Solo Cup's bonds and bank debt fell then rebounded after the company said it would be restating its financials. Its 8 1/2% '14 bonds dropped to 82 3/4 from 86 and then bounced back to 87. Its bank debt fell half a point to 99 1/2-99 3/4 before trading up to around par.
A hedge fund investor said he bought Solo Cup's bonds when they fell, but did not want to hold long positions in the credit and sold when they popped back up to 86 1/2. He said the bonds traded up because investors think the company's problems are overblown, but said he did not want to invest in the company long term because he thinks it has real problems. "I really dislike restatements. I think there is more trouble to come. Restatements never run smoothly," said the investor.
He added that trading was very heavy in the bonds, estimating many millions of the debt traded even though that name is usually illiquid. "The bonds got overly slammed. I think the run-up is overdone," he said.
Solo Cup announced Sept. 19 it would restate its financial statements for 2005, 2004 and 2003 fiscal years, along with certain quarterly results. It also said the restatements constitute a default under its senior secured credit facilities and that it is in talks to obtain amendments. A Solo Cup spokeswoman said the company plans to restate its financials by Oct. 16. She said the restatements relate to the company's accounting and that they will not impact its business strategy.