MF Global rallies with market, despite more bad news; Dynegy debt edges up; Tribune loans dip

By Stephanie N. Rotondo

Portland, Ore., Nov. 2 - A trader said "strength came back" to the distressed debt market Wednesday after a massive sell-off on Tuesday.

"There was definitely a firmer tone to things," he said.

Even recently bankrupt MF Global Holdings Ltd. was gaining ground. Traders saw the bonds gaining 3 to 4 points on the day, despite more negative news pouring out of the New York-based futures broker.

Dynegy Holdings LLC paper was also trading up. Again, there was negative news circling - one story said the power-producing subsidiary had skipped an interest payment - but the bonds firmed anyway.

One trader noted the he expected to see more activity in Tribune Co.'s bonds after the bankruptcy judge overseeing the case blocked two proposed reorganization plans. However, he said the bonds were "absolutely radio silent," but that the bank debt was "fairly active."

MF Global notes rally

MF Global Holdings' 6¼% notes due 2016 remained the "name du jour," according to a trader.

He saw the issue rallying 3 to 4 points, ending 49 bid, 50 offered.

Another trader said the issue rose 3 points to around 49.

The upward move came despite continuing bad news from the Jon Corzine-run firm that declared bankruptcy on Monday. Early Wednesday, the company was told to stop liquidating client positions, though they had been given approval to do so previously. That also meant that clients could not transfer their accounts.

Speculation is the halt was imposed in order to allow for a bulk transfer, which could save the firm money.

It has been reported that millions of dollars of client funds are missing.

MF Global's troubles began last week when Moody's downgraded the company. Poor earnings and several rounds of downgrades, all leading up to Monday's Chapter 11 filing, followed that.

But news reports out Wednesday said that regulators had been looking into the company's European debt exposure as early as June and that they were warned they did not have enough capital to protect itself and its clients. The company resolved the issue in September by securing so-called repo loans.

According to one trader, the company said that its "sovereign debt was off the balance sheet." Upon the bankruptcy filing, the firm had $47 billion in assets versus $44.7 billion of liabilities.

"If either of those numbers [move] by 5%... the bonds could be worth par; they could be worth zero."

Dynegy debt moves up

Dynegy Holdings skipped a nearly $44 million interest payment on its 8 3/8% notes due 2016.

The company now has 30 days to resolve the issue.

The news, however, did not boost trading volume in the name, though the generally firm tone of the market helped improve prices.

One trader said he heard the issues were now trading flat.

He saw the 8 ¾% notes due 2012 at 65 bid, with due bills to seller - meaning any interest paid would go back to the original holder. He also saw the 7 1/8% notes due 2018 at 66 bid and the 8 3/8% notes at 71.

Another market source called the 7¾% notes due 2019 up 3 points at 68 bid.

The missed coupon is the latest in a nearly year-long struggle for the Houston-based company. Bondholders have filed a lawsuit against parent Dynegy Inc., citing fraudulent transfer regarding a recently completed restructuring.

The parent, however, has asked that the case be dismissed, alleging that the suit was filed in the wrong jurisdiction, as well as that the plaintiff - Avenue Investments LP - did not have standing to sue.

"This lawsuit was plainly designed to interfere with Dynegy's exchange offer by communicating to participants that plaintiffs would challenge the exchange after the fact," Dynegy said in the court documents.

Tribune loans weaken

A trader said that he thought "there might be some action" in Tribune bonds after a bankruptcy judge denied two proposed reorganization plans.

"But the bonds are non-existent," he said. "The bonds have been absolutely radio silent."

The bank debt, however, "has been fairly active," he said.

He quoted both the term loan and the revolving credit facility down 4 to 5 points, the former at 61 bid, 62 offered and the latter at 65 bid, 67 offered.

On Monday, U.S. Bankruptcy Judge Kevin Carey said that while he favored a plan sponsored by the company, he still had objections. He also objected to a competing proposal put forth by creditors.

He noted that if his objections were resolved, he would likely choose the company-sponsored plan, as it has garnered more creditor support and was more likely to be successful.

As such, both groups are attempting to fix their plans in hopes of winning Carey's approval.

Tribune is a Chicago-based media company.

Broad market mostly firm

In the rest of the distressed debt arena, a trader said Hovnanian Enterprises Inc.'s 10 5/8% notes due 2016 were "kind of unchanged, maybe a shade lower" at 83 bid, 85 offered.

He also saw Caesars Entertainment Corp.'s 10% notes due 2018 "up a couple points" at 72 bid, 74 offered.

Another market source deemed the issue up 3 points at 74 bid.

At another desk, a trader said NewPage Corp.'s 11 3/8% first-lien notes due 2014 were "a touch stronger" at 74½ bid, 75 offered.

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