Muzak bonds firm on merger news; Beazer edges up; Calpine lower on day

By Stephanie N. Rotondo

Portland, Ore., April 20 - The distressed bond market followed the trend of the week on Friday, with little activity going on and many players away from their desks.

Traders were probably taking advantage of a relatively slow week, either ducking out early or taking the day off altogether.

"I'm pretty much all by myself here," one distressed trader said - and he had only been in the office a few hours.

"It's not as busy as I'd like, but it is what it is," said one source on the recent activity, or lack thereof.

But while its equity counterparts seem to be taking off, investors are more cautious of distressed bonds, at least according to Standard & Poor's.

In its Global Fixed Income Research publication released Friday, S&P noted that high-yield investments - which on occasion overlap with the distressed markets - were firming, posting a 2.72% return year to date, up from the 2.48% return at the end of February.

Distressed bond and investment-grade bond returns, however, fell in March to 11.43% and 1.56% year to date, respectively.

Still, according to the publication, defaults have "remained under wraps," with just a 1.3% rate in February. Rating downgrades have also been kept to a minimum and "risk appetites" have returned.

A source did note that "things seem to be surging higher," though he could not say why.

"People have been asking me, so they obviously don't know either," he said.

Of the names he saw moving during end-of-the-week trading was Muzak LLC. He said the bonds were a little higher but had stayed in the same general range.

The movement in that paper could be due to last week's announcement that the company was looking to merge with competitor DMX Inc. and then sell the combined business.

Meanwhile, struggling homebuilder Beazer Homes USA Inc. saw its bonds edge up slightly as a new investment group took an 8.8% stake in the company.

In other distressed housing paper, Technical Olympic USA Inc.'s debt has stayed relatively steady, with little trading.

Elsewhere, Calpine Corp. continued to see gains in early trading but lost steam later in the day. Source said the power producer's bonds feel off from their Thursday highs.

Muzak bonds firm

Muzak's bonds have continued to trade close to par since the announcement a week ago that it was looking to merge with its rival and then sell the combined business.

A market source noted that the 10% notes due 2009 were moving in the 101 levels, but said "they haven't changed much from their highs."

The company's bonds are rated CCC- by S&P, which is considered "currently vulnerable to nonpayment." A Bloomberg report said that an S&P analyst noted there could be positive credit implications for the company should the merger and subsequent sale occur, but "even with improved discretionary cash flow, this is still a company with a really highly leveraged financial profile."

Muzak reported a 2006 net loss of $39.3 million, according to a press release issued last month.

Beazer up; TOA mixed

Homebuilder Beazer has seen slumps in both its bonds and equity, hit by subprime concerns and dropping home prices. Beazer has also had some company-specific issues, with its own mortgage brokerage business under federal investigation.

But the company's structure turned out a little bit better Friday, amid a disclosure that a Greenwich, Conn.-based investment group - including Ziff Asset Management LP, PBK Holdings Inc., ZBI Equities LLC, and Philip B. Korsant - said it bought 3.5 million of the homebuilder's 39.2 million shares.

On the equity side, the news prompted a $1.58, or 5%, jump to $33.42 in Beazer's shares Friday. Its debt also improved slightly, with its 8 1/8% notes due 2016 up almost a half point to 97.5.

Elsewhere, Technical Olympic's notes were mixed come the end of the week, though the bonds saw very little activity.

The 7½% notes due 2015 were seen at 73.5, down slightly from the previous day, but its 10 3/8% notes due 2012 were up slightly at 80.

Calpine lower on day

Calpine "continued strongly" in the early going, a trader said, but then "backed off" the highs it hit Thursday to end lower.

The trader saw the 8½% notes due 2008 at 119.5 bid, 120.5 offered, and the 8½ notes due 2011 at 120.5 bid, 121.5 offered, both down from about the 122 bid, 123 offered area Thursday.

Calpine's 8¾% notes due 2007 were also quoted down a point at 120. Another trader quoted the 2011s down 3 points at 120 bid, 121 offered.

Broad market mixed

Doral Financial Corp. issued a "no comment" on the rumor that it was nearing a settlement agreement in its class-action lawsuit. Lucienne Gigante, a spokesperson for the Puerto Rican bank, also did not comment on questions regarding the company's refinancing progress, instead referring Prospect News to a press release published in November.

Doral's floating-rate notes did not trade Friday.

Elsewhere, a trader saw Delphi Corp.'s 6½% notes due 2013 down 2 points at 105 bid, 106 offered.

Bally Total Fitness Holding Co.'s 9 7/8% notes due 2007 were pegged a point better at 82.5.

Paul Deckelman contributed to this article.

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