Distressed debt stays weak post-Treasury selloff; Overseas Shipholding, Homex notes buck trend

By Stephanie N. Rotondo

Phoenix, May 31 - Month-end, a bad week for Treasuries and it being a Friday all added up to make a "frozen" distressed debt market, according to one trader.

"There was not a bond that traded 20 times [in round lots] today," another trader remarked.

While most names were soft during the final trading day of the week, some names managed to gain strength.

Overseas Shipholding Group Inc. bonds were up, though on no news. One trader attributed the move to the recent firm tone of the Baltic Dry Index.

Mexican homebuilders such as Desalladorra Homex SAB de CV were also gaining. Late Thursday, the company said it had hired J.P. Morgan to advise it on a potential restructuring.

Still, the overall feel of the day was weak. One trader saw Sears Holding Corp.'s 6 5/8% notes due 2018 dipping slightly to 97 1/8. Another trader pegged the issue at 97½ bid, 97¾ offered, down half a point.

Clear Channel Communications Inc. continued to falter, as a trader saw the 9% notes due 2021 drop 2½ points to 991/2. A trader at another shop said the 10¾% cash-pay and the 11% toggle notes due 2016 slipped a point to around 94.

Overseas Ship gains

A trader said the Baltic Dry Index "has been slowly creeping up," using that as a possible reason for a gain in Overseas Shipholding Group's 8 1/8% notes due 2018.

He placed the issue around 821/2.

The Baltic Dry Index is an indicator of the cost of ocean-going material shipments. The index dropped 7 points on Friday to end at 811.

The New York-based tanker company is currently operating in bankruptcy.

Homex, GEO rally

Homex bonds were "rebounding," a trader said Friday, even following news out late Friday regarding the hiring of restructuring advisors.

The trader called the 9¼% notes due 2020 up over 2½ points at 98 5/8. Sector peer Corparacion GEO's 8 7/8% notes due 2022 meantime rose over 1½ points to end at 40 1/8.

The top three Mexican homebuilders - Homex, GEO and Urbi Desarrollos Urbanos SAB de CV - have been suffering recently, as the Mexican government has been pushing for more apartment-style housing, versus single-family homes. All of them have defaulted or are near default on their debt.

Late Thursday, Homex announced that it had hired J.P. Morgan to advise it of its restructuring options.

Also late Thursday, the country's housing commission reiterated its preference to vertical apartment building, stating that it would provide more incentives to builders who build such dwellings.

Come Friday, Homex received a downgrade from Moody's Investors Service, based on news from May 22 regarding the company's now due and payable derivatives contracts.

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