MBIA moves up as S&P stands down; Abitibi bonds climb; debt pledge spurs Sprint interest

By Paul Deckelman

New York, Aug. 15 - MBIA Inc.'s surplus notes zoomed more than 10 points on Friday, in line with a jump in the Armonk, N.Y.-based bond insurer's shares after Standard & Poor's took the company off CreditWatch, meaning its ratings - lowered earlier in the year - will not be lowered again any time soon.

Abitibi-Consolidated Inc.'s bonds, and those of its corporate cousin, Bowater Inc. - the two companies merged last year to form AbitibiBowater Inc. - were seen higher in relatively active dealings, although nobody had a firm idea what was pushing the Montreal-based forest products company's paper upward.

General Motors Corp.'s bonds remained parked around the same levels which that paper has held for the past two or three days, the sharp upside movement from the lows they hit at the start of the month apparently having run out of gas.

There was more trading in Sprint Nextel Corp.'s bonds, with investors pushing the Overland Park, Kan.-based wireless telecommunications company's securities up on expectations that the company will make good on its promises to cut its debt by at least $1 billion by the end of the current quarter on Sept. 30.

Primary activity was nil on Friday, and is likely to stay that way until after the Labor Day holiday break. After that, it's anyone's guess when it will pick up, although one portfolio manager is convinced that pick up it will - possibly led by the beleaguered automotive companies.

Market indicators push lower

Back among the established issues, a trader said Friday that the widely followed CDX index of junk bond performance was essentially unchanged at 92 5/8 bid, 92 7/8 offered. The KDP High Yield Daily Index meantime rose by 10 basis points to end at 70.57, while its yield retreated by 3 bps to 10.55%.

In the broader market, advancing issues led decliners by a margin of almost four to three. Activity, represented by dollar volume, fell by 37% from the levels seen on Thursday.

A trader noted that activity was "extremely quiet" - and promises to get even quieter between now and the upcoming Labor Day holiday in about two weeks.

"It was a rather uneventful day," another noted, adding that while there had been "a bunch of earnings this [past] week," including some that influenced bond price levels, "and a bunch of conference calls. There were none today" that amounted to anything.

Another just chalked things up to "a typical summer Friday."

MBIA picks up as S&P backs off

Among specific issues, a trader saw MBIA's 14% surplus notes due 2033 jump to 79 bid, 81 offered, well up from Thursday's level around 68 bid, in line with a rise in its shares after S&P took the bond insurer's critical financial strength rating off a negative CreditWatch.

MBIA issued $1 billion of the bonds on Jan. 11, pricing them at par. Although they are nominally investment-grade rated (assigned ratings of Aa3/AA/AA at the time of pricing), the bonds have been traded in the junk market for months, trading down to around the 50 bid level before coming back up to their present location.

MBIA's NYSE-traded shares meanwhile shot up by as much as 11.2%, before coming down from that peak to still finish up 8.72%, or 90 cents, at $11.22, on volume of 24 million shares, almost double the norm.

The bonds and shares moved higher after S&P - which in June had cut MBIA's financial strength rating to AA from a sterling AAA previously - took the company off CreditWatch, where it had been with negative implications since then, meaning that until now the ratings agency had felt that there was a strong chance of another ratings downgrade within three months.

MBIA and other bond insurers, such as its largest rival, Ambac Financial Group Inc., have been under pressure as mortgage defaults have risen over the past year, threatening the viability of bonds backed by those mortgages, with the ratings agencies scrutinizing the insurers to see whether they would have adequate capital to pay all of the claims should a wave of mortgage-backed securities default in tandem with the underlying mortgages.

While both big bond insurers seem to have dodged a bullet for now - S&P also removed Ambac from CreditWatch - neither is out of the woods yet - S&P left both companies with a negative outlook, meaning there is a possibility of a downgrade over the next two years.

Abitibi bonds jump

A market source saw AbitibiBowater's 8.55% notes due 2010, originally issued by its Abitibi-Consolidated unit, as having pushed upward by more than 4 points to the 58 mark, on very busy trading on such a slow day. Another source saw the bonds as having risen to 57.5 bid.

Nobody could offer a firm rationale for the sizable jump.

Besides the 8.55s, other active issues included Abitibi-Consolidated's 7¾% notes due 2011 and Bowater's 9½% notes due 2012, which moved to just under 47 and 63, respectively.

No fresh news was seen out on the company Friday, although AbitibiBowater did disclose in a regulatory filing the details of its agreement with John W. Weaver - chief executive officer of Abitibi-Consolidated at the time of the merger, who assumed the leadership of the merged entity, and retired effective July 1. Under terms of their separation agreement, Weaver will remain as non-executive chairman of the company and member of the board of directors through next March, at pay of $10,000 per month, will make another $40,000 per month as a special consultant, also through next March, and will receive additional compensation and benefits under the terms of a separate severance agreement with AbitibiBowater.

GM gyrates, but goes nowhere

A trader saw General Motors' benchmark 8 3/8% bonds due 2033 up 1 point at 53 and its 49% owned GMAC LLC automotive financing unit's 8% bonds due 2031 also a point better at 57 bid.

However, another trader saw the GM bonds down ½ point at 52.5 bid, 53.5 offered, while GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were down ½ point to 54 bid, 55 offered. Yet another trader saw the GM long bonds at that same level, but said they were "maybe unchanged' on the session, while the GMAC 8s were also unchanged at 56 bid, 57.5 offered.

At another desk, a trader saw GM's 7.20% notes due 2011 at 66.5 bid, "about where they had been."

A trader who compared closing round-lot trades to similar trades the prior day saw the 8 3/8s push up to 53.875 bid, versus 52.5 on Thursday, although he said that there was "not a lot of round-lot trading - it was mostly 20s, 100s and 50s." He saw Ford's long bonds down ½ point at 55 bid.

But a market source at another desk pegged the GM issue off as much as 3 points at 52.5 bid, although its 7.20s were seen having risen around a point to 67.

The GM bonds had been moving up steadily from the lows in the mid-to-upper 40s which they'd hit in the immediate aftermath of the company's Aug. 1 announcement of a $15.5 billion net loss in the second-quarter - one of the worst deficits in the beleaguered Detroit giant's 100-year history. However, over the past two or three sessions, that upside ride seemed to have stalled out.

Traders meantime said that the Ford bonds failed to get a jump start from the announcement.

Sprint continues upward run

A trader saw Sprint Nextel's bonds were "pretty active." He said that there had been "a little bit of a swirl" around research reports about Sprint put out by Goldman Sachs and by Pali Capital, "coupled with the company's announcement that they were dedicated to reducing their debt by $1 billion in the third quarter this year."

He said that "there seemed to be some activity around the lower-dollar bonds and very short paper. I would expect that trend to continue, unless they get to a point where they disappoint [investors] and announce that they're not going to sell [assets] or deleverage."

Some analysts have raised the possibility that Sprint Nextel might choose to sell its underperforming Nextel unit, thus unwinding the merger transaction of a few years ago in which it bought Nextel. The trader said that potential sale "was really the theme of a couple of reports" that came out. He noted that Goldman had come out with a report at mid-week forecasting that Sprint Nextel might choose to sell the iDen operations - most of Nextel's walkie-talkie- like business. "And then use some of the proceeds to deleverage, and to off-load the debt associated with that entity." Such a deal could relieve Sprint Nextel of as much as $5 billion of debt," he added.

The bonds have also been whipsawed around by the company's announcement - quickly rescinded after protests from stockholders - that it would do a big convertible debt deal to shore up its balance sheet. The bonds rose on the initial announcement, fell upon the rescission, but were helped after that by the news that the company had pledged to cut $1 billion of its existing debt by the quarter's end.

The trader said that there were expectations "that they would continue their effort to sell something and de-leverage quickly."

Elan edges up, as stock soars

Elsewhere, Elan Corp. plc's shares jumped nearly 20% in fairly busy trading - but the Irish drugmaker's bonds were up only modestly. There was no fresh news seen out about the company, whose bonds and shares had retreated earlier in the month when problems with two of its medications surfaced.

A trader said its 7¾% notes due 2011 had traded up to the 92 range from prior levels around 91 bid, 91.5 offered. "At the beginning of the month, this thing had really gotten pounded - the bonds were off big, probably [on] sales losses related to [news] of infections on its various products."

After the one-two combination of lackluster results from the long-anticipated preliminary trials of a new Alzheimer's medication which Elan is jointly developing with Wyeth, along with news of several new patients developing potentially life-threatening side effects from one of its other medications, Tysabri, the 73/4s "had traded off by 5 to 10 points. Then it looks like they started creeping back up, and the 73/4s were trading at 92 today - up a point or more on the week. It looks like they're trying to retrace where they had been." He further called the bonds "up largely in a pretty sideways market."

Another trader saw those 73/4s at 92 bid and the company's floating-rate notes due 2011 at 91, each up ½ point, although he did see its 8 7/8% notes due 2013 dip to 88 bid, down ¼ point..

Elan's American Depositary Shares at the same time zoomed by as much as 21.5 % in NYSE trading, before finally settling in up 19.04%, or $2.25, to $14.97. Volume of 30.3 million was nearly triple the usual daily turnover.

Nothing doing in new deals

On the primary side of the market, several sell-side sources were emphatic in declaring that "nothing was going on."

A buyside source meantime agreed completely with that assessment, and said that nothing would be seen for the rest of August, either.

"Everybody's gone," he said, "so if you want to get a deal done, there's no one around."

Once Labor Day rolls around, marking the unofficial end of the summer and the beginning of the usually busy fall season in junk bond land, there may still be some lingering reluctance on the part of some issuers to try to bring deals to market, but "the good quality deals, they'll get done. I think it will pick back up - but I guess we'll see."

A key to reviving the primary might be "if you can get some of the auto stuff to come to market - it would be pretty big," with the domestic carmakers probably looking to replenish their coffers, diminished by heavy cash burn rates, and clean up their balance sheets.

GM alone has outlined plans to borrow several billion dollars between now and the end of next year, as part of its ambitious program to improve liquidity by between $15 billion and $17 billion.

The carmakers "are the horse draggin' the trailer."

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