TXU improves on failed debt swap; FairPoint notes firm; Blockbuster debt dips ahead of numbers

By Stephanie N. Rotondo

Portland. Ore., Nov. 12 - Energy Future Holdings Corp. was the nom du jour Thursday, as the company announced the results of its debt exchange offer.

The company fell well below its goal of extinguishing $6 billion in debt, receiving only a little over $350 million in valid tenders. Still, the failure was seen by some as a boon to bondholders and given credit for the gains in the company's bonds.

Meanwhile, FairPoint Communications Inc.'s bonds headed upward. The movement came as an informal group of noteholders agreed to withdraw its motion to appoint an examiner.

Shortly after the market closed, Blockbuster Inc. reported its third-quarter results. But before the numbers were released, traders saw the company's debt trading lower on the day.

TXU improves on failed debt swap

Energy Future Holdings - better known by its former moniker TXU Corp. - announced the results of its tender offer Thursday.

The company validly tendered $357.5 million principal amount of notes, but in the end did not receive the consents necessary to amend the indentures.

Still, the company's bonds traded actively - and at least 1 to 2 points higher - as one source opined that TXU and its owners might "sweeten the offer with another offer."

"It failed from a company standpoint, but not necessarily from a bondholder standpoint," the source said. In choosing "not to follow [private equity owners] KKR," bondholders overwhelmingly said they believe there is more value in their debt than the "30% haircut" being offered in the exchange, he said.

"Perhaps [bondholders] and the owners think the numbers will improve going forward," he added.

A trader called TXU's debt "quite active," its 10 7/8% notes due 2017 around 74.5, compared with levels around 71 previously. He also saw the 10¼% notes due 2015 around 74, up from 73.5.

"That's a little higher, but not much different," he said.

At another desk, the 10 7/8% notes were deemed 2 points better at 74.25 bid, 75 offered. The 6.55% notes due 2034 were also 2 points better at 47 bid, 47.75 offered.

TXU was looking to cut its debt by swapping $6 billion in notes for $4 billion in new notes. Despite the overwhelming rejection of the offer, the company said it remains committed to improving its bottom line.

"We remain committed to improving our balance sheet," said Paul Keglevic, chief financial officer, in a press release. "We will continue to explore all options available to us to achieve this objective."

Some market players were not shocked that the deal fell through.

"We weren't surprised because the proposed offer wouldn't have guaranteed bondholders a superior recovery, nor would it have done much to reduce EFH's untenable debt load," wrote Gimme Credit analyst Carl Blake in an afternoon comment. "What is clear to us from this development is that the company will need to come up with a more comprehensive solution next time around to gain the support of bondholders."

Energy Future Holdings is a Dallas-based energy holding company.

FairPoint notes firm

FairPoint Communications' notes gained some ground in trading, as a group of noteholders agreed to temporarily withdraw its motion to appoint an examiner.

A trader saw the 13 1/8% notes due 2018 moving up to 17.75 from 16.5. Another quoted the issue at 16.5 bid, 17.75 offered, up a point on the day.

According to court documents, an informal committee of noteholders said it would withdraw its motion to appoint an examiner, which would investigate the factors leading up to FairPoint's recent bankruptcy filing. The motion will be held until at least Nov. 20 "for the purpose of fostering and engaging in discussions relating to the debtors' plan of reorganization."

The group had filed the motion on Oct. 30, alleging that the Charlotte, N.C.-based telecommunications provider had misrepresented its recovery levels. There were also allegations that the company's top executives were looking to profit from the bankruptcy filing.

Currently, FairPoint's proposed plan of reorganization would give control of the company over to its bank lenders, something that has also irked holders of the $550 million in bonds.

FairPoint filed for Chapter 11 protections on Oct. 26.

Blockbuster dips ahead of numbers

Dallas-based movie rental chain Blockbuster saw its bonds drifting lower ahead of the company's after-market close earnings release.

A trader saw the 11¾% notes due 2014 "somewhere around 94," while the 9% notes due 2012 ended at 53 bid, 53.5 offered.

"They're both kind of off by 1 or 2 points," he said.

Another source also saw the paper declining, placing the 9% notes at 53 bid, 54 offered.

The company posted its third-quarter results after the market closed Thursday and a conference call was held at 4:30 p.m. ET.

For the quarter, Blockbuster reported revenues of $910.5 million, versus $1.16 billion for the third quarter of 2008.

"The 21% revenue decrease is primarily attributable to a 14% decline in same store comparables due to the company's temporary shift in focus to manage the business for liquidity and the macroeconomic environments," the company said in the earnings release. "The other factors that affected third quarter total revenue included the reduction in company-operated stores and the negative impacts of foreign currency exchange."

Operating loss came to $10.2 million, compared with $3.5 million the year before. Net loss was $116.8 million, or 60 cents per share, compared with a loss of $20.6 million, or 11 cents per share.

The wider loss was attributed to write-offs associated with the sale of Xtra-Vision Ltd.

"With the capital structure improvements behind us we are returning our focus to the operations of the business," stated Jim Keyes, chairman and CEO, in the release.

"In the fourth quarter we are adding inventory, expanding product assortment, increasing advertising and reaching out to our customers in new and exciting ways. With the addition of Blockbuster Express branded vending kiosks and the mass market deployment of Blockbuster On Demand on internet connected devices to millions of homes across the U.S., we have dramatically increased our points of presence and made it more convenient for our customers to access the latest movies and games the way they want."

Broad market mixed

Among other distressed credits, a trader said that Tronox Worldwide LLC's 9½% notes due 2012 Inc. "moved up today - there supposedly was news on them," although he had not seen what that might be.

He saw the bonds open at around 64.25 bid, up from Tuesday's late levels at 62.5 bid. After that, they gradually moved up in half-point and three-quarter-point increments to late levels around 67.75 bid.

Activity was relatively brisk, he said, with some $7.5 million of the paper seen trading on the Trace bond-tracking system.

A second trader agreed that the Tronox bonds were higher, seeing them get as good as 68 after having started at 65 to 66, but by the end of the day, he said, they had dropped back down to 65 bid, 66 offered. "So, they traded up, then they traded back down, on some activity," he declared.

Six Flags Inc.'s paper, like its 9 5/8% notes due 2014, moved up by around a point on the session to the 18 bid, 19 offered level - all except the company's 12¼% secured notes due 2016, which continue to hover in the low-90s.

As for the rest of the capital structure, he said, "They've been in this range, 18.5 bid, 19.5 offered. If they end up trading at 18 bid, 18.5 offered, they're down a little bit; 19.5, it's up a little bit."

A trader saw Smurfit Stone Container Corp.'s bonds, like its 8¼% notes due 2012, around 75.5 bid, 76.5 offered, calling that level "pretty much unchanged," with the last couple of trades of the day around the 76 bid level. Overal1, there was "not a lot of activity."

Catalyst Paper Corp.'s 8 5/8% notes due 2011 were at 62.5 bid, 63 offered, which he called "probably up 1.5 points," though on "not much activity."

Paul Deckelman contributed to this article.

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