MBIA bonds dip, rally on earnings, rating upgrade; Lehman paper creeping higher; ATP off

By Stephanie N. Rotondo

Phoenix, May 10 - MBIA Inc. remained topical in the distressed debt realm, even as the company's credit rating was upped to investment grade on Friday.

But a trader noted that the company said during its earnings call that it had no plans to begin making interest payments on its surplus notes. That initially resulted in a dip for the debt, though the trader said paper managed to rally and end up a few points on the day.

Elsewhere, Lehman Brothers Holdings Inc.'s bonds were stronger on news the now-defunct firm was looking to monetize its claims against the brokerage.

ATP Oil & Gas Corp. was one of the few credits that ended the week on a softer note. A trader said the bonds have been pressured despite a recent asset auction, as the company still needs more money "to do anything."

MBIA falls, stages comeback

A trader called MBIA's 0% surplus notes due 2033 up "another 5 points," trading in an 83 to 85 context.

The trader attributed the gains to news that Standard & Poor's had upgraded the bond insurer's credit rating seven notches into investment-grade territory.

"Guess that's what a billion-dollar settlement does for you," he said.

Another trader said the debt was actively quoted, though the bonds first dipped to 75 bid, 76 offered at the open due to comments made regarding interest payments on the debt during the company's quarterly conference call.

"They said they were not in any position to make interest payments on the notes," the second trader said. Additionally, a new $500 million credit line with Bank of America - part of its recent $1.7 billion settlement with the bank - doesn't allow for such payments anyway.

However, the bonds managed to stage a comeback and ended up on the day, the trader said. He pegged the issue at 84 bid, 86 offered.

As for its first-quarter results, MBIA posted a profit of $164 million, or 84 cents per share. That compared to a profit of $10 million, or 5 cents per share, the year before.

Lehman bonds inch up

Lehman Brothers' "benchmark" issues were trading stronger, according to a trader.

He called the paper up fractionally in a 25 to 25½ range.

The holding company said Friday that it was considering attempting to monetize certain unsecured claims it holds against the brokerage arm. As such, it has hired financial adviser Lazard to determine how to proceed.

The holdco holds about $14 billion in unsecured claims.

The New York-based investment bank crashed and burned in September of 2008. However, a final plan to liquidate the firm was only approved last month.

ATP nearing zero

ATP Oil & Gas' 11 7/8% notes due 2015 "continue to weaken," a trader said.

He saw the issue falling to 1 bid, 1½ offered.

The bonds have failed to gain steam, despite Credit Suisse AG being named the bidding winner for certain assets earlier in the week. The bank - also the company's debtor-in-possession lender - is paying $691 million for the assets. But Houston-based ATP will not receive all of that in cash, as Credit Suisse is paying the purchase price by cancelling debt.

"They were talking about how they still needed to raise another $500 million in order to be able to do anything," a trader said, explaining why the asset sale failed to excite investors.

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