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Sino-Forest debt goes for a ride as Paulson sells off stake; NewPage trends up; Broadview weak
By Stephanie N. Rotondo and Paul Deckelman
Portland, Ore., June 21 - A distressed debt trader said the market "started off with a pretty good tone" on the first day of summer.
The trader noted, however, that there were "still a lot of bid lists coming around."
"It was a little bit busier," another trader reported Tuesday.
Another market source, however, likened the day to "watching paint dry."
Sino-Forest Corp.'s debt gyrated throughout the session, following another round of bad news for the timber products company. Paulson & Co., the company's largest shareholder, divested all of its stake last week. Sino had reported the week before that the firm and its founder, John Paulson, was in full support of the company, despite the allegations of fraud leveled by Muddy Waters Research on June 2.
Meanwhile, NewPage Corp. continued to be an actively traded credit. The bonds were seen firming with the market.
A market source said that Broadview Networks Holdings Inc. had withdrawn its previously announced tender offer for its bonds. On the news, the sellers emerged, but without a buyer in sight, he said.
Sino-Forest takes ride
A trader said Sino-Forest saw a "fair amount of trades" during Tuesday trading.
In the 10¼% notes due 2014, he said most of the trades took place within a 43 bid, 45 offered context, though the notes traded as low as 40.
"That looks down 15 points," he said, compared with a 60 bid, 63 offered market on Thursday.
Another trader said the bulk of trades in the 10¼% notes were around 43 bid, 44 offered, "with a couple outliers.
"They're crazy," he said.
The 6¼% notes due 2017 meantime traded at 48, 44, 39 and 371/2, the trader said.
"They were all over the place," he said. "They opened up higher and started to come off."
"It looks like a disaster," said another market source that noted he was not involved with the credit. "I don't think there is much asset coverage. It's fraud. It's definitely fraud.
"[Muddy Waters] hasn't been wrong yet."
Yet another trader said that the bonds "have been fairly active" on the session, falling in line with a slide in the Canadian-Chinese timber company's shares.
He saw the 10¼% notes falling to around 40, on volume of more than $25 million, after having traded earlier in a range of 42-47, "so now you've got them Tracing down at 40, so those have come in."
He also saw the company's 6¼% notes swooning some 20 points to end at the 37 level.
"The other issues have kind of been bouncing around," he said, "depending on what time of the day it was."
He quoted the busted 5% convertible notes due 2013 "inside the range" of 37 bid, 39 offered, while its 9 1/8% notes - supposed to mature less than 60 days from now, on Aug. 17 - had nosedived to a 72 bid in morning trading, down around 20 points from its prior levels in the low 90s.
Trader mulls possible fallout
"You had the Paulson news, with him selling his stake," the trader elaborated, then asking rhetorically whether the Sino-Forest troubles might spell bad news for other Chinese companies, such as a lot of property and real estate development companies who bonds trade in the high-yield space.
"Is this thing a donut? And does this spill over to other China companies? How reliable and dependable are the kind of vetting or due diligence that the Chinese go through?"
He theorized, "If there wasn't [at least some] truth to all of these rumors, would these things [stock prices] continue their slide down to near zero?"
In a regulatory filing on Monday, the Paulson fund said it had sold all of its 34.7 million shares in Sino-Forest on June 17. The value of the shares had dropped from around C$815 million to C$111 million.
In addition to losing its largest shareholder - the company had previously said it was in talks with the firm and that it had its full support - Sino received a rating downgrade from Fitch Ratings due to its complex corporate structure, which was holding up funds between subsidiaries.
NewPage up with market
NewPage's 10% subordinated notes due 2012 were "stronger," according to a trader.
He said the paper had moved below 30 on Monday, trading back up between 30 and 31 early on in Tuesday's session. He said the bonds went out 29½ bid, 30½ offered.
He deemed the 11 3/8% notes due 2014 "kind of unchanged" at 92¼ bid, 92¾ offered.
Another trader said the 10% notes traded as high as 31, with a low tick around 391/2, though he added that "most of the trades" were about 30.
"We're getting a dose of reality on valuation there," he said.
There was no fresh news out on the Miamisburg, Ohio-based coated papermaker.
Broadview faces selloff
A market source said that sellers of Broadview Networks Holdings' 11 3/8% notes due 2012 were pushing paper out into the mid-90s, though there were no bids to be found.
The action came as the Rye Brook, N.Y.-based business communications provider canceled a tender offer "following a review of market conditions," the company said in a statement.
"They were trying to get the tender and a refi done at the same time," the source said. "It was a really, really tough deal. So they pulled it."
He noted that the company suffered from "not great credit metrics."
Rite Aid numbers to come
Rite Aid Corp. will release its first-quarter results on Thursday and a trading said there was "minimal trades" occurring in the lead-up to the earnings announcement.
"I saw some quotes, but I didn't see a ton of trades," he said.
The 9 3/8% notes due 2015 were "a little bit better" at 89½ bid, 90 ¼ offered. That compared with 88¾ bid, 89 offered on Monday.
Another market source called the 8 5/8% notes due 2015 about 1½ points better at 89½ bid.
Rite Aid is a Camp hill, Pa.-based drugstore chain.
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