AMR senior notes higher; Sprint, Clearwire debt notches gains; Sears firms despite rating drop

By Stephanie N. Rotondo

Portland, Ore., Dec. 5 - Distressed debt was "up again with the equity markets, then drifted in towards the end of the day," a trader reported Monday.

"It was still pretty strong," he added.

AMR Corp. senior paper continued to move around a bit, again heading into higher territory.

"So the jockeying continues with them," a trader said of the bankrupt airline.

Sprint Nextel Corp. was also floating upward, as investors continued to react positively to news out last week regarding a funding accord between the Overland Park, Kan.-based company and its network partner, Clearwire Corp.

Even Sears Holdings Corp. was on the rise, despite a downgrade from Moody's Investors Service.

"It was probably just general market conditions," a trader said of the gains. "I didn't see a lot of reaction to the downgrade."

AMR gaining altitude

AMR's senior notes were continuing to climb back up after the parent company of American Airlines filed for bankruptcy last week.

The 7½% notes due 2016 were seen "up another few points," according to a trader who saw the bonds trading around 75. That compared to 72 bid, 73 offered on Friday.

The trader also saw the 10½% notes due 2012 firming to 92.

Another trader said the 10½% notes were up 1½ points, also around the 92 mark.

The Fort Worth, Texas-based airline filed for Chapter 11 protections last week in an effort to shed debt and cut costs. The company is reportedly not paying interest on its debt or paying its leases since the filing. Those costs run about $1.5 billion annually.

Still, the savings might not be enough to stem the airline's nosedive.

"This won't completely offset the ongoing cash drain from continued pressure on profits as operating costs - especially fuel - remain insupportably high and revenue quality erodes even faster on massive fare sales offering deep discounts on thoughts of flights to induce wary flyers to buy tickets from a bankrupt carrier," wrote Gimme Credit LLC analyst Vicki Bryan in a report put out Monday.

Bryan also warned that AMR might need to add debt on top of its structure for a debtor-in-possession loan "to augment liquidity and that means it will need a convincing stash of high quality unencumbered assets to attract a sufficient pool of willing lenders." That could be a problem, she continued, as the company had no unencumbered assets before it filed for bankruptcy.

Sprint, Clearwire gain

Sprint Nextel bonds remained on an upward path Monday, as investors continued to react positively to news the company had reached a funding accord with Clearwire.

One trader called the debt generally better, but noted that the most active issues - the 6 7/8% notes due 2028 and the 8 3/8% notes due 2012 - were unchanged.

The former was trading at 72¾ and the latter at 101 bid, 102 offered. The trader also noted that the latter issue was being called.

Another market source pegged the 6% notes due 2016 up nearly a point at 83½ bid.

A third source saw Clearwire's 12% first-lien notes due 2015 moving up into the low-90s.

Under the terms of the new four-year agreement, Clearwire will receive $926 million from Sprint - its largest stakeholder - for unlimited usage of its WiMax 4G network through 2013. The funds will allow cash-strapped Clearwire to operate through at least 2012. Sprint will provide $350 million in prepayments for use of a new LTE network and could pony up $347 million towards an equity offering.

After 2013, Sprint will no longer receive unlimited network usage and will be charged based on what it uses.

Still, the new agreement might not mean that Clearwire is out of the woods just yet. It still has about $1.2 billion in annual fixed costs, as well as a hefty debt maturity coming in 2015. Without positive cash flow, concerns about the company's ability to continue remain.

Sears up despite downgrade

Moody's slapped Sears Holdings with a downgrade Monday, but there was little reaction to the news, traders reported.

In fact, traders saw the bonds gaining traction.

One trader said the 6 5/8% notes due 2018 opened "straddling 80," only to close around 81.

Another trader quoted the paper at 80½ bid, 81 offered.

"Maybe we'll see reaction to it tomorrow," he opined. "The market just seemed to be shrugging it off."

Moody's dropped its rating on the Hoffman Estates, Ill.-based retailer to B1 from Ba3. The agency attributed the change to "persistent negative trends in revenues and operating margins."

Broad market steady, better

Among other distressed issues, a trader said that Dynegy Holdings LLC's various issues, such as its 7¾% notes due 2019, were "pretty much staying around" the levels seen on Friday.

He said that the bankrupt Houston-based power generating company's issue was holding around 71-72, which he called pretty much unchanged.

Lehman Brothers Holdings Inc.'s bonds meantime moved up to around 263/4-27, which a trader called "up a little bit."

He said there were "a lot of quotes in Lehman today, decent volume," with well over $20 million of the failed New York-based investment bank's 5 5/8% notes due 2013 having traded.

He said a range of 263/4-to-27 "covers most of it for the day," calling the bonds "up three-eights of a point or a half.

Realogy Corp.'s 11½% notes due 2017 were seen by a trader up 2 points, at 80 bid, with over $10 million of the Parsippany, N.J.-based real estate company's notes having changed hands.

However, he saw "no real activity" in its 10½% notes due 2014, which were in a 90-93 context.

And, Clear Channel Communications Inc.'s bonds "were feeling better," a trader said, quoting the San Antonio, Tex.-based media company's 11% notes due 2016 having "moved a little," calling the bonds "up a couple of points," at 63½ bid, 64 offered.

He said there were "not a lot trades, but a few trades."

He said there were "just one or two small trades" on the company's 10¾% notes, also due 2016, which finished at 69 bid, up 1 point.

Paul Deckelman contributed to this article

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