MF Global holds footing, Jefferies climbs; distressed debt market finishes generally sideways

By Stephanie N. Rotondo and Paul Deckelman

Portland, Ore., Nov. 22 - Distressed debt finished Tuesday's session sideways "even though equities were clearly weaker," a trader said.

The market was also on the subdued side, given that many desks were already empty ahead of the Thanksgiving holiday.

"There wasn't a lot of notable news movers," said another trader.

MF Global Holdings Ltd. paper held steady after losing about 6 points in the previous session on news that the now defunct company's customer cash shortfall could hit as much as $1.2 billion. Jefferies Group Inc., on the other hand, was on the rise as the company sought to assure investors it was not going the way of MF Global.

Away from MF Global and Jefferies, trading action was spread out and most credits - such as Bon-Ton Stores Inc., Caesars Entertainment Corp. and General Maritime Corp. - closed out essentially unchanged from the day before.

MF steady, Jefferies rises

MF Global's 6¼% notes due 2016 were deemed unchanged by a trader at 31 bid, 33 offered.

On Monday, the company's trustee in charge of liquidating the Mew York-based futures brokerage said that a customer cash shortfall could be as high as $1.2 billion, which sent bonds down at least 6 points on the day.

But while MF Global was holding its ground, Jefferies Group's debt was gaining momentum.

"They're trying to fight off negative reports," a trader said, referring to a statement posted on the company's website Monday that disclosed more of its positions in Europe.

Jefferies has been volatile of late as investors worry that the firm could end up the next MF Global.

The trader said the 6 7/8% notes due 2021 ended around 81, up from "79-ish." The 8½% notes due 2019 closed at 89 bid, 90 offered, up from 86 bid, 87 offered.

"We have further reduced our total gross exposure to Greece, Ireland, Italy, Portugal and Spain by almost another 50% (for a total reduction of nearly 75%); and our net exposure remains insignificant at net short $134 million," the investment bank said in a letter posted to the firm's website Monday.

Still, the company might not be out of the woods just yet.

On Tuesday, small ratings agency Egan Jones Rating Co. issued a report indicating that Jefferies needed to raise $1 billion in capital and sell $5 billion in assets in order to avoid a downgrade. The agency said Jefferies current standing was "unsustainable" given its high debt-to-capital ratio.

Egan currently rates Jefferies at BBB-.

Broad market ends sideways

Elsewhere in the market, unchanged was the trend of the day.

A trader called Caesars Entertainment's 10% notes due 2018 "pretty much unchanged" around 62, though another market source called the bonds up nearly a point at 61¾ bid.

The first trader also said that Bon-Ton Stores' 10¼% notes due 2015 were "still" around the 61 bid, 62 offered level.

At another desk, a trader saw General Maritime's 12% notes due 2017 hanging in at 10½ bid, 11 offered.

Dynegy Holdings LLC's debt - which tends to trade on top of one another - was holding steady in a 70 to 70½ range, he said, and Lehman Brothers Holdings Inc.'s paper was stable at "251/2-ish."

Also unchanged were NewPage Corp.'s 11 3/8% notes due 2014, which closed around 70.

Shippers rocked

A trader said "the shipping space got hit pretty good" after Frontline Ltd., - a Bermuda-based oil tanker operator - posted a sizable third-quarter loss and said it would seek talks with its creditors on restructuring its liabilities. It also warned that "if the current weak market continues and no solution can be found, there are significant uncertainties linked to Frontline's sustainability in the present form."

A second trader said that Frontline's 4.5% convertible notes due 2015 - which were trading around 43 bid last week - swooned to around 31.5.

Frontline's New York Stock Exchange-traded shares meantime plunged by $2.13, or 41.04%, to end at $3.06. Volume of 15 million shares was over five times the norm.

As for purely straight junk issues in the shipping center, a trader said that TeeKay Corp.'s 8½% notes due 2020 traded down to 95 from previous levels above 98.

A market source at another desk said that the bonds were down about 3½ points on the day, though only off about 2¾ points on a round-lot basis, factoring out small and unrepresentative trades. Volume was about $2 million, meaning relatively light even by the standards of this week's less-busy junk market.

"Ouch," said a trader who looked at the TK paper and saw it down nearly 4 points, but given the relatively small volume and the lesser loss from the last round-lot trade, allowed that "they weren't exactly getting crushed.

The first trader also saw New York-based tanker company Overseas Shipholding Group, Inc.'s 8 1/8% notes due 2018 trade down to 73½ bid, down 4 points on the session and down 5 points from the most recent round-lot trade, earlier this month. About $3 million of the bonds traded.

He said that Ship Finance International Ltd.'s 8½% notes due 2013 fell to an 87-88 context.

Another market source saw the Bermuda-based tanker operator's bonds down even further, quoting them going home a little above 85 - down 7½ points on the day, though only down around 5 points from the most recent round-lot levels seen last week. However, none of Tuesday's trades were of round-lot size.

Travelport heads up

A trader said that Travelport LLC's 9 7/8% notes due 2014 rose after favorable news on the legal front. He said the Atlanta-based travel services company's issue "actually traded up a couple of points, one of the few things that was up today," to the 62-63 area, up from about 60 bid.

Travelport claimed that a Texas federal judge threw out most of American Airlines' antitrust lawsuit against Orbitz Worldwide, the flight-information provider and online travel agent that is 48% owned by Travelport.

Travelport said that the judge dismissed the airline giant's claims that Orbitz monopolizes distribution of airline fare and flight information to travel agents.

However, American Airlines claimed that the setback was only procedural and that the judge actually allowed its main antitrust claims to proceed.

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