Eastman Kodak paper slips; Patriot Coal bonds come in; Fannie, Freddie preferreds get a boost

By Stephanie N. Rotondo

Portland, Ore., May 9 - Trading in the distressed bond arena was "slightly light," a trader said Wednesday, as well as a bit soft.

"It was down a lot early, then it kind of bounced up at the end," he said.

Eastman Kodak Co. debt was unchanged to weaker on the day as Shutterfly Inc. - the recently named winner of a bid for Kodak's online digital imaging site - objected to a motion to modify an automatic stay. Kodak had filed the motion in an effort to move its patent infringement case against Shutterfly forward.

Meanwhile, Patriot Coal Corp. paper began to retreat after Tuesday's earnings release. The bonds had initially moved higher despite the dismal quarterly report, which one trader had attributed to short covering.

Kodak steady to lower

A trader said Eastman Kodak bonds were "pretty much unchanged" on the day.

He pegged the 9¾% notes due 2018 at 84½ bid, 85 offered, the 10 5/8% notes due 2019 at 84½ bid and the 7¼% notes due 2013 at 27½ bid, 28½ offered.

But another market source deemed the 7¼% notes down a point at 29¾ bid, while a third source called the debt "down a point or so" around 28.

On Wednesday, Shutterfly - which was recently awarded the winning bid for Kodak's online digital imaging site - objected to a motion filed by the Rochester, N.Y.-based company that would have allowed it to move a patent infringement lawsuit forward.

Shutterfly said Kodak's motion "will lead to piecemeal litigation, frustrate the possibility of settlement and waste judicial resources."

Patriot gets hit

Patriot Coal's 8¼% notes due 2018 came in a deuce, according to a market source, just one day after the St. Louis-based coal producer reported disappointing quarterly results.

The source placed the issue at 75½ bid.

But another source called the notes a point higher, also around 751/2.

On the back of the earnings release on Tuesday, Patriot's debt had moved into higher territory, which was attributed to short covering.

Patriot Coal' s first-quarter loss was larger than 2011 comparables at $75.3 million, or 82 cents per share. That compared to a loss of $15.9 million, or 17 cents per share, the previous year.

Revenues dipped 13% to $502.6 million and operating costs fell 12% to $455.3 million.

Tons sold dropped 21% to 6.3 million, though revenue per ton increased 8%.

The St. Louis-based coal producer said the figures reflected a shifting energy sector, in which natural gas is favored over coal. However, Patriot said that it was looking for ways to cut costs, announcing that it had cut 1,000 jobs thus far in 2012.

The company also lowered its annual sales guidance to 25 million to 27 million tons.

Fannie, Freddie climb higher

Fannie Mae reported a sizable profit for the first quarter of 2012, its first turn in the black since it was commandeered by the U.S. government in 2008.

The turn to profit resulted in some saying that it was "a sign the housing market may have bottomed," according to a trader.

That in turn helped the preferreds gain ground, ending up the day's biggest percentage movers.

Fannie's (OTCBB: FNMAS) ticked up 9 cents, or 7.2%, to $1.34, while Freddie Mac's (OTCBB: FMCKJ) rose 15 cents, or 11.54%, to $1.45.

For the quarter, Fannie reported net income of $2.7 billion. That compared to a loss of $6.5 billion the year before.

With the swing to profit, Fannie also said that it will not seek additional aid from taxpayers, but that it instead will pay a dividend to the U.S. Department of Treasury in the amount of $2.8 billion.

Fannie has received $116 billion in aid from the government and has thus far repaid about $23 billion.

Despite the improved numbers and the resulting notion that the housing arena has found a floor, not everyone was jumping on that bandwagon.

One market source said the idea was "ridiculous" and that the boost to the preferreds was "all just speculation."

SuperMedia improves

SuperMedia Inc.'s term loan moved to 58 bid, 59 offered from 57 bid, 58 offered in the morning and 57¾ bid, 58¾ offered on Tuesday after the company announced a proposal to repurchase the debt at a price of 55 to 59, according to a trader.

The cash size of the offer is $33 million and it expires at 5 p.m. ET on Monday.

JPMorgan Chase Bank is the administrative agent on the deal.

SuperMedia is a Dallas-based directory publisher.

Broad market softens

Among other distressed issues, a trader said Bon-Ton Stores Inc.'s 10¼% notes due 2014 were "down a couple" at 74.

Caesars Entertainment Corp.'s 10% notes due 2018 were also down a couple points at 71.

Another trader saw NewPage Corp.'s 11 3/8% first-lien notes due 2014 holding steady around 72.

Sara Rosenberg contributed to this article

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