Weak housing data pressures Hovnanian; wider loss weighs on Kodak bonds; Dynegy creeps higher

By Stephanie N. Rotondo

Portland, Ore., July 26 - Trading in distressed debt remained lackluster Tuesday as the market waited to see if lawmakers could come to terms on a debt ceiling deal.

Still, a trader said the market was a bit stronger on the back of "decent earnings."

In a surprising twist, "a homebuilder was the volume leader [for the day]," the trader said. "So that was a change."

The homebuilder in question was Hovnanian Enterprises Inc. The bonds were active, but softer by day's end, after disappointing housing data was released.

Meanwhile, Eastman Kodak Co. did not have a good day either, as the bonds fell 2 points or more after the company reported a wider-than-expected quarterly loss.

In the energy realm, Dynegy Inc. continued to be quoted a lot, a trader said. He also noted that the bonds were slightly higher.

On Friday, Dynegy will go to court to find out if its $1.7 billion refinancing plan can move forward or not.

Housing data hurts Hovnanian

Hovnanian Enterprises' debt was "the most actively traded issue in the market," according to a trader.

The bonds were weaker after the U.S. Department of Commerce reported housing figures that were not pleasant.

The trader said the 11 7/8% notes due 2015 lost a couple points to 681/2. The 10 5/8% notes due 2016 were meantime the day's most active securities, falling to a 941/2-96½ context from 973/4.

"They were off a couple of points in some pretty heavy trading," he said.

Another trader said the paper "started out strong" and that the 10 5/8% notes experienced "huge volume. The CDS was very active too."

He said the notes fell to "941/2-ish" from around 96 at the open.

Tuesday's levels were the lowest seen in the credit in more than a year.

New housing data showed that home purchases declined 1% to 312,000, hitting a three-month low. Market expectations were closer to 320,000.

Hovnanian is a Red Bank, N.J.-based homebuilder.

Kodak drops on numbers

A trader said Eastman Kodak's debt was "fairly widely quoted for the first time in a little bit" after the Rochester, N.Y.-based company reported earnings.

He saw a "handful of trades" in the 7¼% notes due 2013 in an 81 5/8-82¾ context. He said that was down from 83 bid, 83½ offered the day before.

The trader also saw the 9¾% notes due 2018 at 83¼ bid, 84¼ offered.

"I don't think they trade all that much," he said. "They must have been a little lower."

Another market source pegged the 7¼% notes at 821/4, down more than 2 points on the day.

At another desk, the 7¼% notes were quoted at 81½ bid, 82 offered and the 9¾% notes at 83¾ bid, 84½ offered.

"They were on the heavier side after earnings this morning," the third trader said.

For the second quarter, Kodak reported a wider-than-expected loss of $179 million, or 67 cents per share. That compared with a loss of $168 million, or 63 cents, the year before.

Sales dropped 4.5% to $1.49 billion.

Analysts polled by Thomson Reuters were expecting a loss of 61 cents per share on revenues of $1.54 billion.

Additionally, the company burned through $322 million in cash during the quarter, up 86% from the prior year. However, the company also said the number was skewed a bit, as the cash burn included a one-time year-earlier gain from an intellectual-property settlement and moving a pension contribution from late last year to the latest quarter.

Despite the wider loss, the company reiterated its intention of turning a profit by 2012.

Dynegy quoted higher

Dynegy debt saw "a lot of quotes," a trader said.

He called the 7¾% notes due 2019 up about half a point at 711/2, up from 70½ bid, 71 offered the day before.

On Friday, the Houston-based energy producer will head to court to find out if its $1.7 billion refinancing plan should take a pause. Last Friday, Public Service Enterprise Group asked for a restraining order on the deal.

PSEG, along with LibertyView Credit Opportunities Fund LP, have filed lawsuits against Dynegy, alleging that the refinancing plan strips assets from their guaranteed debt holdings.

Broad market hanging in

Elsewhere in the land of distressed debt, a trader said Lehman Brothers Holdings Inc.'s benchmark issues "continued to be stronger," seeing the notes move up half a pointing "pretty heavy volume" to around 27.

Also in financials, Capmark Financial Group Inc.'s bonds were "creeping up." He saw the 7 7/8% notes due 2012 and the 8.30% notes due 2017 at 60¼ bid, 60½ offered.

Nebraska Book Co. Inc.'s 10% notes due 2011 were placed at 99½ bid, par offered.

And, OPTI Canada Inc.'s 7 7/8% and 8¼% notes due 2014 were "chugging along" at 64½ bid, 65½ offered.

Greek bank pops

National Bank of Greece SA's 9% series A preferreds (NYSE: NBGPA) gained 47 cents, or 5.82%, to close at $8.55.

A market source said he was unsure what was driving the Greek bank higher as "they are obviously going to take hits when Greece defaults."

He said the paper "popped up" around midday. At that point, Fitch Ratings had come out and said that it was maintaining its B- rating on six Greek banks including National Bank.

However, the source said the ratings were in regard to debt, not the preferreds.

Fitch said its decision to keep the ratings stable was due to the new bailout plan approved by European leaders last week. The agency further stated that the ratings "continue to reflect Fitch's assumption that international support from the IMF/EU/ECB in respect of Greek banks' liquidity requirements, recapitalization and re-financing will remain in place during Greece's debt restructuring/re-financing plan."

Coach loan dips

Coach America Holdings Inc.'s first-lien term loan dropped to 77½ bid, 79½ offered from 78 bid, 80 offered after the debt was downgraded by Standard & Poor's to B- from B, according to a trader.

The rating agency said the company's recent operating performance has been weaker than expected, and earnings and cash flow are expected to remain depressed over the next year given current market conditions.

Additionally, Standard & Poor's remarked that if operating performance does not improve and if liquidity weakens, especially if covenant compliance becomes an issue, ratings are likely to be lowered.

Coach America is a Dallas-based charter bus operator and a motorcoach services provider.

Sara Rosenberg contributed to this article

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