Washington Mutual debt gets boost on new plan; MF Global investors take wait-and-see approach

By Stephanie N. Rotondo

Portland, Ore., Dec. 13 - The distressed debt market ended Tuesday's session a bit sideways, after spending most of the day on the firmer side.

"It slipped a little late [in the day]," a trader said. "I don't see much [price] movement."

Some issues, however, were experiencing decent price swings. Washington Mutual Inc., for instance, was "up dramatically," according to a trader, after the company said late Monday that it had reached a deal with creditors and equity holders on a new reorganization plan.

Also in financials, MF Global Holdings Ltd. was "very inactive," even as the bankrupt futures broker's former chief executive, Jon Corzine, testified before the Senate Agriculture Committee.

The first part of a two-part credit default swap auction for PMI Group Inc. debt was held Tuesday. The initial midpoint range was set at 18 1/8. In reaction to the auction results, PMI was trading "all over the place," a trader said.

In other CDS settlement news, AMR Corp. is reportedly settling its credit default swaps on Wednesday. Ahead of the auction, its subordinated issues were holding steady.

Away from financials, Sino-Forest Corp. debt remained heavy after the company said it would skip its upcoming coupon on its convertible debt. A trader said activity in the name was "a bit more active' on Tuesday.

WaMu pops as plan inked

Defunct Seattle-based thrift Washington Mutual may soon end its bankruptcy saga after the company announced that it had inked a deal with shareholders and noteholders for a plan to exit Chapter 11 protections.

A trader said that while WaMu paper was "up dramatically," it also hadn't "traded in a long time.

"The whole structure was definitely up, trading towards accreted value," he said.

He pegged the 4% and 4.20% notes due 2009 at 110 bid, 112 offered.

"That's got to be up 5 or 6 points," he said.

He said the 4 5/8% notes due 2014 - a "subordinated issue with the smallest coupon" - was trading actively, rising to levels around 113 from a previous context of par to 102.

Another trader said the 0% notes due 2009 was the most actively traded issue under the WaMu umbrella, calling the paper down a point at par 3/4.

He also pegged the 4 5/8% notes around 112.

Under the terms of the plan, noteholders will contribute $75 million to the one unit of WaMu that will exit bankruptcy. Certain creditors will also provide exit financing of $125 million.

"The comprehensive settlement announced today represents a fair and reasonable recovery for the thousands of equity holders of the company who have been following this case closely for three years," said Michael Willingham, chairman of the equity committee, in a statement released Monday. "The equity committee and its advisors are pleased with the result and look forward to and support the swift confirmation of the plan."

The company filed for bankruptcy on Sept. 26, 2008. JPMorgan Chase & Co. Inc. purchased the bank on Sept. 25 for $1.9 billion.

MF Global CEO testifies

MF Global's former top executive testified again before a congressional committee on Tuesday and reiterated that he did not know where about $1.2 billion of missing funds went.

However, investors were taking a wait-and-see approach and the bonds were not trading all that actively.

One trader called the 6¼% notes due 2016 up slightly at 321/2.

Another trader said the issue was unchanged at "32-ish."

A third trader quoted the notes at 31½ bid, 32½ offered.

In his testimony in front of the Senate Agriculture Committee, Jon Corzine said again that he was clueless as to where the customer funds had gone, but conceded that someone might have misconstrued his urging to "fix it" ahead of the company's bankruptcy filing.

Corzine noted that there were "break the glass" contingency plans, but that tapping customer funds was never part of the plan.

He also speculated that perhaps the funds were missing due to transactions that were not properly recorded and attempted to shift the blame to banks and other third-parties involved in those transactions.

The New York-based firm filed for bankruptcy on Oct. 31 after revealing a massive bet on European sovereign debt. During the week leading up to the filing, investors were rapidly fleeing the company, causing the bonds to drop significantly in a short period of time.

The whereabouts of the missing client funds is currently being investigated.

PMI gyrates, CDS set

The first of two CDS auctions to settle PMI's debt value was held Tuesday, giving a midpoint initial range of 18.125.

After the results came out, a trader said the bonds - which tend to trade in line with one another - were quoted at 19 bid, 20 offered.

Another trader said the debt "traded all over the place" in a range of 15½ to 20.

"The higher prints were early on and then it drifted lower," he said.

The Walnut Creek, Calif.-based mortgage insurer filed for bankruptcy on Nov. 23. Before that, the company had been forced to stop issuing new policies by Arizona regulators.

AMR steady ahead of auction

A trader said that he heard AMR was holding a CDS auction on Wednesday.

Ahead of the settlement auction, he saw the subordinated issues, like the 6¼% notes due 2014, trading steady at 22½ bid, 23 offered.

The Fort Worth, Texas-based parent company of American Airlines filed for bankruptcy Nov. 28 in order to deal with its high cost structure and burdensome debt load.

Sino-Forest falling

Sino-Forest's bonds - the 10¼% notes due 2014 and 6¼% notes due 2017 - were trading "a bit more active," a trader reported, but remained in the mid-20s.

Another trader said paper traded down to 25 from previous levels around 35.

"There's continuous noise," another trader said of the name, though he added that he didn't see much activity. He also said the bonds were holding in the mid-20s.

On Monday, the forest products company said that it would skip a $9.7 million interest payment on its 4¼% convertible notes due 2016. The company will now enter a 30-day grace period. If the payment is not made in that time, or another agreement cannot be reached, the notes can be accelerated.

Sino-Forest also said it is talks with stakeholders and advisors and that it was considering all of its strategic options, including a possible sale of the company. The company has already breached covenants under its notes and, as such, remarked that its ability to continue as a going concern was contingent upon talks being successful.

"This is a real company with real assets and devoted employees," vice chairman and chief executive officer Judson Martin said in the release. "We will do everything within our power to maximize the return to our stakeholders and complete any work that is required."

Sino-Forest had come under scrutiny in June when Hong Kong-based Muddy Waters Research - an outfit run by known short-seller Carson Block - alleged that the company had fraudulently misrepresented land holdings in China. The company has since investigated the claims and come to the conclusion that the allegations were false.

SuperMedia falls after deadline

SuperMedia Inc.'s term loan started the Thursday stronger in the secondary market but ended weaker following the 3 p.m. ET deadline for responses to its tender offer, according to a trader.

Specifically, the loan was quoted at 47 bid, 49 offered in the morning but at 46 bid, 48 offered by late day, the trader said. On Monday, the debt was seen at 46½ bid, 48½ offered.

As was previously reported, the company approached lenders with a $117 million cash-offer buyback for its term loan debt in a price range of 43 to 50.

This was the company's second attempt at a repurchase. In November, SuperMedia had launched a tender with the same cash offer size but a price range of 43 to 46. This offer was then pulled because of insufficient interest.

SuperMedia, a Dallas-based directory publisher, has the ability to buy back the term loan borrowings at a price below par using up to $122.5 million of cash until Jan. 1, 2014 as a result of a recently completed amendment to its credit facility.

Hawker hires advisors

Hawker Beechcraft Acquisition Co. LLC, a Wichita, Kan.-based manufacturer of business, special-mission and trainer aircraft, saw its strip of bank debt quoted around the mid-70s context, with some viewing it as up on the day and others claiming it was down, according to traders.

One trader was quoting the strip of debt at 74½ bid, 75½ offered, up on the bid side from 73½ bid, 75½ offered, while a second trader was also seeing it at 74½ bid, 75½ offered but said the paper was down from Monday's closing levels of 75¼ bid, 76¼ offered.

"Most headlines recently have been more positive. Seems like a restructuring is not as imminent [as people thought]. Also, market felt better today," the first trader said in explanation of why he was seeing the debt bid higher.

A company spokesperson told Prospect News that the company "will likely need to address [its] revolving credit agreement which was last amended more than two years ago," and that in order to do this in a timely fashion, Perella Weinberg Partners, a consulting and financial services firm, has been retained.

Broad market mixed

Elsewhere in the distressed space, a trader said Sprint Nextel Corp. paper was "quite active, " but unchanged.

He placed the 6.90% notes due 2019 around 80 and the 6% notes due 2016 at 801/4.

Another trader also saw the 6.90% notes trading actively, deeming them "basically unchanged" around 80.

"They're maybe a touch lower, if anything," he said.

The first trader also saw Caesars Entertainment Corp.'s 10% notes due 2018 rising modestly to end around 633/4.

At another shop, a trader said Eastman Kodak Co.'s 7¼% notes due 2013 were "beat up again," hitting a low around 38 before coming back a bit to "39-ish."

The trader also saw Dynegy Holdings LLC's 7½% notes due 2015 and 7¾% notes due 2019 falling " a bit" to levels around 69.

Sara Rosenberg contributed to this article

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