AMR quiet but ends week higher, touts plan; Penney firms, Nokia busy; Dendreon converts ease

By Paul Deckelman

New York, Aug. 23 - The distressed debt market ended the week on a quiet note, with traders seeing not much price movement in the bonds of bankrupt or underperforming companies.

One name from the latter group - AMR Corp. - had a very quiet session - the first one this week in which its benchmark 2014 notes were not being actively traded. But the embattled airline operator's bonds were all seen ending the week well up from where they had begun it, bouncing at least part of the way back from the massive losses seen last week after the federal government unexpectedly stepped in to try and ground AMR's planned merger with sector peer US Airways Group.

Lawyers for AMR were in bankruptcy court on Friday, urging the judge overseeing its restructuring to approve the company's re-organization plan - which is built around the US Airways merger - despite the Justice Department's opposition to the combination.

Elsewhere, J.C. Penney Co. Inc.'s bonds were trading relatively actively for an otherwise sleepy summer Friday, moving to firmer levels, although there was no fresh news out on the troubled retailer.

There was also brisk volume in Nokia Corp.'s 2019 notes, though not much news out on the underdog wireless phone manufacturer.

In the convertibles market, Dendreon Corp.'s 2016 notes were seen to have lost ground in busy dealings after Deutsche Bank downgraded its shares to a "sell" and cut its price target on them, citing disappointing sales of one of the biotechnology company's key products.

Not much shakin'

A trader called Friday's market "a pretty non-eventful day."

He said. "I don't think there were any outliers, price-action wise," adding that there had been "very few bonds that even did $10 million [trading volume] today."

For instance, while Clear Channel Communications Inc.'s 6 7/8% notes due 2018 rose more than 3½ points on the session to end at 73 3/8 bid, and Verso Paper Holdings LLC's 11 3/8% notes due 2016 fell 2 3/8 points to close at 40½ bid, both happened on just a handful of smallish odd-lot trades.

AMR ends week firmer

A trader said that there was "not a lot of activity today" in the bonds of AMR Corp., "but it keeps trending higher."

The bankrupt Fort Worth, Texas-based airline operator's most widely traded issue, its 6¼% notes due 2014, were seen unchanged on the day, on just one or two trades.

But the trader said that "they've been moving up - the [6¼%] converts have been one of the more active ones. They traded around 98½ today, so those continue to move higher."

Those bonds had traded around the 115 mark before last Tuesday's bombshell announcement from the Justice Department that it had filed suit with the federal district court in Washington to block AMR's proposed $11 billion merger with US Airways Group on antitrust grounds, feeling that allowing the fourth- biggest U.S.-based carrier, AMR's American Airlines, to combine with the fifth-biggest in the industry, US Airways, to create the world's biggest air carrier, would cut down on competition and hurt consumers - allegations that both airlines deny.

The 6¼% notes plunged all the way down to the upper 80s by the middle of last week, before coming off those lows to finish out last week in the low 90s - and the bonds kept moving up in brisk trading over the first four days of this week to their current levels. Friday was, in fact, the first session of this week in which those bonds had not moved up in active trading; on Thursday, they had gained 2¼ points to finish at 98½ , on volume of over $6 million.

AMR's 9% notes due 2016 traded around 981/2, again unchanged on just a handful of trades. Those bonds had likewise been hammered around last week and began this week around 92 bid.

The DOJ's move to stop the merger, supported by the attorneys general of six states plus the District of Columbia, threatens AMR's ability to emerge from bankruptcy in a timely fashion, since its plan of reorganization is predicated on the merger deal going through.

On Friday, the airline was in court in New York, urging the bankruptcy judge overseeing its reorganization to confirm its plan despite the Justice Department's action. He set this coming Thursday for a decision on that request.

Meanwhile, the judge in the DOJ suit on Friday called a scheduling conference for that suit for this coming Friday. The airlines are hoping for a speedy trial, starting in November, and resolution of all claims. The government, on the other hand, wants to go to trial in February, much to the chagrin of the airlines and many analysts and investors.

The trader said that that "whether or not people think [the plan] will get the DOJ's blessing is hard to say - but the bonds have rebounded quite a bit from their lows, and they were a little bit better today on very little activity."

Penney pops a little

Elsewhere, J.C. Penney's bonds were seen a little firmer ,with its 5¾% notes due 2018 having moved up ¾ point in round-lot dealings of over $4 million to end at 78½ bid, while its 7.65% notes due 2016 were marginally better at 88½ bid.

Its 6 7/8% notes due 2015 moved about a point higher to 92 3/8, although there were no round-lots traded - just a sizable amount of smaller odd-lot trades.

The trader said that the underachieving Plano, Texas-based retailer was "another notable name" recently in the news, between last week's boardroom battle that saw outspoken dissident director William Ackman step down from the board, followed by disappointing quarterly earnings - but hopeful guidance from management - as the troubled company tries to turn itself around after two consecutive full years of quarterly losses.

Nokia actively traded

Nokia's 5 3/8% notes due 2019 traded down a little to 96 5/16 bid, from prior levels around 96 7/8.

While there were only two or three sizable trades, there was considerably heavier volume in smallish round-lot trades.

There was no fresh news out on the Finland-based maker of wireless devices.

Dendreon lower again

In the convertibles market, Dendreon's 2.875% convertibles due 2016 traded at 651/2, which was down from about 66 bid previously, a New York-based trader said.

A second market source also pegged the bonds down about ½ point on the day at 651/2, on busy volume of more than $15 million.

"Dendreon had more bad news," the first trader said.

A Deutsche Bank analyst cut her rating on the stock of the Seattle-based biopharmaceutical company to "sell," and reduced her price target to $1.00, citing disappointing sales of its Provenge prostate cancer therapy at a time when the company's costs have risen ominously.

Analyst Robyn Karnauskas warned in a research note that "even if there is drastic restructuring and significant cost cuts, spending may still outpace [revenue] growth in the near term. Consequentially, we believe that the terms of a debt refinancing may have a negative impact on equity holders."

Dendreon's Nasdaq-traded shares closed down 28 cents, or 8.78%, at $2.91, on volume of 11.1 million shares, nearly three times the norm.

Rebecca Melvin contributed to this review

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