WaMu seized, bonds seizing; Six Flags still reeling from downgrade; bid list gets blame for losses

By Stephanie N. Rotondo

Portland, Ore., Sept. 26 - Washington Mutual Inc.'s failure created a lot of action for distressed traders Friday.

"Today was WaMu, WaMu and more WaMu," a trader said. "And that was it. What little else did trade was lower."

"WaMu was all over the place," said another trader.

The company's bonds traded in a wide range of 15 to 45 after federal regulators took control of the bank and then sold it to JPMorgan Chase & Co. The bank's failure is the largest in history.

Meanwhile, Six Flags Inc.'s bonds continued to feel the pain after a rating downgrade earlier in the week. The paper lost a good 3 points on concerns of a default on upcoming maturities.

A bid list rumored to be circulating through the marketplace was pointed to as the cause for losses in Idearc Inc., Neff Corp. and Quebecor World Inc. The list was said to have also included a large amount of Lehman Brothers paper.

WaMu seized, bonds seizing

Just hours after Washington Mutual was seized by federal regulators and then sold off to JPMorgan, bond traders saw a hefty uptick in trading the defunct bank's debt.

"It was the only thing people wanted to talk about," said one trader, who added that the company's various issues traded anywhere from 15 to 45.

The trader said the senior holding company debt, such as the 3½% notes due 2012, started the day around 15, climbed to 25 bid, then finished the day around 39 bid, 40 offered. The operating company's paper was actually trading lower than the parent's bonds- considered atypical in this type of situation - and the trader said that debt was "basically worthless."

At another desk, a trader said the holding company issues went from the mid-20s to low-40s, while the operating company paper, such as the floating-rate notes due 2009 and the 5.55% notes due 2010, opened around 10 only to close in the low-20s.

Federal regulators seized the company's assets Thursday night, only to turn over control of the company to JPMorgan, which purchased the bank for a measly $1.9 billion. Washington Mutual has more than $307 billion in assets.

The Seattle, Wash.-based bank's failure is the largest in U.S. history. The downfall was brought on largely by the company's exposure to subprime mortgages, as well as its option adjustable-rate mortgages.

JPMorgan said it plans to write down WaMu's debt portfolio by about $31 billion, although if the government's $700 billion bailout plan is approved, that number could change.

After the seizure and change of control, WaMu faced a series of downgrades. But both Fitch Ratings and Moody's Investors Service affirmed JPMorgan's ratings. Moody's said the outlook was negative for the bank, but also noted that it was confident JPMorgan would be able to successfully integrate its acquisition into its existing business.

In an afternoon report, Gimme Credit LLC analyst Kathleen Shanley called the government takeover "a relief," as well as the subsequent sale as it meant no depletion of the FDIC's insurance fund.

But the news is still bad for bondholders, she wrote. Noteholders, along with shareholders, will receive nothing, although bank depositors' money will be safe. Shanley also predicted that the parent company would file for Chapter 11 protections, much like IndyMac Bank did after its failure.

As for JPMorgan, Shanley considered the acquisition a bonus for the company.

"The company's commitment to a strong balance sheet offsets our concerns about the risk of taking on the WaMu franchise," she wrote.

Still, the market continued to watch for signs from Washington, as negotiations regarding its bailout plan faltered. Now, a trader said, Wachovia Corp. is the next bank expected to fail, should the government be unsuccessful in its attempts to put the plan together and another financial giant falls.

As such, the trader said Wachovia's debt was "hit brutally," losing about 20 points during the session. According to Nasd Trace, the 3 5/8% notes due 2009 traded anywhere between 50 and 94, with 75 being the last trade. The bond tracking system called that down 19 points on the day.

Morgan Stanley's 3 7/8% notes due January 2009 continued to dominate, the trader continued. He said the issue hit a high of 92 and a low of 86.5 Friday.

"That is what makes it so remarkable, it that it is such a short piece of paper," he said.

Six Flags still reeling

On Wednesday, Moody's downgraded Six Flags' debt and, according to one market source, the company's bonds were still reeling.

"Six Flags got hammered," he said, quoting the 9 5/8% notes due 2014 at 55 bid, 57 offered, down from 59.25 on Thursday. The 9¾% notes due 2013 fell 3 to 3½ points to 57 bid, 59 offered.

Another source deemed the 9 5/8% notes down just over 3 points at 56 bid.

Moody's cut its rating on the New York-based amusement park operator due to concerns of default. The agency noted that while the company's operating performance has improved, there is doubt that there will be enough cash flow and liquidity to fund its upcoming debt obligations.

Six Flags has $287.5 million of preferred income redeemable securities, with a mandatory redemption date of Aug. 15, 2009. The senior unsecured notes, which total $131 million, come due on Feb. 1, 2010. If the company is unable to pay the Piers redemption, a default will occur and cross-defaults will be triggered, Moody's said.

Bid list blamed for losses

For the past several sessions, traders have reported that bid lists - which reportedly contained mostly Lehman Brothers paper - have been circulating. But it turns out that Lehman was not the only name on the list.

A trader blamed the list for losses in names such as Idearc, Neff and Quebecor. He saw Idearc's 8% notes due 2016 fall to 30.5 early in trading, but come back to 31 bid, 32 offered, just half a point lower. At another desk, a trader said the paper "got as cheap as" 30 before rebounding to 31 bid, 32 offered, which he called unchanged.

The first trader noted that trading in Idearc has been "extremely active" of late, with no news to explain the momentum. He said that the company's bank debt had also been losing ground over the last few sessions, its term loan A in the mid-60s and its term loan B in the low-60s.

The trader also saw Neff's 10% notes due 2015 offered at 30, down from the last trade at 34. Quebecor's 4 7/8% notes due Nov. 15 slipped to 30 from 33 bid, 34 offered, while its 9¾% notes due 2016 and its 9¾% notes due 2015 were offered at 44.

"I was thinking it was more like 42 [bid], 43 [offered]," he said.

Broad market softer

Sprint Nextel's 6% notes due 2016 dipped below 80 during the session, before coming back to finish the day at 80 bid, 80.5 offered.

Sea Containers Ltd.'s 10¾% notes that were to have matured in 2006 hit a low 0f 40, then ended at 42. That compared with 46 bid, 47 offered previously.

Harrah's Entertainment LLC's debt "got hammered," a trader said. He saw the 5¾% notes due 2017 drop 3 points to 27.5, while the 8 1/8% notes due 2011 fell 3½ points to 57.5, versus levels around 61 on Thursday.

Elsewhere in the gaming sector, MGM Mirage's 7½% notes due 2016 closed at 72.5 bid, 73 offered, down from 73.5 bid, 74.5 offered previously.

Station Casinos' debt lost 2 to 4 points, a trader said, placing the 7¾% notes due 206 at 56 and the 6½% notes due 2014 at 31.5 bid, 33 offered.

Hertz Corp.'s bonds also ended slightly softer. A trader saw the 8 7/8% notes due 2014 hit a low of 87.75 before rebounding some to 88.25. That compared with 89.5 bid, 90 offered previously. The 10½% notes due 2016 were also lower at 85.25.

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