Pilgrim's Pride turns flat; Hovnanian drops on offer news; GM structure mixed; Nortel bonds weaker

By Stephanie N. Rotondo

Portland, Ore., Oct. 27 - Pilgrim's Pride Corp.'s bonds fell during Monday's session after the company said it would miss its upcoming coupon payment.

Distressed bond traders also noted that the bonds had begun trading flat with due bills, a sign that investors see a bankruptcy in the future. That feeling was further fueled by word that the company's bank lenders were requiring the chicken producer to hire a chief restructuring officer.

Investors of Hovnanian Enterprises Inc.'s bonds did not react well to news that the company would privately exchange up to $250 million in debt. In fact, one trader remarked that "people were bailing" after the news, sending the bonds down at least 10 points on the day.

Meanwhile, General Motors Corp.'s bonds edged up 1 to 2 points, despite a downgrade from Moody's Investors Service. But the company's term loan slipped some, though a trader said the downgrade had very little to do with the move.

A research note written by a UBS analyst put pressure on Nortel Networks Corp.'s notes. Still, the bonds were seen down only about a point in thin trading.

The first session of the week felt a lot like a Monday in July, traders said, as activity was on the quieter side.

One trader said there was a "bid wanted list situation in bank debt" circulating, "which makes the bond market slow." Another said that "trading was not as brisk as I might have thought." However, he said it made sense given that "the stock market was flat and not doing much until the last two minutes."

Pilgrim's Pride turns flat

Pilgrim's Pride's debt dropped at least 5 points on the day after the company said it was opting to miss its upcoming coupon payment.

A trader said the chicken producer's bonds had begun trading flat with due bills, its 8 3/8% notes due 2017 at 17.5 bid, 19 offered and its 7 5/8% notes due 2015 at 39.5 bid, 40.5 offered. Another trader placed the 8 3/8% notes at 18 bid, 20 offered and the 7 5/8% notes at 39.5 bid, 41.5 offered.

The Pittsburg, Texas-based company's decision to enter the 30-day grace period came as it received an extension on a temporary waiver from its lenders. The waiver allows the company to access its credit facilities through the end of November.

"Lenders have been constructive and supportive throughout this challenging period and we believe that like us, they are encouraged by recent industry egg set data and the continued decline in grain and other feed ingredient prices," the company said.

Pilgrim's bottom line has been affected by the rising prices of grains, which are used to feed its livestock. The company has tried to offset some of those costs by increasing its prices for consumers, as well as decreasing output. The company also tried to hedge some of the costs of grain, but ended up losing money. The latter was blamed for the company's expected losses in the fourth quarter.

But as the current efforts to ensure viability have not yet produced results, the credit facilities lenders are requiring Pilgrim's to hire a restructuring officer. Pilgrim's has been working with Lazard and Bain & Co. on its restructuring efforts thus far. However, lenders have told the company they have 10 days to fill the new position, once a list of possible candidates has been submitted.

On the news, Moody's Investors Service slashed its rating on the company, cutting the 7 5/8% senior notes to Caa3 from Caa1, the senior subordinated notes due 2017 and $5.1 million senior subordinated notes due 2013 to Caa3 from Caa1. Standard & Poor's followed suit by dropping Pilgrim's corporate credit rating to CC from CCC+.

Hovnanian bonds drop

Homebuilder Hovnanian Enterprises announced they would privately exchange seven series of notes during trading - and investors did not react well.

A trader said the bonds finished the session down about 10 points to around the 30 mark, noting that "they offered to do some sort of exchange - and the bondholders didn't like it."

Another trader saw the company's bonds down even further, in the 20s, which he said that was down about 20 points on a round-lot basis from the prior round-lot trades - all of which had taken place a week or more ago.

"There's no question people were bailing on the news," he opined.

He saw Hovnanian's 6½% notes due 2014 at 24, its 6¼% notes due 2015 at 21 bid and, what he called its most active issue, the 6¼% notes due 2016, at 27. The latter bond, he said, was down some 25 points from 52, notched back around mid-month, with no large-block trades in the name seen since then.

Hovnanian announced a private offer to exchange up to $250 million of new 18% senior secured notes due 2017 for a portion of its $1.515 billion principal amount of currently outstanding senior notes slated to come due between 2012 and 2017. It is offering holders of the current notes anywhere from 41 to 47 cents on the dollar's worth of the new bonds for their outstanding notes, depending on the issue, and has ranked the seven tranches of outstanding notes in a descending order of priority, with the shortest-dated issues, the 2012s, at the top and hence, most likely to be accepted in the exchange offer, and the longest-dated paper, the existing 2017s, at the bottom and hence the least likely to be accepted for exchange.

In the rest of the sector, a trader said that Beazer Homes USA Inc.'s 8 3/8% notes due 2011 were down 1 point to 60 bid, while the company's other issues, like the 8 3/8% notes due 2012 down 1 point at 58.

He also saw Standard Pacific Corp.'s 7% notes due 2014 trading at 61 bid, 63 offered.

GM structure mixed

General Motors' bonds moved up "1 to 2 points across the board," a trader said, despite a downgrade from Moody's.

The trader pegged GM's 8¼% notes due 2023 at 25 bid, 26 offered from 23 bid, 24 offered previously. He also saw the benchmark 8 3/8% notes due 2033 at 24 bid, 25 offered.

At another desk, a market source deemed the 7 1/8% notes due 2013 at 31 bid, or 4 points stronger.

Moody's dropped GM's corporate family and probability of default ratings to Caa2 from Caa1, and also placed its B3 senior unsecured rating on its 49%-owned GMAC LLC unit on review for a possible downgrade. Moody's cited current market conditions in the sector as its reason for the downgrade.

GMAC's 6¾% notes due 2014 were quoted at 40 bid, 42 offered.

Meanwhile, GM's term loan lost some ground during market hours, and while the downgrade from Moody's didn't help, the debt was probably just off with the rest of the market, a trader speculated.

The term loan was quoted at 46.5 bid, 48.5 offered, down about a point on the day.

"Loan market traded off by about a point on the day so it was probably off with that," the trader remarked. "Probably not because of downgrade. Not big news. No real surprise to anybody."

The decline in auto sales has been no secret. In fact, GM said Monday that decreasing demand resulted in the company's decision to temporarily idle two of its plants for one week at the end of November.

GM has also reportedly been in talks with Chrysler LLC regarding a potential merger of the two Detroit automakers. According to a Bloomberg report, the company has asked the Treasury Department for federal aid in completing the merger.

Nortel notes slip

A UBS analyst has expressed some concern over Nortel Networks liquidity and investors reacted by pushing the company's debt lower.

But the bonds only slipped about a point on the news and trading was light, traders reported.

A trader quoted the 10¾% notes due 2016 at 54 bid, 56 offered and the floating-rate notes due 2011 at 57 bid, 58 offered.

In a client note, Nikos Theodosopoulos wrote that UBS was "increasingly concerned about Nortel's liquidity given deteriorating conditions." As such, the company will likely have to step up its restructuring efforts, he said, and might have problems selling off its metro Ethernet networks business. According to Theodosopoulos, any potential buyers are more than likely hoarding their money during the economic crisis.

Tornoto-based Nortel announced in September it would sell the ethernet unit, which accounts for 14% of its revenue. The company also said at that time that it was planning on cutting jobs and reducing its revenue projections.

"We would expect Nortel to get more aggressive with its restructuring efforts in order to prop the business model, particularly as the environment toughens," Theodosopoulos wrote. "The company will most likely also have to contend with cash restructuring charges, including severance, limiting the total benefit."

Broad market mostly unchanged

Lehman Brothers Holdings Inc.'s senior paper closed "up a little" at 12 bid, 13 offered, a trader said. Meanwhile, another trader saw CIT Group Inc.'s 5.6% notes due 2011 at 59 bid, 60 offered.

Swift Transportation Co. Inc.'s 12½% notes due 2017 were quoted at 23.5 bid, 25.5 offered and the floating-rate notes due 2015 at 21.5 bid, 23.5 offered.

"Oil prices have helped them," a trader said. "But it's all a macro play now."

Nielsen Research Media Inc.'s 12½% notes due 2016 fell to 41 bid, 43 offered, a trader said.

Sprint Nextel Corp.'s bonds finished "kind of all right where they have been, certainly within 1 to 2 points," a trader said. He saw the 6% notes due 2016 at 65.75 bid, 66.75 offered and the 8¾% notes due 2032 at 61 bid, 62 offered.

Claire's Stores Inc.'s bonds were also deemed unchanged, its 9¼% notes due 2015 at 29.5 bid, 30.5 offered, its 10½% notes due 2017 at 22 bid, 23 offered and its 9 5/8% notes due 2015 at 16 bid, 17 offered.

Sara Rosenberg and Paul Deckelman contributed to this article.

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