Jefferies, MF Global are talk of the town; Sprint slips, Clearwire gains; Dynegy debt unfazed

By Stephanie N. Rotondo

Portland, Ore., Nov. 4 - The bond market was focused on "all the stuff that pertains to Jefferies," a trader said Friday.

That included MF Global Holdings Ltd. in the distressed realm.

Jefferies Group, Inc. was gyrating wildly on Thursday on concerns about the brokerage's exposure to European debt. Also playing a role was the fact that Jefferies had underwritten a $325 million bond issue for MF Global, which filed for bankruptcy on Monday and is currently being investigated for missing client funds.

On Friday, Jefferies' debt was "seesawing all over the place," ending largely down. MF Global was also weaker.

Meanwhile, Sprint Nextel Corp. announced a new deal aimed at repaying debt and possibly funding its network partner Clearwire Corp. Most of Sprint's issues dipped, although a few managed to post gains given that they were "money good," as one trader put it.

For its part, cash strapped Clearwire saw its bonds improving on the possible funding from its majority stakeholder.

Dynegy Inc. said late Thursday that it had scrapped plans to exchange $1.25 billion of debt for new debt. However, the news did little to move the power producer's notes.

Jefferies, MF Global topical

Jefferies' debt was again "seesawing all over the place" on Friday, following the trend set Thursday as investors pushed the bonds all the way into distressed territory before bringing them back.

The trader saw the 5 1/8% notes due 2018 trading in an 84 to 86 context, while the 7¾% notes due 2012 were "slightly higher" at 98 bid, 99 offered.

The trader also saw MF Global's 6¼% notes due 2016 falling half a point to around 45.

At another shop, a trader said MF Global was "on a bit of a rollercoaster," immediately trading down to 40, then moving up into the mid-40s on reports that missing customer money had been found at JPMorgan Chase & Co. and then back down to the low-40s when it became unclear if the funds were the funds regulators were looking for.

On Thursday, Jefferies' paper was on a ride of its own and, according to one source, it was combination of factors, including market unease over whether Jefferies has any kind of substantial exposure to deeply troubled European debt and a ratings downgrade on Thursday from the small, but influential, Egan-Jones agency, which rates the creditworthiness of financial companies.

A junk trader also mentioned Jefferies' prominent role as the lead underwriter on this past summer's $325 million bond issue by the beleaguered and now bankrupt MF Global Holdings Inc., and cited investor fears that the investment bank might conceivably find itself "caught in the crossfire" of possible bondholder legal action against MF Global, which also faces severe regulatory and legal scrutiny over the allegedly missing client funds.

Jefferies meantime has taken pains to reassure the markets that its exposure to both MF Global and to Europe's sagging sovereign debt was small. The firm said over the weekend that its exposure to MF Global was only about $9 million. On Thursday, it put out several news releases outlining the limits of its exposure to the European sovereigns, explaining while it has long inventory of over $2.684 billion, it also has offsetting short positions in such sovereign debt of $2.545 billion, as well as offsetting positions in futures instruments.

And it said that among the sovereign issues of the economically weakest European nations - the so-called PIIGS, consisting of Portugal, Ireland, Italy, Greece and Spain - it has just $3 million of exposure to Greece, and among the five countries, combined net short exposure of about $38 million, or around 1% of the total value of Jefferies' shareholders' equity.

One of the factors giving Jefferies' stock, and presumably, its bonds, a boost from their day's lows was an endorsement of sorts by prominent financial analyst Meredith Whitney, who told CNBC that the company is "conservative" in its outlook - and should not be unfairly lumped in with the failed MF Global.

Also on Friday, Jon Corzine, the former Goldman Sachs executive and the recent head of MF Global, resigned his position at the bankrupt futures broker.

Sprint news pressures bonds

Sprint Nextel paper was trading generally lower after the company launched a new two-tranche deal aimed at repaying debt, building out its network and possibly helping to fund its network partner Clearwire.

The news then resulted in a "double downgrade," as one trader put it, from Standard & Poor's and Moody's Investors Service.

"The new deal is in front of a lot of this paper," the trader added.

He called both the 7 3/8% notes due 2015 and the 5.95% notes due 2014 down half a point at 95½ bid, 96 offered and 95¾ bid, 96¼ offered, respectively.

The 8 3/8% notes due 2017, he said, were down 5 points at the beginning of the session, but managed to end down just half a point to a point around 92.

The 8¾% notes due 2032 finished at 82 bid, 83 offered, compared to levels around 84 previously, while the 6 7/8% notes due 228 were "wrapped around 72," versus 73 bid, 73½ offered on Thursday.

He also pegged the 6.9% notes due 2019 with an 82 handle, down from 83½ bid, 84 offered the day before.

However, he did speculate that the 6 7/8% notes due 2013 and 8 3/8% notes due 2012 were "money good," and as such, were actually gaining ground.

"If they get those deals done... they'll probably get taken out early," he said, seeing the 6 7/8% notes at 99¼ bid, par offered and the 8 3/8% notes at 101 7/8.

At another desk, a trader said Sprint's 6% notes due 2016 were a point weaker around 873/4. Another market source echoed that level.

Meanwhile, the first trader said Clearwire bonds "rallied a lot" on the "assumption that the deal will help them fund their shortfall."

The 12% first-lien notes due 2017 closed at 89 bid, 91 offered, up from 83½ bid, 84½ offered. The 12% second-lien notes due 2015 - which had been "wrapped around 60" - ended 67 bid, 70 offered.

"So they were up substantial, I'd say 7 to 9 points," he said.

Dynegy cancels debt swap

Dynegy said late Thursday it was scrapping a $1.25 billion debt swap of its Dynegy Holdings LLC bonds.

Though the Houston-based power producer did not give details on why the offer was canceled, it's no secret that bondholders have reacted unfavorably to the deal. At last count, bonds validly tendered were less than $200 million.

Still, the news did little to move the bonds around.

One trader saw the 8 3/8% notes due 2016 falling half a point to 711/2. He called the 7 ¾% notes due 2019 unchanged at 68.

Another trader placed the 8 3/8% notes with a 71 handle, calling that "pretty much in line with where it was." He also saw the 7¾% notes around 68.

Broad market mixed

Among other distressed issues, Genworth Financial Inc.'s 6.15% notes due 2066 saw "a bunch of activity," a trader said, around 581/4.

He also saw Caesars Entertainment Corp.'s 10% notes due 2018 "sneakily" trading up to 751/2.

Another trader said Bon-Ton Stores Inc.'s 10¼% notes due 2014 - which got "crushed" Thursday on the back of poor earnings - were "not as active," but still abut half a point or so weaker at 73½ bid, 74 offered.

He also said that Residential Capital LLC's 9 5/8% notes due 2015 were experiencing a bit of a slide, ending at 81 bid, 81½ offered.

Paul Deckelman contributed to this article

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.