Lyondell is nom du jour, notes jump; Bon-Ton swings to profit, bonds improve; Radian sees gain

By Stephanie N. Rotondo

Portland, Ore., March 10 - The distressed debt market was stronger yet again in Wednesday trading, as investors reacted to positive news.

Lyondell Chemical Worldwide Inc. was the day's big price mover, gaining somewhere in the neighborhood of 9 to 10 points. The gains came as news outlets reported the company's former head was seeking a stake in the new company - and market players foresaw a good fight coming on.

Meanwhile, Bon-Ton Stores Inc. saw its bonds boosted by its fourth-quarter swing to profit. Traders deemed the retailers bonds up about 3 points, in "pretty active" trading.

Radian Group Inc.'s debt was also active - and, in line with the rest of the market, firmer - during the midweek session. However, with no fresh news out specific to the bonds, sources could only speculate on what caused the surge.

Lyondell the nom du jour

Lyondell Chemical Worldwide was the "distressed story of the day," according to one market player.

The 7 5/8% notes due 2026 gained anywhere from 9 to 11 points on the day, depending on whom you asked.

One trader quoted the issue at 36½ bid, 37½ offered.

"Nice bankruptcy fight going on," the trader said. "One group has a plan they say is better than Reliance [Industries Ltd.] bid and want to get down and dirty."

Another trader said the bonds were "up about 10 points to the high-30s." The 10¼% notes due 2010 and the 9.80% notes due 2020 were meantime seen a point better around 831/2.

And, yet another trader deemed the 7 5/8% notes up 9 point around 38. However, he called the 10¼% notes essentially unchanged at 83½ bid, 84½ offered.

"The other paper isn't up that much," he said.

LyondellBasell, the parent company of Lyondell Chemical, recently filed its plan of reorganization. The plan follows a proposal made by an Apollo Management-led private equity group. The plan also rejected a takeover bid from India-based Reliance.

On Wednesday, news reports said that the former head of LyondellBasell, billionaire Len Blavatnik, was seeking a 5% to 15% stake in the new reorganized company. To achieve this, his industrial holding company - Access Industries Holdings LLC - has committed to guaranteeing up to $800 million of a rights offering that is intended to add $2.8 billion to Lyondell's coffers.

"Access has believed in the combination of Lyondell and Basell from the outset and has remained supportive of the company throughout the reorganization, both through its active involvement on the board and its recent commitment to invest up to $800 million," Blavatnik said in a statement, according to BusinessWeek.

Lyondell is looking to emerge from Chapter 11 protections by April 30.

Bon-Ton swings to profit

Improved quarterly results gave York, Pa.-based retailer Bon-Ton Stores about a 3-point boost in its debt.

A trader said the 10¼% notes due 2014 were "pretty active" following the "good" numbers, ending around 961/2.

Another trader quoted the paper at 96½ bid, 97 offered, up 3 to 4 points on the day.

For the fourth quarter ending Jan. 30, Bon-Ton swung to a net income of $80.3 million, or $4.34 per share, versus a net loss of $87.7 million, or $5.22 per share, the year before.

While comparable store sale dropped 2.4% during the quarter, operating income improved by 67% to $101.4 million.

"We recognized early on the challenges we were going to face in 2009," commented Bud Bergren, president and chief executive officer, in the earnings release. "Initiatives were identified and implemented throughout 2008 and 2009 to improve our cost structure and better position the company for the weakened economy as well as for the longer term."

Like many other retailers who have struggled during the weak economy, Bon-Ton managed its inventory "conservatively," which helped the company improve gross margins by 350 basis points in the quarter and by 210 bps for the fiscal year.

"We believe that as a result of these actions our organization is more appropriately structured for the environment and we have emerged a stronger company at the end of the year than we were at the beginning," Bergren added. "The entire Bon-Ton team executed and delivered results above expectations, and I want to extend my thanks and congratulations. We will continue to move forward conservatively in fiscal 2010, but we believe our initiatives will provide for growth opportunities and continued earnings improvement in the future."

Radian bonds see gains

Radian Group's bonds made the day's most active list, though traders were not sure what has caused the surge in activity.

A trader said the 5 5/8% notes due 2013 were "up a couple" at 80, compared with levels around 78 on Tuesday. Another trader echoed that level.

Another trader said that Radian Group was "another name that was up," with its 5 5/8% notes ending around 80 bid, 80½ offered, which he called "up a point or 2, on good volume - and that's a name that normally doesn't have much volume." He said that the rise in the Philadelphia-based bond and mortgage insurance operator's bonds was likely linked to the gain of 47 cents, or 4.23%, seen in its New York Stock Exchange-traded shares, which closed at $11.58, on volume of 5.3 million shares, or about 1½ times the norm, since "the stock was pretty strong today."

Though there was no news out specific to Radian's bonds, the company did see its stock upgraded to neutral from underweight by Piper Jaffray.

"The primary catalyst for our upgrade reflects our revised expectations on capital raise, or rather, the lack thereof," wrote Michael Grasher, senior research analyst, in the upgrade report. "While we expect losses to continue through 2010 and into 2011, the back half of 2011 begins to look more promising, with book value now forecasted to trough around $16 per share by the end of 2011. We continue to forecast shares trading at roughly 50% of expected book value until more transparency evolves, thus our $9 price target."

Radian Group is a Philadelphia-based credit enhancement company.

Financials feeling firm

Besides Radian Group, other financials were experiencing gains as well.

A trader said that "some financials were up," including MBIA Inc.'s 14% surplus notes due 2033, which rose to 63 bid, 65 offered, which he called "up a point or so" on the session. The Armonk, N.Y.-based bond insurer's paper "has been on a steady move. Over a week, I'd say they've come from the mid-50s to here," and in fact, he said, had begun the month at a 47 to 48 context on March 1, "so last week was a big week for them, but the last couple of days, they've been up a point or so each day."

On March 1, MBIA reported that it lost $242 million, or $1.16 per share, in the fourth quarter - less than one-fourth its year-earlier red ink of $1.2 billion, or $5.21 per share. And for the year, it got back in the black with a $623.2 million profit, or $2.99 per share, versus its 2008 loss of $2.7 billion, or $12.11 per share.

And, American International Group Inc.'s bonds "overall have been better" in the wake of the recent news that the troubled New York-based insurer is selling units so it can pay down some of its massive government debt, as well as gains in its shares, along with those of other bailed-out financial firms. The trader saw "decent trading in some of them," with its American General Finance Corp. unit's 6.90% notes due 2017 at 78½ bid, which he called up a point, while AmGen's 4% notes due 2011 were also up a point at 96 bid, 97 offered.

"There wasn't active trading, but they were quoted there," he said. "They were better on the day."

Paul Deckelman contributed to this article

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