Ambac bonds gain on earnings release; GMAC, ResCap debt largely unchanged; MGM note busy again

By Stephanie N. Rotondo

Portland, Ore., Nov. 4 - The distressed debt market continued to feel sideways Wednesday, though some credits did post gains.

Ambac Financial Group Inc. was among the latter group. The company's bonds moved higher in trading following the release of its third-quarter results.

Meanwhile, GMAC LLC and Residential Capital LLC were essentially unchanged on the day, even as GMAC reported another quarterly loss. GMAC also said it would halt public filings for its ResCap unit.

MGM Mirage's debt continued to be active. Traders did not know why the bonds had been trading so much, though the company is gearing up to release its earnings Thursday.

Ambac gains post-numbers

Ambac Financial Group's 6.15% notes due 2037 were among the day's most active issues, with about $20 million to $30 million changing hands, a trader said.

The trader quoted the notes at 9 bid, 10 offered, up from 8 bid, 8.5 offered.

"They were trading a lot," he said.

Another market source also saw the issue in the 9 to 10 context, calling that about a point better.

Ambac, a New York-based bond insurer, reported its third-quarter results during the session, which could explain the activity in the name.

For the quarter, net income was $2.19 billion, or $7.58 per share, compared with a net loss of $2.43 billion, or $8.45 per share, the year before.

"The third quarter 2009 results reflect significant unrealized mark-to-market gains in the credit derivatives portfolio and gains resulting from reinsurance cancellations during the quarter," the company said in its earnings release.

"Our GAAP financial results tend to fluctuate based upon risk perception and its impact on mark-to-market changes," noted David Wallis, president and chief executive officer, in the statement.

"However, I remain optimistic about our remediation efforts. We continue to make progress in de-risking the balance sheet via negotiated reinsurance buy-backs, [collateralized debt obligations of asset-backed securities] commutations, settlements related to defaulted RMBS transactions as well as expanded analysis of expected recoveries relating to [residential mortgage-backed securities] representation and warranty breaches."

GMAC, ResCap largely unchanged

GMAC and Residential Capital saw their respective bonds holding steady, even as GMAC posted another quarterly loss from loan defaults.

GMAC's 6 7/8% notes due 2012 were seen at 94.5 bid at one desk, while ResCap's 8 7/8% notes due 2015 closed at 62 bid. The source said both issues were up marginally.

At another desk, GMAC's 7¼% notes due 2011 were called "kind of active" at 98, which was unchanged. The 6 7/8% notes due 2012 were pegged around the 94 mark, "off about a point, basically unchanged."

The second trader added that there was "not much going on" in ResCap, though he did see "a couple trades" in the 6 3/8% notes due 2010 around 77. That was also unchanged on the day.

GMAC reported a $767 million net loss from continuing operations for the third quarter of 2009. Still, that was better than the $2.5 billion loss for the same period of 2008.

As of Sept. 30, cash and cash equivalents was $14.2 billion, down from $18.7 billion in June. According to a breakdown of the cash, $919 million sat at ResCap, $5 billion at Ally Bank and $75 million at the insurance business.

"The decrease in consolidated cash reflects investment into high quality debt securities and the repayment of unsecured debt maturities," the company said in a press release.

"We continue to work through solutions for certain legacy assets and that is still weighing on GMAC's financial performance," said Alvaro G. de Molina, CEO. "Progress is being made toward the transformation of the company as we shed non-strategic operations while at the same time invest in structuring the company to be more competitive for the long term.

"Our focus is on growing operations where we can leverage our strengths," de Molina added. "We have made major strides in bringing the Chrysler business on line, we launched a competitive dealer program that leverages our full suite of auto products, and Ally Bank continues to attract customers."

Detroit-based GMAC is attempting to get a third round of financing from the government. Though some have called the deal "throwing good money after bad," not everyone agrees.

"GMAC is probably too important to fail," said analysts at Egan-Jones Rating Co. in an Oct. 28 report. "Recent operating results are miserable, but will be trumped if federal support covers the bulk of the losses."

Also, GMAC said it would stop filing its quarterly results with the Securities and Exchange Commission as a way to save money. Some market players were upset by that announcement and said so during the earnings conference call.

"You are engaging in actions that limit the transparency of your existing business," said Kevin Eng of Columbus Hill Capital Management LP. "This doesn't send a very warm and fuzzy signal to your creditors."

MGM busy again

MGM Mirage's 6¾% notes due 2013 remained active, a trader said, though also unchanged.

The trader placed the notes at 79 bid, 80 offered.

Another trader said that MGM bonds were "pretty active," seeing its 6¾% notes due 2013 trading around a 79.5 to 80 level, which he said was up from around a 77.5 level on Tuesday.

"It looks like on Monday, they were trading at 79.75 to 80, they dropped down [Tuesday] to maybe as low as 76.5, and then they traded up today to the 80 level."

The bonds have been among the most active traders for several straight sessions. Though there has been no fresh news out on the Las Vegas-based casino operator, earnings are expected Thursday.

A conference call is scheduled for 11 a.m. ET.

U.S. Freightways quiets down

A trader said that U.S. Freightways Corp.'s 8½% notes due 2010 "traded into a 71 bid a couple of times," with only $3 million traded, down from $17 million on Tuesday and $16 million on Monday, when the nationwide trucking company announced its plans to exchange equity for its straight and convertible bonds.

He said that the bonds were in a 71 to 72 context, when it traded into the 71 bid, "and that was kind of all she wrote."

Paul Deckelman contributed to this article.

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