Ahern bonds dive 15 points after skipped coupon; MBIA gains, Ambac waffles; OPTI ends higher

By Stephanie N. Rotondo

Portland, Ore., Feb. 16 - Investors continued to focus on new issues, distressed debt traders said, but that didn't stop them from playing in Ahern Rentals Inc. debt.

Ahern paper dropped as much as 20 points during the session on the back of a skipped coupon payment. The bonds finished up the day only about 15 points weaker, leaving one source to opine that the debt "found its equilibrium."

Still, market sources disagreed about whether or not the missed payment was expected or not.

Meanwhile, MBIA Inc. notes firmed in trading and had been improving for a few days, a trader said. The gains came as investors bet the company might be able to pull itself together.

Fellow bond insurer Ambac Financial Group Inc., however, ended the day just slightly better to unchanged.

OPTI Canada Inc. was on the stronger side, traders reported, though they noted that volume in the credit was much less than it had been last week.

Ahern notes plummet

Ahern Rentals' 9¼% notes due 2013 "got absolutely hammered," a market source said, after the company announced that it had elected to skip its Feb. 15 coupon payment.

The source said the bonds traded in the mid-30 and low-40s, which compared with levels in the mid-50s before the news came out.

At another desk, a trader said the notes were "down roughly 15 points," ending around the 40 level. The bonds had traded around 55 on Monday.

The trader also noted that the bonds traded as low as 35 during the session.

A third trader saw about $50 million to $60 million of the paper turn over, seeing them "settling in" at 39 bid, 41 offered.

That trader noted that "of the people I know," many had thought that levels in the 50s were "kind of ridiculous. In the mid- to low-30s, it's probably a screaming buy and here it's pretty neutral.

"So it's found its equilibrium," he said.

Yet another trader deemed the paper down 14 points, around 40.

The decision to skip the $10.9 million interest payment was done with the support of the company's revolving credit facility lenders, as well as a majority of bondholders, according to a press release. The company had already received a forbearance from its bank lenders and has been working with Oppenheimer & Co. since July.

Ahern also said it would cease filing its quarterly reports with the Securities and Exchange Commission, effective immediately.

But as for the missed interest payment, market sources disagreed on whether or not the news was expected.

"Yes, we expected it," said one source who followed the name. He opined that the losses in the bonds mounted because "people [are] worried about the big slug of debt [about $380 million of first-lien debt that is] ahead of the 9¼% [notes].

"It may be a bit too early in the cycle to file," he added. "The [bondholders] will have to put up big money in rights offering."

He also remarked that Ahern was "a good company depending on the cycle - not so good if you think the end markets remain weak."

Another source, however, said that while "people may have been thinking [the payment would be skipped]," they also "might have thought something would be resolved before this."

Standard & Poor's cut Ahern's corporate credit rating to D from B- on the news, and dropped the second-lien secured notes to D from CCC.

Ahern Rentals is a Las Vegas-based heavy equipment rental company.

MBIA gains, Ambac steady

In the financial space, MBIA's 14% surplus notes due 2014 were called "a bit better" by a trader, placing the notes in the mid-60s.

He called that up "probably 3 to 4 points."

Another trader said the bonds were quoted at 62 bid, 63 offered, but after the bell, he saw a 63 bid for paper.

"So that's up a couple points," he said.

Earlier in the week, credit default swaps were reportedly falling as investors began betting that the Armonk, N.Y.-based bond insurer would pull itself together.

Meanwhile, Ambac Financial's debt was better to unchanged, as the company sought to fight its tax bill.

A trader said the bonds were "kind of where they have been," the 5.95% notes due 2035 at 10¾ and the 9½% notes due 2021 at 11.

Another trader said the 9½% notes were "up almost a point" around 11. He also pegged the 5.95% notes at 11, calling that unchanged.

Ambac is looking for a bankruptcy judge to enforce a lower court order that blocked the Internal revenue Service from collecting $700 million in tax liabilities. The IRS had filed a suit against the bankrupt bond insurer on Feb. 9.

Ambac filed for bankruptcy protections on Nov. 8.

OPTI bonds higher

OPTI Canada debt continued to see "much less action" than it had the week before, according to a trader.

Still, he saw the 7 7/8% and 8¼% notes due 2014 moving up to 48 bid, 49 offered from opening levels of 47 bid, 48 offered.

Another trader called the bonds a point better at 481/2.

OPTI is a Calgary, Alta.-based oilsands producer.

A&P doing better

A trader saw The Great Atlantic & Pacific Tea Co. Inc.'s "doing better earlier today," seeing the bankrupt Montvale, N.J.-based supermarket operator's 11 3/8% senior secured notes due 2015 finishing up around 97½ bid, calling that up around a point from the 961/2-97 ½ context at which the bonds began the day.

He saw A&P's busted convertible issues up half a point on the day at 35 bid, 37 offered. The company's 51/8% notes slated to mature in June and its 6¾% notes due 2012 now trade like deeply distressed unsecured junk bonds instead of converts because of A&P's nearly worthless stock.

Another trader saw the 11 3/8s at 96¾ bid, 97½ offered, which he said was "a little bit better than [Tuesday] - between a half- and three-quarter-point improved. He said that the bonds "have been sort of creeping up," going from 951/2-96 on Monday to 96-96¾ on Tuesday and 963/4-97½ on Wednesday.

"I don't know how much trading has been going on, but they've been moving up a little bit."

Investors apparently ignored the news that A&P's chief financial officer, Brenda Galgano, had resigned from the company, effective March 27, which was contained in a regulatory filing late Friday but was not otherwise announced by the company. Galgano will become CFO of New Jersey-based nutritional supplements retailer Vitamin Shoppe Inc. effective Apr. 4., the latter company announced Wednesday.

Paul Deckelman contributed to this article

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