Primary market quiet; Kodak paper trampled again; Hovnanian drops on exchange offer news

By Stephanie N. Rotondo and Paul A. Harris

Portland, Ore., Sept. 29 - The secondary high-yield market "held steady for awhile," a trader said Thursday. Weakness, however, did come in and was not helped by the fact that many players were out due to Rosh Hashanah, traders reported.

The primary market, meanwhile, failed to generate any news on Thursday.

The day was definitely not a good one for Eastman Kodak Co. paper, as the bonds fell another 10 points on the day. The bonds have been depressed all week after the company said late Friday that it had drawn down its revolving credit facility. On Thursday, news outlets reported that a shareholder had written to the company's board of directors, asking for a sale of the company pronto.

Hovnanian Enterprises Inc.'s debt was also under pressure after the homebuilder announced a debt exchange. One trader said that the senior notes were down over 6 points from the previous session.

The cement and aggregate arena was also falling despite Texas Industries Inc.'s lower loss for its first fiscal quarter. The company's debt dipped again on Thursday, and Vulcan Materials Inc. paper declined as well.

And Springleaf Financial Corp. was continuing its "slow march down," as one trader put it. The company's notes have been steadily slipping in the wake of recent news regarding the company's efforts to establish a real estate investment trust.

Inflows continue

Despite a quiet primary, the retail fund flows picture continues to be positive.

High-yield mutual funds and exchange-traded funds in the United States saw $424 million of inflows for the week to Wednesday, according to a market source who was citing numbers reported by EPFR Global.

The same source said that Lipper-AMG reported $327 million of inflows during the same period.

With respect to the latter number, it was the fourth consecutive weekly inflow, following the $517 million inflow seen in the week ended Sept. 21.

Those four weeks of gains, during which net inflows have totaled $1.63 billion, broke a five-week losing streak dating to the week ended Aug. 3. In that period, the funds tallied a net loss of some $4.854 billion, according to a Prospect News analysis of the numbers.

For the year as a whole, inflows have been seen in 25 weeks versus 14 outflows, according to the analysis.

Meanwhile in the bank loan market, the fund flows picture remains negative, according to the market source, who said that EPFR Global is reporting a $194 million outflow for the week to Wednesday, while Lipper-AMG is reporting a $267 million outflow for the same period.

Junk indexes mixed

Market indicators were mixed on Thursday as the KDP High Yield Index fell to 70.27, with an 8.4% yield, from 70.48, with an 8.31% yield, previously.

The CDX North American Series 17 index, however, moved up half a point to 88 3/8 bid, 88 5/8 offered, according to a market source.

Kodak gets trampled

Kodak's debt got "really whacked," a trader said on Thursday.

He saw the 7¼% notes due 2013 at 40 bid, 45 offered, down from offers around 60 on Wednesday.

"Things don't look so good," he said.

Another trader said the bonds "continued to get hit pretty good," deeming the 7¼% notes down "another 10 points" at 45 bid, 46 offered.

"There wasn't a ton of volume, but it's not a good sign," the trader said.

The trader noted that as early as Sept. 15, paper was trading in the 90s.

"They've lost 50% of their value in two weeks," he said. "There's just no real bid for them right now and they just keep drifting lower each day."

The bad news began on Monday when investors reacted to a regulatory filing out late Friday that said the company had drawn $160 million from its revolving credit facility. Cash burn concerns rose on that news and the fallout has been felt all throughout the week.

The week also saw downgrades from Moody's Investors Service and Fitch Ratings.

On Thursday, news outlets reported that shareholder and convertible bondholder Investment Partners Asset Management had written a letter to the board asking for a sale of the company quickly.

In a press release announcing the letter, IPAM's Greg Abella said: "In my opinion, Kodak's long-term performance is simply unacceptable, and as such, it has not earned the right to remain an independent company.

"Furthermore, I feel that Kodak's management has been given more than enough time and still has been unsuccessful in unlocking value for stockholders or bondholders. Therefore, in my opinion, the company needs to be sold while there is still time to do so. I also believe that Kodak's large institutional owners need to immediately exert their rights, and take a leadership role in effecting change.

"The status quo cannot continue," he added in the letter.

Hovnanian down on exchange

Hovnanian Enterprises was "the big gorilla today," a trader said after the company said it was commencing a private exchange offer for its 11% senior notes due 2015, 6½% and 6% senior notes due 2014, 6¼% notes due 2015 and 2016, 7½% notes due 2016 and its 8% senior notes due 2017.

The trader said the 10 5/8% notes due 2016 dropped to 77 bid, 78 offered from 85 bid, 86 offered previously.

He added that the junior issues were "down 4 to 5 points as well."

Another trader said the debt was "bouncing around." He saw the issue trade at 82 early in the session, only to fall to 79½ by day's end. He called that down 6½ points from Wednesday's closing levels.

"It's maybe no the best industry in the world," the trader said.

A third trader said the 10 5/8% notes were "under pressure," placing them at 791/2.

In exchange for their holdings, bondholders who participate in the exchange will receive new 2% senior secured notes due 2021.

Hovnanian is a Red Bank, N.J.-based homebuilder.

Cement sector rocky

Texas Industries' narrowed first fiscal quarter loss did not help the bonds gain momentum, traders reported.

One trader called the 9¼% notes due 2020 down half a point at 791/2. Another trader also saw the debt falling to levels around 80.

"That's down a lot," he said. "They use to be a par bond."

But as a whole, the cement and aggregates arena has not been faring well.

Case in point, a trader said that fellow aggregate producer Vulcan Materials had dropped a deuce on the day, with the 7½% notes due 2021 closing around 93 and the 6½% notes due 2016 ending around 92 1/8.

After the bell on Wednesday, Texas Industries reported a net loss of $7.4 million, or 27 cents per share, versus year-earlier red ink of $23.7 million, or 85 cents per share. However, the loss was a little more than the quarter per share that Wall Street was looking for.

Springleaf marches down

Weakness in Springleaf Financial's debt continued into Thursday's session, according to traders.

One trader said the 4 7/8% notes due 2012 had dipped a point to 92 5/8, which he added was yielding about 15%.

Another trader said the 6.9% notes due 2017 fell another point to 71½ bid, 72 offered.

"These bonds earlier in the week were trading around 74," he said.

Evansville, Ind.-based Springleaf - the former American General Finance unit of troubled insurance giant American International Group Inc. until its acquisition last year by Fortress Investments and its name change earlier this year - has been receding in the wake of recent news involving the problems with its plans for establishing a real estate investment trust unit.

Elsewhere in the financial realm, a trader said that Capmark Financial Group Inc.'s debt, which tends to trade in line with one another, was hanging around 533/4, a trader said. The bankrupt company should be making distributions "any day now," he remarked.

Also, PMI Group Inc.'s 6% note due 2016 inched up a point to 35, the trader said.

No fuel for coal

A trader said that "coal companies continue to trade weaker."

He saw Arch Coal Inc.'s 7¼% notes due 2020 "down another point" at 961/2.

"That's the fourth or fifth session that they have traded off like that," he said.

Recently, Alpha Natural Resources updated its shipping guidance for 2012 and the news was not good. While coal is not directly linked to oil, weak oil prices can play a factor in how the coal sector performs.

lso important is the overall global economy, and in a downward market, growth slows and the need for coal diminishes.

Dex debt craters

It was "craterville" for Dex One Corp.'s 12% PIK notes due 2017, according to a trader.

He quoted the bonds at 20 bid, 21 offered.

The losses came as the company announced that it would pay its upcoming coupon half in cash and half pay-in-kind.

Investors, the trader said, "figure there's no recovery there" in the even of a bankruptcy filing.

Dex is a Cary, N.C.-based phonebook publisher.

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