Quebecor World, Buffets file for bankruptcy, bonds drop 20 points; Calpine, Delphi continue to weaken

By Stephanie N. Rotondo

Portland, Ore., Jan. 22 - Distressed debt traders came back to a messy market Tuesday, with a struggling stock market - and more bankruptcies - pressuring the junk arena.

"There were some early prints where stuff was quoted down 3 to 4 points," a trader said.

The Dow Jones Industrial Average slipped as much as 465 points before the Federal Reserve announced a 75 basis point interest rate cut. After the announcement from the central bank, the equity market regained most of its losses but still closed down on the day.

"The equity tried to crawl back and things [in the bond market] slowly tried to push higher," the trader said.

"A lot of the regular bonds, the more liquid bonds rallied," another trader noted. He said most names opened 3 to 5 points lower only to come back and close just 1 point weaker.

However, more illiquid names, such as those in the distressed sector, "were down and stayed down," he said. "There [are] a lot of deers in the headlights."

It probably came as no surprise that not one, not two, but three companies filed for Chapter 11 protection over the weekend: Quebecor World Inc., Buffets Inc. and Propex Inc.

Quebecor, which has been struggling to find C$125 million in new financing, filed for bankruptcy after a C$400 million rescue-financing plan was rejected by the company's banks. The company's board of directors unanimously voted to enter Chapter 11 and also asked a Canadian judge to protect it from its creditors for 30 days.

The news prompted an approximately 20-point loss in the commercial printer's bonds - though the debt managed to come off from its daily lows slightly.

Also down a good 15 to 20 points was Buffets. The restaurant operator also entered bankruptcy Tuesday, stating in a press release that it would use the reorganization process to balance its books and improve financial performance. The company attributed its recent decline to external factors, such as a decrease in discretionary spending.

In companies looking to exit bankruptcy soon, both Calpine Corp. and Delphi Corp. are continuing to see their debt weakening. Calpine's bonds fell 5 to 6 points on the day, while Delphi dipped about 2 points.

Quebecor bonds down 20 points

Last week, Quebecor had a deadline to come up with C$125 million in new financing, as dictated by its banks. At the last minute, the company said it received a C$400 million rescue-financing plan from its parent, Quebecor Inc., and private equity firm Tricap Partners Ltd.

But as was widely expected, the banks balked at the plan and the deadline came and went.

So it was perhaps not shocking when the market came back from a long weekend to find that Quebecor had filed for bankruptcy.

The news prompted the company's debt to slide as much as 20 points on the day, traders reported. Early in the session, a trader placed the 4 7/8% notes due 2008 at 40 bid, 42 offered, down about 20 points.

Still, the debt managed to make a slight comeback, following the general marketplace. At market close, a trader quoted the 6 1/8% notes due 2013 at 48 bid, 49 offered, up from its earlier lows of 44 but about 15 points from last week's level of 66.

At another desk, a trader pegged the bonds at 47 bid, 48 offered generically. He deemed that down 20 points.

Another trader said that the 6 1/8% notes opened the day at 44 and had finished up near 50, "up 6 points on the day - but down 15 from Friday's levels."

"All dreams come to an end," a trader said.

In a statement on the company's web site, Jacques Mallette, president and chief executive officer, said the filing was necessary to give the company time to improve its long-term viability.

"Today's filing is the result of industry pressures, particularly in Europe, combined with the inability of the company to raise new capital in the current market environment and the inability to complete the sale of its European operations," Mallette said.

In a Canadian court Tuesday, a judge also approved a motion to place the company under Companies' Creditors Arrangement Act protection until Feb. 20. A New York judge is expected to rule on the motion by Wednesday.

Quebecor also said that it has arranged for a $1 billion debtor-in-possession facility from Credit Suisse and Morgan Stanley.

The bankruptcy filing prompted several ratings agencies to downgrade the company's credit. Standard & Poor's cut the senior unsecured notes to D from CC, while Moody's Investors Service cut the corporate family rating to Ca.

Buffets debt slips 15 points

Restaurant operator Buffets joined Quebecor in bankruptcy Tuesday. The proprietor of such dining establishments as Old Country Buffet and HomeTown Buffet cited external factors as the catalyst for its Chapter 11 filing, including a decline in discretionary spending.

Whatever the reason for the filing, the company's bonds fell 15 to 20 points. A trader deemed the 12½% notes due 2014 weaker by 15 points to around 8.5, while another said the bonds were "trading around 8."

"They were beat up pretty good," he added, noting that the bonds had been in the low-20s.

Another trader saw the bonds nosedive to 7 bid, 9 offered from 18 bid, 22 offered previously.

At another desk, a trader pegged them at 8 bid, 10 offered, down 10 points on the session.

"They are piling a lot more bank debt," the first trader added, "at Libor plus 725 bps. That's why the bonds are down so severely."

In a press release, Buffets said it would use the reorganization process to "restructure its balance sheet and strengthen its financial performance." All of the company's 626 restaurants are expected to be open for business as usual.

According to the release, Buffets has also secured a $385 million DIP facility. The financing includes $85 million in new funding to supplement $300 million carried over from the company's pre-petition credit facility.

S&P revised its recovery rating to 3 from 2, given the belief that reorganized enterprise value will be lower than previously expected.

In a related sector, "retailers were quoted much lower but clawed their way back some," a trader said.

The trader quoted Bon-Ton Stores Inc.'s 10¼% notes due 2014 opening 3 to 4 points softer at 63 but closing just 1 point weaker at 65 bid, 66 offered.

Claire's Stores Inc.'s 9¼% notes due 2015 were seen unchanged at 63 bid, 65 offered.

Calpine, Delphi weaker

Among companies looking to get out of bankruptcy, both Calpine and Delphi have seen their debt decline over the last week, weighed on by external market pressures.

Calpine's bonds have followed their equity counterpart, which has been slipping in a rapidly declining stock market. A trader said the power producer's debt fell 5 to 6 points during Tuesday's session, its 8½% notes due 2011 at 105 and its 8½% notes due 2008 at 112.

The San Jose, Calif.-based company's when-issued stock fell 30 cents, or 1.88%, to $15.70.

Calpine hopes to exit bankruptcy by the end of the month, though the date could be pushed to Feb. 5 as the company tries to iron out the terms on its exit facility.

Delphi's reorganization plan received court approval Tuesday - provided it cuts executive bonuses.

A trader said the name was "on the quiet side, but trading lower," placing the company's debt - which now trades at virtually the same level - at 37 bid, 38 offered.

The Troy, Mich.-based automotive parts supplier hopes to emerge from Chapter 11 protections in March, though it still has to secure exit financing.

Broad market softer

Tembec Inc.'s 8 5/8% notes due 2009 were down 2 points at 38 bid, 40 offered, while sector peer AbitibiBowater's 8.85% bonds due 2030 were down 2 points at 60 bid, 62 offered. Pope & Talbot Inc.'s 8 3/8% notes due 2013 fell 8 points to around 11.

Chiquita Brands International Inc.'s 9 5/8% notes due 2014 lost 3 points to 56 bid, 58 offered.

Solo Cup Co.'s 8½% notes due 2014 were down 4 points to 72 bid, 79 offered.

Swift Transportation Co. Inc.'s 12½% notes due 2017 were off 2.5 points at 34 bid, 36 offered.

Paul Deckelman contributed to this article.

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