Chiquita off on numbers; Federal-Mogul slips; Blockbuster better; WCI bonds weaker

By Stephanie N. Rotondo

Portland, Ore., Aug. 3 - The U.S. stock markets took another slide on Friday, prompting many investors to tread lightly in the distressed bond market.

"It's just ugly," a trader said of the day's events. "The Bear Stearns deal spooked the whole market," citing news that two of the investment firm's hedge funds - heavily linked to a poor subprime mortgage market - had to file bankruptcy.

"There is nowhere to hide," he continued, adding that unless you were playing it short, there was no way to [make] money."

"As stocks melted, there wasn't really a lot of trading," a market source said.

Still, another trader thought things started out pretty well.

"There was a good tone," he said of morning trading. However, "Things turned sour toward the end of the day."

That seemed to be the way Chiquita Brands International Inc.'s bonds went, at any rate. A trader said the bonds were strong in early trading, but as the company posted a bigger second-quarter loss than was expected, the bonds slipped about 3 points on the day.

Meanwhile, Federal-Mogul Corp.'s bonds began selling off, a trader reported, citing a rumor that the seller was a hedge fund nearing collapse.

The lone "bright spot" - at least according to one trader - was Blockbuster Inc. Those bonds were deemed better during the session, and the trader said shorting the debt was no longer an option.

Elsewhere, WCI Communities Inc.'s debt was seen 5 points weaker, attributed to more concerns in the subprime mortgage and housing markets.

Following that trend, Accredited Home Lenders Holding Co. saw its preferred issues fall, though its stock closed higher as an influential television correspondent speculated that a buyout deal goes through.

Chiquita falls on numbers

Chiquita Brands' bonds fell as much as 3 points during the last session of the week, as the company reported lower second-quarter numbers.

A trader pegged the 7½% notes due 2014 around 81.75, which he called down 3 points from the previous day.

Another trader said the Chiquita bonds were up earlier in the day, but came in toward the afternoon. He quoted the 8 7/8% notes due 2015 at 84.5, adding that the bonds were closer to 85.5 bid, 86.5 offered in the morning.

At another desk, a trader said the 8 7/8% notes were down 3 points to around 85.

The second trader, however, attributed the decline to a ratings cut from Standard & Poor's. The agency lowered the senior unsecured notes to CCC.

And, as far as the numbers were concerned, the trader said there were issues "out of their hands," citing tariff charges dictated by the European Union.

The banana producer said its second-quarter profit dipped by 62%, to 27 cents per share, on $1.26 billion in revenue. Analysts expected 45 cents per share on revenues of $1.267 billion.

The trader also noted news that higher-ups in the company might be charged with violating U.S. anti-terrorism laws for paying an undisclosed amount of money in illegal "protection" payments.

A Washington Post article said that board member Roderick M. Hills had told a former law school chum, Michael Chertoff - currently the secretary of homeland security - that his company had been making payments to a Colombian paramilitary group. He said that if the payments were not made, the company would have to leave the country and its banana plantations in Colombia would not be secure.

Federal investigators are mulling whether to charge certain officials - current and former- in the company for authorizing the payments.

Federal-Mogul weaker

According to one bond trader, "Somebody is puking Federal-Mogul [bonds]."

The trader said it was rumored that a hedge fund on the verge of collapse was liquidating some of its positions, Federal-Mogul apparently topping the list.

Another trader said he saw "the puke," but wondered, "maybe everybody is in liquidity crisis."

He said he saw the automotive parts supplier's bonds - which all tend to trade in line with each other - at around 90.

Another trader pegged the bonds at 91 bid, 92 offered, but elsewhere, a trader said the bonds dipped below 90.

Last month, Federal-Mogul reported a net income of $4 million for the second quarter of 2007, compared with a net loss of $17 million for the second quarter of 2006.

Dura dips

Elsewhere in the autosphere, a trader said Dura Automotive Systems Inc.'s bonds were off, pegging the 8 5/8% notes due 2012 in the mid-50s and the 9% notes due 2009 at around 4.

The weakening in the bonds comes despite the fact that Pacificor LLC - a senior noteholder - had agreed to backstop a $140 million to $160 million rights offering.

Blockbuster up

A trader called activity in Blockbuster's bonds the "bright spot" of the day, calling the debt higher as the overall market had slipped.

He saw the 9% notes due 2012 at 84 bid, 85 offered, adding that there was no longer any borrow left in the bonds.

Another trader, however, did not agree that the bonds had moved higher during the session, noting that the gains had come from the previous day. He instead called the bonds unchanged around at 84.5 to 85.

Still, he wondered if the same situation was moving rival Movie Gallery Inc.'s bonds.

"Maybe that is what is happening with Movie Gallery," he said, placing the Dothan, Ala.-based company's 11% notes due 2012 between 23 and 24. He said the bonds, which had previously been in the lower-20s, moved as high as 24 during trading.

WCI slips

Continued worries in the housing sector prompted WCI Communities to lose as much as 5 points, a trader said.

The trader said the paper was "definitely weaker," with the 9 1/8% notes due 2012 trading around 75, down from the previous day's levels in the mow-80s.

"They have so much exposure in Florida," he said. "It is no wonder they are getting hammered."

Another trader said the bonds moved as high as 82 but "traded into a 78 bid" just before the market's close.

On the stock side, shares in the homebuilder fell 41 cents, or 6.45%, to $5.95 - well below a previous takeout bid from Carl Icahn for around $20 a share.

Accredited preferreds off

Accredited Homes Lenders saw its stock bouncing, but its preferred issues off amid concerns that a buyout deal will fall through.

A trader said the preferred issues were trading at 36 cents on the dollar, but the equity jumped $1.66, or 31.26%, to $6.97 as Jim Cramer of "Mad Money" said he saw the deal with Texas-based private equity firm Lone Star Partners going through.

Under the terms of the offer, Accredited would receive $15.10 per share. But some investors are wondering if the terms will be renegotiated or dropped altogether as the stock is well below the offer price.

Shareholders have until Aug. 14 to tender their shares, but that date could be extended.

Still, the trader thinks CNBC correspondent Cramer is "nuts to be certain about that."

"[There is] 25 million shares outstanding," he said. "Walk away is about $20 million. So why not walk away and try and redo the deal at $10 and save $100 million?"

Broad market mostly quiet

Tembec Inc.'s 8 5/8% notes due 2009 were seen getting some play, with a trader pegging the notes at around 47.5.

The trader also noted that Fedders Corp.'s 9 7/8% notes due 2014 have been quiet recently, last trading in the high-20s.

Activity has once again slowed in Hines Horticulture Inc.'s bonds, as the trader said that the 10¼% notes due 2011 did not trade during the session and last traded on Thursday at 75.25.

"There is still tremendous shorts in [the bonds]," he said. "But nobody is stepping up to cover them."

Spectrum Brands' 11¼% notes due 2013 saw "decent activity," another trader said, quoting the bonds at 77.5 bid, 78 offered.

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