Distressed market ends week firm to unchanged; recent Blockbuster gains credited to Icahn

By Stephanie N. Rotondo

Portland, Ore., Sept. 17 - The distressed debt market closed out the week still on the firm to unchanged side, but more new issues - combined with Yom Kippur - made for light trading on Friday.

"It's Friday," a trader said. "The numbers didn't move. People left early. All that stuff combined, it was pretty quiet."

Blockbuster Inc. was not as active as it had been during the week, but the recent gains in the company's debt were potentially explained. According to news reports, Carl Icahn has been scooping up the bonds in an effort to have more control in a Chapter 11 case.

NewPage Corp. bonds meantime finished the day mixed, according to traders. The movement came just one day after the company's executives testified before a panel that was investigating Chinese and Indonesian paper subsidies and their impact on domestic paper producers.

Elsewhere, Tronox Inc. said in court papers that it had received a rival plan for a rights offering aimed at bringing the company out of bankruptcy. But even with that news, trader saw the bonds closing unchanged.

Icahn buying Blockbuster debt

Trading in Blockbuster's bonds quieted down a bit - in part because of the new issue focus and also because of the holiday - but a trader saw the senior notes continuing to firm.

The trader quoted the 11¾% notes due 2014 at 54½ bid, 56½ offered. The 9% notes due 2012 were "still" trading between 6 and 9, he said.

The Dallas-based movie rental chain's debt has been slowly inching up over the course of the week, though there had been no news present to cause the move.

On Friday, however, a report shed some light on what might have been causing the gains. According to anonymous sources, billionaire investor Carl Icahn has been buying up bonds in order to have a larger voice in a bankruptcy filing.

The sources said that Icahn had bought as much as one-third of the outstanding debt.

Icahn was previously involved with Blockbuster, the result of his win in a proxy fight that gave him a seat on the company's board. Icahn resigned that position in January and in March, he began divesting his equity stake in the company.

Blockbuster is expected to file for bankruptcy by the end of the month.

NewPage ends mixed

NewPage notes were unchanged to better on Friday, just one day after the company's top executives testified at a hearing of the International Trade Commission.

One trader said the 11 3/8% notes due 2014 were unchanged at 91 bid, 91 3/8 offered. The 10% notes due 2012 meanwhile closed "up slightly" at 50½ bid, 50¾ offered.

At another desk, a trader said the 10% notes gained 1½ points, closing around the 50 mark.

The ITC hearing brought together NewPage and other papermakers, as well as congressional members who decried the Chinese and Indonesian subsidies papermaker's in those areas receive. Because of those subsidies, the companies are able to sell their products much cheaper than domestic companies, which, in turn, hurts NewPage and the like, as well as its employees.

"The facts show that Indonesian and Chinese coated-paper producers are not playing by the rules, and neither are their governments," said U.S. Rep. Steve Kagen during the hearing. "It is past time to level the playing field."

Congress has already deemed the subsidies unfair and has imposed a tax on paper imports.

An ITC decision is expected by November.

NewPage is a Miamisburg, Ohio-based coated papermaker.

Tronox gets new proposal

It was all quiet on the Tronox front, even as the company announced it had received a rival proposal for a proposed rights offering.

A trader said the 9½% notes due 2012 remained 91½ bid, 92½ offered.

"They are kind of unchanged," he said. "They really haven't moved in a while."

On Thursday, Tronox said in court documents that it had received a new offer for the rights offering, which would allow it to exit bankruptcy. Bondholders had already put together a rights offering proposal in which they would back the sale of new common stock and $15 million of new preferred stock.

A shareholder group that included Avenue Investments LP, Cetus Capital LLC, Oak Hill Advisors LP and Schoenfeld Asset Management LP brought another proposal, a $185 million offering of stock.

Bondholders then reportedly revised their proposal, erasing the sale of the preferred shares.

Sorenson, A&P strengthen

A trader said that he saw Sorenson Communications Inc. 10½% senior secured notes "move up on the day, so that would be one of the winners on the week."

He said the bonds were finishing Friday around 56 bid after having started the week around a 53-54 bid level, "so say it's up a point on the day, and the last couple of days it's up two points."

There was no fresh news out on the Salt Lake City, Utah-based provider of communications equipment and services to the hearing impaired that might explain the rise.

Also up on no news were Montvale, N.J.-based supermarket operator Great Atlantic & Pacific Tea Co.'s 11 3/8% senior secured notes due 2015.

The bonds were finishing at 78 bid, 79 offered, which a trader called up a point.

Paul Deckelman contributed to this article.

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