Kodak bonds sink after mixed court rulings; Yellow Media debt boosted by recapitalization plan

By Stephanie N. Rotondo

Phoenix, July 23 - Distressed bonds got off to a rough start Monday, as declines in the broader markets put pressure on the bonds.

A topical name during the day's session was Eastman Kodak Co. The company received an unfavorable ruling in its patent infringement lawsuit against Apple Inc. and Research In Motion Ltd. on Friday, but then got a positive ruling in Apple's infringement suit against the company on Monday. However, Friday's ruling has left some questioning the value of Kodak' patent portfolio.

Yellow Media Inc., the Canadian phonebook publisher, meantime saw its bonds trending upward after announcing a recapitalization plan on C$1.8 billion in debt. Under the plan, the company will exchange old debt for new debt, stock and cash.

Elsewhere, Momentive Performance Materials Inc.'s paper was seen weakening, though the loss was blamed on the general negative tone of the market.

Court rulings weigh on Kodak

Kodak's debt lost a few points Monday as investors reacted to an unfavorable ruling in the Rochester, N.Y.-based company's patent infringement lawsuit against Apple and RIM.

A trader said the 7% convertible notes due 2017 fell to 17 from previous levels of 19 bid, 20 offered. The 9¾% second-lien notes due 2018 declined to 70 bid, 71 offered from 74 and the 7¼% notes due 2013 slipped to 16 bid, 18 offered.

"The bonds definitely traded off," another trader said, seeing the second-liens ending around 70, down about 4 points on the day.

However, he noted that the paper had opened in the 60s.

The trader also deemed the 7¼% notes down 2½ to 3 points around 17.

A third trader pegged the second-liens at 70 bid, 71 offered, which he called down a deuce. The 7¼% notes were also 2-points weaker, he said, at 18.

On Friday, a judge with the U.S. International Trade Commission ruled that Apple and RIM had not infringed on a digital imaging patent held by Kodak.

On Monday, however, the U.S. Court of Appeals for the Federal Circuit upheld a previous ruling that claimed Kodak had not infringed on an Apple patent.

The appeals court upheld a lower court's ruling.

But all the patent brouhaha could turn out to be bad for Kodak as it seeks to auction off a portfolio containing about 1,100 patents.

"The one that they won today doesn't mean much; the market didn't have very high expectations for that. It was a claim that Apple had filed against Kodak, and winning it means only that they avoid penalties," a West Coast-based analyst said.

"The one [Kodak] lost Friday was one they were working on for two or three years, and they thought it could be a sizable settlement, a big effect," the analyst said.

One distressed trader remarked that recent analysis of the bankrupt company has placed the value of Kodak's intellectual property at zero.

That being said, there is a potential upside, the trader said.

"The company is not burning through quite as much cash as it was originally thought they would," he said. Investors are now wondering if "maybe some of Kodak's various businesses] are worth something."

Yellow Media gains on plan

Montreal-based Yellow Media said Monday that it was launching a recapitalization plan aimed at reducing overall debt and extending maturities on C$1.8 billion of debt.

"Bonds were quoted better," a trader said, seeing most of the company's various issues trading in a 53 bid, 55 offered context.

That was up 4 to 5 points, depending on the issue, he said.

"The shorter dated stuff didn't move as much," he said. "The longer stuff was what rallied."

Longer-dated issues had previously been in the high-40s, he said.

Under the terms of the recapitalization plan, Yellow Media will exchange its credit facilities and medium-term senior unsecured debt for a combination of new debt, new stock and cash. Holders of convertible debt, preferred and common stock will meantime receive new stock plus warrants.

The plan is expected to be completed by the end of September. Once completed, the company's annual interest expense will be reduced by about C$45 million.

Momentive falls with market

A heavy marketplace was blamed for weakness in Momentive Performance Materials' 9% notes due 2021 on Monday.

One trader called the paper "unchanged, maybe down a point" at 72.

Another trader said the issue was actively traded, also pegging the debt around 72.

"It was more the market than anything," he said of the dip.

Momentive is a Columbus, Ohio-based manufacturer of specialty chemicals and materials.

Broad market loses traction

Elsewhere in the distressed space, a trader said ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 were down 1½ points to 41.

A second trader called NewPage Corp.'s 11 3/8% first-lien notes due 2014 "down a bit" at 68 bid, 68½ offered.

AMR Corp.'s benchmark 6¼% convertible notes due 2014 were also "a touch weaker" at 67½ bid, 68 offered.

Dynegy Holdings LLC's 8 3/8% notes due 2016 meantime were unchanged at 64 bid, 64½ offered.

Rebecca Melvin contributed to this article

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