The spread on Solo Cup Co.'s loan-only credit default swaps widened 15-20 basis points to the 130-150 range after it posted poor first quarter results. Solo Cup's term loan "B" fell three-quarters of a point to 100 7/8, while its bonds fell three points to 92. The LCDS of Smurfit-Stone Container Corp. also traded. Smurfit-Stone, a packaging company, operates in the same sector as Solo Cup. The LCDS spread on Smurfit traded in at 130 basis points.
A dealer at a bank trading LCDS on Solo Cup and Smurfit-Stone said banks and hedge funds were the biggest buyers of protection. Solo Cup posted a net loss of $22.1 million in the first quarter of 2006, compared with a net loss of $18.6 million for the same period last year. Adjusted EBITDA for the 13 weeks ending April 2, 2006 was $11.9 million versus $20.3 million for the three months ending March 31, 2005.
A spokesman for Solo Cup, which makes disposable foodservice products, said the loss was mostly due to higher administration costs. These costs amounted to $66.6 million in the first quarter of 2006, compared with $60 million in the same period last year. The company is cutting 400 employees to reduce costs. The spokesman said the company expects to save $10 million annually from the cuts. In a release, Robert Korzenski, president and chief operating officer, also blamed increasing energy costs and competitive pricing pressures for the poor results.