Ambac Financial bonds boosted by higher income; Harrah's notes hit new high; Dynegy debt falls

By Stephanie N. Rotondo

Portland, Ore., April 12 - Distressed debt ended with a firm tone on Monday, according to market sources, though many noted that it was a "typical Monday."

Ambac Financial Group Inc. had one of the day's biggest gains - at least in terms of percentages - after the company reported improved quarterly results. The bonds jumped more than 50% on the day.

In the gaming arena, Harrah's Entertainment Inc.'s notes continued to move up. According to one news outlet, the casino operator's debt is at its highest levels since an Apollo Management-led group bought it in January 2008.

More merger-and-acquisition activity in the energy space did little to help Dynegy Inc.'s debt, traders said. Some believe that the company is not a good candidate for any M&A, which could have caused the slight declines.

Ambac boosted by higher income

Ambac Financial's long bonds, as one trader called them, jumped in Monday trading after the company posted improved fourth-quarter results.

The trader said the 6.15% notes due 2087 - the "funky variable step up notes," he called them - ended around 10, with a "big chunk" changing hands.

Another trader also deemed the debt as active, also around 10. The trader said that was up 4 points from last week.

"That's a big move," he said.

Yet another trader said the paper "went from 6½ to 10" in "fairly active" trading.

For the fourth quarter of 2009, the New York-based bond insurer reported net income of $558.1 million, or $1.93 per share. That compared with a net loss of $2.34 billion, or $8.14 per share, for the same quarter of 2008.

The increase in income was due, in part, to a $472 million tax benefit.

Total net loss and loss expenses meantime fell to $385.4 million, versus $916.4 million in 2008.

Total assets increased by $787 million during the quarter, which the company attributed to taxes recovered related to new legislation, as well as the consolidation of certain trusts.

Elsewhere in the financial arena, a trader said that Radian Group Inc.'s bonds "continued to move up," gaining a point on Monday versus the previous week's levels. He saw its 5 3/8% notes due 2013 at 87 bid, 89 offered while the Philadelphia-based mortgage and municipal bond insurance company's 5 3/8% notes due 2018 were "right around" 79 bid, 81 offered. "

There was no real activity, but both were quoted up a point, a rise which the trader said was in line with recent firming on the equity side of Radian and such peers as PMI and MBIA Inc.

Harrah's hits new high

Harrah's Entertainment's notes gained some ground during the first trading day of the week and, according to a Bloomberg article, the current levels are the highest seen since the company was bought in a leveraged buyout in January 2008.

One trader said that "all of [Harrah's bonds] are up 1½ to 2½ points across the board," placing the 5 5/8% notes due 2015 at 68 and the 5¾% notes due 2017 at 611/2.

Another trader also saw the debt moving up, though he placed the gains in the half-point to a point range.

The second trader saw about $6 million of the 5 5/8% notes change hands - making it the second most-traded issue under the Harrah's umbrella - at 67 bid, 68 offered.

He also pegged the 10¾% notes due 2016 at 873/4.

At another desk, a trader said the 5¾% notes "continue to move up," seeing them end at 611/2, up about 2 points.

In its report, Bloomberg said that Harrah's has recently done a lot to improve its capital structure, including extending maturities of certain loans and repurchasing mortgages at below face value.

Still, the article noted that the Las Vegas-casino operator was not yet "out of the woods," as it does have a significant amount of debt maturing between 2014 and 2015.

Dynegy debt declines

Dynegy debt dipped in trading, sources reported, even as rivals like Mirant Corp. gained.

A trader placed Dynegy's 7¾% notes due 2019 around the 79 level, which he called down about a quarter-point. Another trader echoed that level, adding that about "$20-odd million" had traded.

The second trader also saw nearly $5 million of the 8 3/8% notes due 2016 closing at 863/4.

Mirant's 8¼% notes due 2021, however, improved by "a good 4 points," the trader said to around 97. He said about $50 million to $60 million of the issue traded.

The gains in Mirant came as the company announced it would combine with RRI Energy Inc. to form a new company, GenOn Energy.

While some market players have been expecting more M&A activity in the energy production space since FirstEnegy Corp. and Allegheny Energy Inc. announced their merger in February, some also believe that Dynegy will not find any potential mates.

"Dynegy Inc. which so far has lost 33.7% (the highest) of its share price in 2010, I believe, is not on the acquisition radar as the company had been selling off its assets," said a report on istockanalyst.com. "Last December Dynegy sold its nine power plants to LS Power Associates, LP, a developer and operator of power generation plants for approximately $1,695 million.

"However, there is a slim chance of Dynegy being acquired as it is the top five electric utility stocks that have a high upside possibility."

Broad market ends higher

In the wider world of distressed debt, Tribune Co.'s 5¼% notes due 2015 gained a deuce to end around 35, according to a trader. However, he noted that volume in the credit was thin.

Michael's Stores Inc.'s 13% notes due 2016 finished the session marginally better, ending in the high-89s, the trader added.

And, General Motors Corp.'s 8 3/8% notes due 2033 were "a touch better," another trader said, at 36¾ bid, 37 offered.

A trader said that homebuilding names such as Hovnanian Enterprises Inc. and Beazer Homes USA Inc. "seemed better today," quoting Red Bank, N.J.-based Hovnanian's 6¼% notes due 2016 at 81 bid, 83 offered.

"We didn't see much volume in it, but last week, they were in the 70s," he said, estimating that in Monday's dealings, they had moved up about a point.

He meantime saw Atlanta-based Beazer's 8 1/8% notes due 2016 unchanged at 90 bid, 92 offered, but noted that "they had been quoted up in the last week as well."

Paul Deckelman contributed to this article

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