Distressed bonds follow equities on wild ride; Hawker Beechcraft tumbles 15 points on earnings

By Stephanie N. Rotondo

Portland, Ore., Aug. 3 - Distressed debt "leaked out a little bit, that's for sure," a trader said Wednesday.

Traders reported that bonds, like the equity markets, got knocked down early on, but that some were "holding in there."

"Everything seems to be centered on the equities," a trader said.

Hawker Beechcraft Acquisition Co. LLC posted its second-quarter results during the session. The figures disappointed investors, who sent the company's bonds down as much as 15 points on the day in more active than usual trading.

Meanwhile, one trader opined that some of the day's losses were due to "index selling." As a result, names like NewPage Corp., Hovnanian Enterprises Inc. and Caesars Entertainment Corp. lost ground.

Hawker plummets on earnings

Hawker Beechcraft got pounded Wednesday after the company released its second-quarter earnings and also said it was drawing from its revolver to bolster its cash supply.

One trader called the 8 7/8% and 8½% notes due 2015 down 15 points at 59 bid, 61 offered. Another trader called the 8½% notes 12 points softer at 61 bid, 62 offered and the 9¾% notes due 2017 about 15 points weaker at 49 bid, 51 offered.

"Wow, that is not good," he said. "Not good at all."

A third trader deemed all three issues down about 15 points, the 2015 maturities in the low-60s and the 2017 paper in the low-50s.

For the three months ending June 30, the Wichita, Kan.-based aircraft manufacturer reported net sales of $581.7 million, down $57.6 million from the year before.

Operating income was slightly better with a loss of $19.6 million, compared with a loss of $20.7 million for the second quarter of 2010.

Liquidity, however, was much lower, with $382.4 million available as of June 30. On March 31, liquidity was at $546 million.

"The decrease was due to a variety of factors, including temporary supply disruptions that have contributed to an otherwise anticipated seasonal inventory increase in preparation for deliveries during the third and fourth quarters of 2011," the company said in its earnings statement.

Additionally, Hawker said it had drawn $25 million from its revolving credit facility "in order to keep a prudent amount of cash on hand as it works through the supply issues, seasonal slowdown and working capital swings driven by transformative projects. The company anticipates making additional draws on the revolver, which currently has about $214 million of availability, in order to maintain an appropriate supply of cash."

On the positive side, Hawker noted that cancellations in the quarter were surpassed by new orders. New orders totaled $487 million, while cancellations came to $80 million.

Gross margins also improved, rising to $79.4 million from $72.5 million the year before.

Index selling pressures bonds

A trader said the day's weakness was driven by "index selling," pushing down names like NewPage, Hovnanian and Caesars.

The trader said NewPage was "active again," seeing the 10% notes due 2012 "straddling 20."

Another trader said both NewPage and Hovnanian senior notes - the 11 3/8% notes due 2014 an the 10 5/8% notes due 2016, respectively - were "heavy in the morning, but they hung in towards the end of the day."

He saw NewPage's 11 3/8% notes closing at 88¼ bid, 88½ offered.

"They traded below 88 for awhile," he noted.

In Hovnanian's paper, the bonds "looked like it would drop below 90 this morning," but ended around the 91 level.

At another desk, a trader said NewPage's 10% notes "dipped below 20," while the 11 3/8% notes fell a point to around 88.

Hovnanian's debt traded down to 901/2, he added.

In Caesars' 10% notes due 2018, a trader said the bonds fell about 3 points to 85½ bid, 86½ offered, on decent volume.

Broad market mixed

Elsewhere in the world of distressed debt, a trader said OPTI Canada Inc.'s 7 7/8% and 8¼% notes due 2014 were unchanged at 64½ bid, 65 offered. Among other Canadian companies, he saw Nortel Networks Corp.'s 10 1/8% notes due 2013 slipping to 1121/2.

Capmark Financial Group Inc.'s debt - which tends to trade on top of one another - meantime fell to 61 from 611/2.

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