Dynegy gains on light volume as tender offer extended; Sprint paper drifts down; Caesars falls

By Stephanie N. Rotondo

Portland, Ore., Oct. 17 - A trader said that the bond market "landscape was dominated by energy names" on Monday, based on merger and acquisition activity.

However, that did not carry over to distressed energy names like Dynegy Inc. The bonds did trade better, but on light volume.

Mostly, the distressed debt market was "taking directions from the stocks," a trader said, and was drifting lower.

"A couple of things came back in a little bit, but there wasn't a tremendous amount of volume," another trader said. After the recent run-up, he opined that the market "took a breather with what the equities were doing."

Sprint Nextel Corp. was seen giving up some ground, as were Caesars Entertainment Corp.'s debt. There was no fresh news out on either credit.

Dynegy heads up

Dynegy's 7¾% notes due 2019 traded up three-quarters of a point to 651/2, according to a trader.

However, he noted that trading was light.

Another trader said he "didn't see a lot of volume" in the name either, though he deemed the paper up a point around 66.

A third market source called the issue up as much as 4 points at 66 bid.

Dynegy is currently attempting to exchange $1.25 billion of bonds for new notes and cash. However, as of the Oct. 13 deadline, only $100.5 million of the debt had been validly tendered, resulting in an extension of the offer until Oct. 20.

Because of the weak showing for the tender thus far, some are wondering if it indicates bondholders would rather the company file for bankruptcy rather than take a 28% to 60% haircut in the exchange offer.

Bondholders have already been fighting a restructuring effort put forth by the Houston-based power producer, in which the company split off assets and formed a new subsidiary. Bondholders say the move pilfered assets from them and soon filed a lawsuit alleging fraudulent transfer.

Sprint drifts down

After getting downgraded last week by Moody's Investors Service, Sprint Nextel paper seemed to be coming off of recent highs.

One trader said the 8 3/8% notes due 2012 were "kind of active" at par 1/8. Another trader saw the 6% notes due 2016 falling a point to 86 bid, 86½ offered.

Another trader said that Clearwire Corp.'s bonds "were a little softer again today, in follow through to Friday afternoon's softness.

The Kirkland, Wash.-based wireless broadband operator's 12% notes due 2015 were quoted around the 70 area.

He also saw Sprint's bonds "off a little bit too," seeing then down a half-point to a full point. For instance, its Sprint Capital Corp. 6.9% notes due 2019 was off by some 1 13/16 points at 85 11/16. More than $6 million of the bonds changed hands.

Another market source saw those bonds down a deuce to reach the 85½ level.

However, he saw Sprint Capital's 8 3/8% notes up by about three-eights of a point, at 100 7/8 bid. About $15 million of those bonds traded, making it the busiest Sprint issue of the day.

Parent Sprint Nextel's 8 3/8% notes due 2017, wildly gyrating, were quoted at just under 96, with a market participant said was up as much as 3 points on the session.

But at another desk, those bonds were seen having fallen back near the end of the day at the 92 bid level, with about $10 million traded.

On Friday, Moody's about $20 billion of Sprint's debt to B1 from Ba3, citing concerns about the costs of constructing its own network and its plan to phase out its network partnership with Clearwire.

Because of the rating cut, Sprint - which said it will need to raise funds to construct the new network - will likely face higher borrowing costs.

Clearwire, for its part, was also downgraded.

"Rumors about an upcoming secured debt offering have not been substantiated," wrote Gimme Credit analyst Dave Novosel in a commentary out Friday. "Management promised to be opportunistic about its foray into the capital markets and today's environment is anything but."

Sprint is an Overland Park, Kan.-based wireless services provider.

Caesars loses

Caesars' 10% notes due 2018 remained active in Monday trading, but fell about a point to 683/4, according to a trader.

"They had pretty good volume," he said.

There was no fresh news out on the Las Vegas-based casino operator.

Cengage falls with market

Cengage Learning saw its term loan B retreat in trading on Monday simply because the market in general was down, according to traders.

The term loan B was quoted at 82½ bid, 83¼ offered, versus 83 bid, 84 offered on Friday, traders said.

"Stuff just a little down with equity market," one trader remarked. At the close, Nasdaq was down 52.93 points, or 1.98%, Dow Jones industrial average was down 247.49 points, or 2.13%, S&P 500 index was down 23.72 points, or 1.94%, and NYSE was down 161.8 points, or 2.2%.

Cengage is a Stamford, Conn.-based provider of teaching, learning and research services for the academic, professional and library markets.

Broad market dips

Elsewhere in the distressed debt realm, a trader said "buyers of Lehman [Brothers Holdings Inc.]" came in, helping the bonds "buck the trend" and climb higher.

He called the debt up half a point at 24½ bid, 25 offered.

The trader also saw NewPage Corp.'s 11 3/8% first-lien notes due 2014 trading lighter around 72.

OPTI Canada Inc.'s 7 7/8% and 8¼% subordinated notes due 2014 meantime inched up modestly to 641/2.

Sara Rosenberg and Paul Deckelman contributed to this article

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