Distressed debt weakens by end of business; Sprint's bonds hurt by Clearwire ties; Ambac slips

By Stephanie N. Rotondo

Portland, Ore., Nov. 9 - Trading volumes were better Tuesday, traders said, but the distressed debt market was "softer at the end of the day," one noted.

And, with a mid-week holiday looming, investors were "really starting to focus" on new issues, another trader said. "Everyone wanted to get that new issue stuff in today and tomorrow."

But the day was not lacking in news, which gave investors a reason to dabble in names outside of new issues.

Sprint Nextel Corp. bonds dropped as much as 1¾ points as investors worried about how Clearwire Corp.'s ability to continue as a going concern would affect Sprint. Sprint's top executive, however, attempted to appease investors by saying that Sprint and other Clearwire partners were not against providing funding.

Meanwhile, Ambac Financial Group Inc. made headline after headline in the wake of its late Monday bankruptcy filing. The bond insurer is attempting to sue the United States in order to block the seizure of a hefty tax refund, news outlets reported. Ambac also announced its quarterly results.

Still, traders didn't see much reaction in the bonds despite the overwhelming amount of news.

Realogy Corp. and Hawker Beechcraft Acquisition Co. LLC were also among the earnings reporters for the day. Realogy, for its part, managed to hold its ground, but Hawker bonds dropped as much as 3 points on the day.

Sprint hurt by Clearwire ties

Sprint Nextel debt traded down as investors considered what partner Clearwire Corp.'s ability to continue as a going concern meant for the Overland Park, Kan.-based wireless telecommunications provider.

A trader saw "$20-odd million" of the 6% notes due 2016 change hands around 983/4, which was down half a point to three-quarters on the day. The 8¾% notes due 2032 meantime dropped a point to 107.

Another trader said the 6% notes were "pretty active," also around that 98¾ level. He also placed the 8 3/8% notes around 109, down a point, while the 6.90% notes due 2019 dropped 1½ points to par 1/2.

Yet another market source saw the 6% notes falling 1¾ points to 99 bid.

On Tuesday, Standard & Poor's dropped Clearwire to CCC from B- in response to the company's announcement last week regarding its ability to continue as a going concern.

Also on Tuesday, a Reuters report quoted Sprint's chief executive officer, Dan Hesse, as saying that the notice does not mean Sprint would not continue to fund its partner.

According to the report, Hesse said the going concern notice was due to an accounting technicality that was triggered because Clearwire has less than 12 months of funding left.

"That doesn't mean that Sprint and other partners won't continue to fund Clearwire," Hesse was reported as saying.

Still, Hesse did not specify if Sprint would in fact be fronting Clearwire any cash, though market expectations are that Sprint will in fact pony up because of its dependence on Clearwire's services.

Ambac drops on filing

As it had previously warned, Ambac Financial Group filed for bankruptcy protections late Monday night, though the company was not able to come to terms with a creditor group on a pre-packaged plan.

Traders, however, did not see much trading in the company's debt, aside from some action in the 6.15% notes due 2087, which traded down to 1.

The New York-based bond guarantor announced late Monday it had filed for Chapter 11 protections as it was "unable to raise additional capital as an alternative to seeking bankruptcy protection," the company said in a press release. While it was also unable to reach an agreement with an ad-hoc committee of senior debt holders, it had agreed to a "non-binding term sheet that will serve as a basis for further negotiations with the ad-hoc committee and that may allow the company to emerge from bankruptcy more expeditiously."

Ambac had $1.62 billion of outstanding debt as of June 30.

The filing caused a bit of a ruckus in the credit-default swaps market, as traders attempted to trigger $1.56 billion of protection.

Other Ambac news

In related headlines, Ambac also said it planned to sue the United States in order to avoid an Internal Revenue Service seizure of $700 million in tax refunds.

"Ambac's ability to reorganize successfully will be jeopardized or destroyed" in the funds were seized, attorneys representing the company said in court documents.

The IRS' examination of the funds - which were received as a result of losses reported from credit default swaps - was reportedly part of the company's quick filing.

After the market closed, Ambac announced its third-quarter earnings, reporting net income of $76 million, or 25 cents per diluted share. That compares with net income of $2.18 billion, or $7.58 per share, the year before.

"Relative to the third quarter 2009 results, the third quarter 2010 results reflect significantly reduced unrealized mark-to-market gains in the credit derivatives portfolio as the remaining exposure of the CDO of ABS portfolio which drove the unrealized gains in 2009 was commuted in June 2010," the company said in its earnings release. "Third quarter 2010 results also reflect lower loss and loss expenses."

Fellow bond insurer MBIA Inc. also reported its earnings, which showed a $213 million net loss on derivatives.

Realogy steady

Realogy released its third-quarter results after the closing bell Tuesday. However, traders saw little change in the company's debt ahead of the announcement.

A trader said the credit was "not all that active," pegging the 10½% notes due 2014 around 91.

Another trader repeated that level on the 10½% notes, and also saw the 12 3/8% notes due 2015 at 861/4. He said the paper was generally unchanged to "maybe up a quarter."

For the quarter ending Sept. 30, the Parsippany, N.J.-based real estate services provider saw revenues fall by 10% to $1.1 billion.

Net loss came to $33 million.

The company blamed its weak performance in part on the expiration of the federal tax credit for home purchases, as sales transactions dropped 19% year-over-year at the Realogy Franchise Group and decreased 25% at NRT, the company-owned brokerage unit.

"The improvement in home sales aided by the Homebuyer Tax Credit in the second quarter clearly did not survive the program's conclusion," said Richard A. Smith, chief executive officer, in a statement. "That said, we do believe it contributed to more stabilized pricing."

"The uncertainty created by the disruptions in the foreclosure review process could further complicate an already fragile housing market," added Anthony Hull, Realogy's chief financial officer. "While we have not seen any significant national impact caused by the uncertainty in the REO market, we continue to monitor foreclosure developments and their potential effect on our business."

Sales decline pressures Hawker

In other earnings news, Hawker Beechcraft Acquisition Co. heralded its third-quarter numbers, which resulted in losses for the company's bonds.

A trader said the 8½% notes due 2015 had slipped "a couple points" to end around 78. The 9¾% notes due 2017 meantime dipped "marginally" to around 62.

Another market source deemed the 8½% notes down over 3 points to 78¼ bid.

The Wichita, Kan.-based aircraft manufacturer reported net sales of $594.7 million, down $163 million from the same quarter of 2009. Operating loss, however, narrowed to $81.4 million, compared with $721.1 million the year before.

During the quarter, Hawker burned through $26.8 million in cash, leaving its remaining cash and equivalents at $252.6 million.

Broad market mixed

Among other distressed credits, Clear Channel Communications Inc.'s bonds were "active after they posted numbers" on Monday, a trader said.

He called the 10¾% notes due 2016 "up maybe half a point" at 82½ bid, 83 offered.

Another trader, however, said the debt "looked unchanged," the 10¾% notes at 82 and the 5½% notes due 2016 at 613/4.

General Motors Corp.'s benchmark 8 3/8% notes due 2033 were also among the day's active traders. A trader said the bonds initially traded up half a point "then drifted back down," closing at 36 bid, 36½ offered.

At another desk, a trader saw OPTI Canada Inc.'s 8¼% notes due 2014 gaining 2½ points to 811/4.

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