The FDA previously said that banning menthols would be in the best interest of public health, but did not go so far as to propose an actual ban. The belief is that the FDA will reinforce what it said at its July meeting, but will again not seek to ban the smokes.

The Darien, Conn.-based company is best known for its Zig-Zag products.

William Lyon gains

Newport Beach, Calif.-based homebuilder William Lyon Homes Inc. saw its 10¾% notes due 2013 trade "pretty active," according to a trader.

He said the notes "firmed up a little bit" to 55 bid, 56 offered.

There was no news out to drive the issue higher.

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