Distressed bonds lackluster in line with junk session; builders mixed, Quebecor off; Calpine seen lower

By Paul Deckelman

New York, Jan. 28 - Traders in distressed junk bonds said Monday that the market had an overall lackluster tone, mirroring that of the broader junk bond market. There seemed to be no clear trend among the bonds of homebuilder issues such as Hovnanian Enterprises Inc. and Beazer Homes USA Inc., despite some decidedly negative news about the sector coming from the Commerce Department.

Quebecor World Inc.'s bonds - which firmed towards the tail end of last week on the news that the bankrupt Montreal-based commercial printing company had been granted access to the majority of its $1 billion of debtor-in-possession financing - were seen lower, although there was no fresh negative news out about the company, other than the not-unexpected announcement that its United Kingdom unit had been placed under administration.

Elsewhere, some retreat was seen in Calpine Corp.'s bonds, which had firmed on Friday in line with a rise in the bankrupt San Jose, Calif.-based power producer's equity. Magnachip Semiconductor's bonds were unchanged to lower.

Things were meantime also seen quiet in the market for bank debt of distressed companies.

No clear tone seen in market

Perhaps it was the usual Monday lassitude, wariness ahead of President Bush's final State of the Union address on Monday night, in which the president was expected to speak at length about his plans for the economy, the Federal Reserve Board being scheduled to meet this week and expected to cut interest rates again to calm jittery financial markets, or just a desire on the part of market participants to hug the sidelines until they get a clearer picture on what's happening with the economy, but traders said that junk bond market participation Monday, and activity in junk's distressed corner, was muted and inconclusive on reduced volume levels from Friday's dealings.

Housing, mortgage bonds mixed

An example of the market's indecision was the behavior of homebuilder bonds - despite clearly negative news about the levels of new-home sales last month.

A trader said that despite those sour statistics, he saw Beazer's 8 5/8% notes due 2011 up a point on the session at 74.5 bid, 75.5 offered, while Standard Pacific Corp.'s 7% notes due 2015 were unchanged on the day at 66 bid, 68 offered.

However, a market source at another desk saw Hovnanian's 6 3/8% notes due 2014 down a point at 67, although its badly-beaten down 8 7/8% notes due 2012 firmed by a point to 48. Another trader saw Hovnanian's 7½% notes due 2016 at 68 bid, 70 offered, while its while its 6½% notes were at 68 bid, 70 offered.

William Lyon Homes Inc.'s 10¾% notes due 2013 gained more than a point to about the 56 level.

The government reported that December new-home sales unexpectedly came in at a seasonally adjusted annual rate of 604,000 units, down 4.7% from the 634,000 unit pace seen in November - and 40.7% less than the year-ago number. The December figure was the lowest in 12 years. Meanwhile, the November figure was revised downward from the originally reported 647,000 unit pace - and Wall Street had been looking for a number in the 640,000 to 647,000 range.

Commerce also said that the median sales price of a new house in December was $219,200 - a 10.9% price drop year-over-year, the largest decline in nearly four decades. At the current sales rate, there is a 9.6 month supply of new homes. In 2007, there were an estimated 774,000 new homes sold, down 26.4% from 2006.

Closely tied with the homebuilders, traders likewise saw a mixed bag among the mortgage originators. A trader saw Countrywide Financial Corp.'s 3¼% notes slated to come due in May at 96.5 bid, 97.5 offered, and its 6¼% notes due 2016 likewise steady at 82.5 bid, 84.5 offered. Residential Capital LLC's 6½% notes due 2015 were unchanged at 61 bid, 63 offered, while Thornburg Mortgage Inc.'s 8% notes eased to 84 bid, 86 offered.

At another desk, a trader called the Countrywide bonds down a point to 95.5 bid. 96.5 offered for the '08 bonds and to 81 bid, 83 offered for the '16s.

Also in the financial sphere, a trader saw bond insurer MBIA Inc.'s 14% surplus notes due 2032 - which have gyrated wildly since the Jan. 11 par pricing, falling at one point to as low as 70 before bouncing back to the around the mid-90s, were quoted unchanged at 93 bid, 94 offer.

Quebecor bonds take a step down

Elsewhere, a trader saw Quebecor World's bonds retreat across the board after having posted gains on Friday on the news that the judge overseeing the company's Chapter 11 reorganization case had approved giving Quebecor access to about $750 million of the $1 billion DIP facility which Quebecor had lined up.

He saw the company's 4 7/8% notes slated to come due later this year and its 6 1/8% notes due 2013, at 51 bid, 53 offered, down from 54 bid, 56 offered. Its 9¾% notes due 2015 eased to 53 bid, 56 offered, while its 8¾% notes due 2016 were down 4 points on the day at 52 bid, 54 offered.

He could offer no real explanation on the fall, although profit-taking off the gains notched last week on the surprise Federal Reserve rate cut that brought the closely watched federal funds rate down to 3.50% seems as likely an explanation as any.

Quebecor on Monday announced that has placed its money-losing British subsidiary, Quebecor UK, under administration by trustees while a possible sale is explored.

Calpine bonds seen lower

A market source called Calpine Corp.'s 8¾% notes that were to have come due last year, 4 point losers at 109 bid.

Another trader said that the company's 8½% notes due this year were at 114 bid, 116 offered, while its 8½% notes due 2011 were at 111 bid, 112 offered - he called each note down 6 points on the session, although he allowed that he "had not seen [Calpine trading] for a while."

Calpine's bonds had tracked its shares higher on Thursday.

Magnachip bonds off

A trader saw the bonds of computer-chip manufacturer MagnaChip Semiconductor lower, in the wake of its quarterly numbers, released on Friday. He saw its 8% notes due 2014 unchanged at 60 bid, 64 offered, but said the company's other two issues were lower - its 6 7/8% notes due 2011 at 73 bid, 75 offered and its floating-rate notes due 2011 also at 73 bid, 75 offered, down 2 points on the day.

On Friday, the company posted sales of $246.5 million for the quarter ended Dec. 31, which compared to sales of $162.3 million for the same quarter of 2006. The company also showed a narrower net loss of $29.5 million, compared to $45.6 million.

Automotive names mixed

A trader saw Delphi Corp.'s 6.55% notes due 2006 2 points better on the day at 36 bid, 38 offered.

A another desk, Metaldyne Corp.'s bonds were "a little bit better," a trader said, at 44 bid, while Dura Automotive Systems Inc.'s 8 5/8% notes due 2012 firmed slightly to 12 bid, 14 offered.

However, Visteon Corp.'s 7% notes due 2014 were down ½ point at 66 bid.

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