Hovnanian higher on narrowed loss; Nortel slips; GMAC ends mixed; Clear Channel gives up gains

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., June 3 - Hovnanian Enterprises Inc.'s bonds ended Wednesday's session mostly higher after the company reported a narrower loss for the second quarter.

The homebuilder also said that it remained focused on improving its cash position during its quarterly conference call.

Meanwhile, Nortel Networks Ltd.'s notes traded lower, according to market sources. The declines came after the company reported lagging monthly operating numbers earlier in the week.

GMAC LLC launched its first government-backed notes offering Wednesday. The company's debt reacted by closing the day out softer.

After running it up in the previous session, investors cashed out of Clear Channel Communications Inc.'s bank debt. The same happened in Ford Motor Co.'s term loan, though its bonds headed slightly higher.

Traders said that investor focus remained on new issues, leaving the distressed arena somewhat in the lurch.

"It was definitely quieter than it has been," a trader noted.

Hovnanian higher on numbers

Hovnanian Enterprises' debt went out unchanged to up by 4 points, depending on the issue, following the company's earnings release.

A trader saw the 7¾% notes due 2013 close unchanged in the 41 context, while the 11½% notes due 2013 moved up a deuce to 91.5.

Another market player placed the 6 3/8% notes due 2014 at 52 bid, a gain of 4 points day over day.

But another source deemed that issue unchanged at 41 bid, 42 offered. The 6½% notes due 2014 were also steady at 42 bid, 43 offered.

"Some definitely look like they are up a bit and some don't look much different," a trader said.

For the second quarter, the Red Bank, N.J.-based homebuilder posted revenues of $398 million, compared with $776.4 million in 2008. Net loss came to $118.6 million, a narrower decline than last year's $340.7 million loss.

As of April 30, Hovnanian had $779.2 million in cash, down from $838.2 million just six months prior. Of the reduction, Hovnanian management said that $208 million had been used to repurchase $525 million face value of debt.

"We're mindful that there is still some pain that lies ahead, and we'll do everything in our power to preserve and maximize our cash position," Ara Hovnanian, chief executive officer, said during the company's quarterly conference call.

Nortel notes weaker

Nortel Networks' dismal monthly operating figures - posted earlier in the week - resulted in some weakness in the bonds, market sources reported.

Several sources called the 10 1/8% notes due 2013 a point softer. One source placed the notes at 32 bid, while another quoted the debt at 31 bid, 33 offered.

Between April 1 and May 2, Nortel lost $6 million on revenues of $250 million. That compares with losses of $3.99 million on revenues of $477 million for the period between March 1 and March 31.

The weakening numbers came after news reports indicated that several of the company's executives were interested in bidding on the company in an effort to keep it in one piece. Based on the company's bankruptcy status - and the worsening monthly operating results - many have speculated that it is impossible to keep the company as a whole.

The reports also speculated that the executive group wants to oust Nortel's current chief executive, Mike Zafirovski.

GMAC debt mixed

GMAC paper ended the session mixed after the company launched a $4.25 billion government-backed notes offering.

One trader said the 6 7/8% notes due 2011 were the day's most active, ending at 88.5, a half-point decline. He also saw the 7¾% notes due 2010 at 97.75 - unchanged - and the 6 7/8% notes due 2012 at 84 7/8. The benchmark 8% notes due 2031 fell 2 points to 73.

At another desk, the 6 7/8% notes due 2012 were seen gaining nearly 3 points to 88.75 bid, while the 8% notes slipped 3 points to 73 bid, 74 offered.

On Wednesday, GMAC sold its first FDIC-backed notes in a two-tranche offering. The offer included $3.5 billion fixed-rate notes due Dec. 19, 2012 and $750 million floating-rate notes due Dec. 19, 2012.

Also, Chrysler LLC, which recently secured a lending agreement with GMAC, began issuing new no-interest five-year loans through the lender.

GMAC, a former subsidiary of General Motors Corp., has said it will not be affected by its former parent's Chapter 11 filing.

Clear Channel gives back gains

Clear Channel Communications' term loan B fell during the trading session as some selling pressure hit the debt because investors were looking to take advantage of Tuesday's almost 5-point jump, according to traders.

The term loan B was quoted by one trader at 65¾ bid, 67½ offered, down from 66½ bid, 68½ offered, and by a second trader at 63½ bid, 65 offered, down from 66 bid, 69 offered.

On Tuesday, the loan had moved up from the 61¼ bid, 63¼ offered context when the company's subsidiary, Clear Channel Outdoor Holdings Inc., announced that it is actively pursuing alternatives to address the maturity of an intercompany note payable to Clear Channel Communications.

Clear Channel Outdoor said that the alternatives could include an offering of new senior or senior subordinated notes for cash or an exchange of new senior or subordinated notes for outstanding debt.

Clear Channel is a San Antonio-based media and entertainment company. Clear Channel Outdoor is an outdoor advertising company.

Ford loan backs off

Another name to experience some backing off was Ford Motor, with its term loan weakening by a half a point to three quarters of a point, depending on which trader was asked.

One trader had the term loan quoted at 72 bid, 72¾ offered, down from 72¾ bid, 73¼ offered, while a second trader had it quoted at 72¼ bid, 73¼ offered, down from 72¾ bid, 73¾ offered.

On Tuesday, the loan had improved from 71¾ bid, 72¾ offered following the release of May sales numbers.

However, a bond trader said Ford's 7 3/8% notes due 2009 inched up to 97 7/8, on $20 million traded.

For the month of May, Dearborn, Mich.-based automaker reported total sales of 161,531, down 24.2% from 213,238 in the same period last year.

Ford, Lincoln and Mercury sales totaled 155,954, up 20% versus April and the highest sales for any month since July 2008. Compared with May 2008, Ford, Lincoln and Mercury sales were down 24.3% from 206,000.

Total car sales for the month were 63,697, down 25.5% from 85,542 in the prior year.

And total truck sales were 92,257, down 23.4% 120,458 from May 2008.

Elsewhere in the autosphere, Lear Corp.'s term loan was steady on Wednesday, shrugging off a downgrade from Moody's and ending its two-day rollercoaster that began when the company revealed that it is skipping interest payments on its notes that were recently due, according to a trader.

The term loan was quoted at 65½ bid, 66½ offered, compared with 65½ bid, 67 offered during the previous session, the trader said.

On Monday, the term loan rose to 70 bid, 72 offered from around 65½ bid, 67 offered on Friday as Lear said that it decided to use a 30-day grace period instead of making $38 million of semi-annual interest payments on its 8½% senior notes due in 2013 and 8¾% senior notes due in 2016.

The company said that during the grace period, it will continue discussions regarding a capital restructuring with its lenders and others.

By not making the interest payments, the company was able to keep in place a loan amendment of financial covenants and waiver of existing defaults that was entered into on May 13.

On Wednesday, Moody's announced that it lowered Lear's corporate family rating to Ca from Caa2 and senior secured term loan to Ca from Caa1. The outlook is negative.

Moody's said that the downgrades reflect the increased risk of a potential distressed debt exchange or bankruptcy filing.

Standard & Poor's already came out with cuts to Lear's ratings on Tuesday, moving the senior secured debt rating to CC from B and the corporate rating to D from CCC+.

Like Moody's, Standard & Poor's explained that it is not confident that Lear will make the payments within the grace period and said that, among other outcomes, the company might pursue a distressed exchange or file for bankruptcy under Chapter 11.

Lear is a Southfield, Mich.-based supplier of automotive seating systems, electrical distribution systems and electronic products.

Michaels Stores firms

Michaels Stores Inc.'s term loan B was stronger by a couple of points in trading following the release of first-quarter earnings that showed an improvement in net income, sales and adjusted EBITDA, according to a trader.

The term loan B was quoted at 78 bid, 83 offered, up about 4 points on the day, the trader said.

For the quarter, Michaels reported net income of $4 million, an improvement of $24 million from a net loss of $20 million in the first quarter of fiscal 2008.

Total sales for the quarter were $852 million, a 0.6% increase from last year's sales of $847 million.

And adjusted EBITDA for the quarter was $107 million, or 12.6% of sales, compared with $97 million, or 11.5% of sales, for the same period in the prior year.

Michaels also said that its total debt levels totaled $3.957 billion, down $22 million from the prior year.

During the quarter, the company made a $5.9 million amortization payment on its term loan.

At the end of the quarter, the company had $32 million in cash and approximately $539 million of availability under its revolver. As of June 2, availability under the credit facility was approximately $530 million.

Michaels is an Irving, Texas-based specialty retailer of arts, crafts, framing, floral, wall decor and seasonal merchandise for the hobbyist and do-it-yourself home decorator.

PolyOne boosted

Traders were at a loss to figure out what was pushing the bonds of PolyOne Corp. up on Wednesday. Several of them saw its 8 7/8% notes due 2012 get as good as 80 bid, up at least 10 points from where they had gone home on Monday, and up nearly 13 points from prior round-lot trading levels in the upper 60s, at the end of last week. Activity was brisk, with several big-block trades at the sharply higher levels noted.

A trader saw "good volume" in the transactions, although he could offer no color on the story behind the rise.

"Poly was up a bunch - but I don't know why," a second declared.

The participants saw no obvious developments that might explain such a rise in the Avon Lake, Ohio-based chemical manufacturer's paper - although one did point out that PolyOne was among four companies selected by the Eastman Chemical Co. to distribute Eastman's patented Tritan copolyester in the United States and Canada. There was no immediate indication of how much money PolyOne might earn as a distributor of Tritan, which is used in such diverse manufacturing areas as the reusable sports water bottle, infant care, small appliance, housewares, medical and sign markets.

Paul Deckelman contributed to this article.

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