MF Global paper on rollercoaster; Dynegy, bondholders talk bankruptcy, bonds up; Sprint falls

By Stephanie N. Rotondo

Portland, Ore., Oct. 26 - There was "big volume in the high-yield markets" on Wednesday, a trader said, and that included the distressed debt arena as well.

"It was a busy day; lots of guys are reaching," another trader said. "Trying to buy everything they can."

The trader said that some investors were "underinvested," as they had thought the recent rally in the markets was short covering or some other blip that would recede. As that has not proven to be the case, "they're trying to catch up, looking to get involved. It looks like it could be a real rally into year-end."

MF Global Holdings Ltd., the futures broker that reported poor earnings on Tuesday and was downgraded to the lowest investment-grade ranking on Monday, saw its bonds continuing to gyrate throughout the session. The paper hit lows in the mid-40s, a loss of 15 to 20 points on the day, only to recover some by the end of business.

Meanwhile, Dynegy Holdings LLC's debt was moving up. The gains came after news reports indicated the company was talking with bondholders about putting the subsidiary of Dynegy Inc. into bankruptcy.

Realogy Corp. was also continuing to climb as investors prepared for earnings next week.

While the rest of the market was heading up, Sprint Nextel Corp. notes were on the decline. The company released earnings on Wednesday, which showed a narrowed loss.

MF Global takes a ride

A trader said MF Global continued to be a notable story on Wednesday, as the bonds gyrated on news the company had hired Evercore Partners to help assess its strategic options.

"[The bonds] fell pretty hard at the beginning of the day and then recovered a little bit," the trader said. The notes, which are now trading in line with one another, dipped to the low-40s before ending in the mid-50s, he said.

"A lot of volatility there," he said. "That's a 15-point move."

"They will need to find a buyer pretty quickly," the trader added. "It's tough to see where the value lies."

At another desk, however, a trader saw the debt falling into the mid-40s, only to rebound up to 66 bid, 67 offered, a gain of 6 points on the day and a gain of 20 points from the intra-day low.

Another trader said that MF Global's bonds were "all over the map," as the badly battered issue attracted attention from junk players and even from distressed-debt investors, despite its still nominally investment-grade status.

He said that its 2016 notes "fell into the 40s, at one point, then snapped back" to levels in the mid-to-upper 60s going out.

Yet another trader called MF Global "pretty active," saying that the notes had been "wrapped around a 50 context - the next thing you know, bonds were trading in the high 60s."

He said that he "didn't see a lot of volume, I just saw very quick and fast money get involved in that name. It was being whipsawed around."

A market source suggested that it was anyone's guess "how much longer they're going to be investment grade."

News reports, citing "a person familiar with the matter," said the company was considering such options as putting itself up for sale.

On Tuesday, MF Global reported a net loss of $191.6 million, or $1.16 per share, for the third quarter. That compared to a loss of $94.3 million, or 59 cents per share, the year before.

Revenues dropped 14.3% to $205.9 million.

The poor results followed a rating downgrade from Moody's Investors Service on Monday. Moody's dropped its long-term rating to Baa3 from Baa2, alleging that the firm was not properly managing risk.

Standard & Poor's placed the firm on CreditWatch with negative implications on Wednesday.

The New York-based firm is reported to have about $6 billion in European exposure. That compares with the $12 million in revenues earned from its principal trading unit in the last quarter.

Dynegy talking bankruptcy

Dynegy Holdings' debt saw "a little action," according to a trader, as the company is reportedly in talks with bondholders regarding a potential bankruptcy filing.

The trader saw the 7 1/8% notes due 2018 trading around 62.

"They haven't traded in a long time," he said, making it difficult to assess whether the paper was up or down.

He also called the 7¾% notes due 2019 "kind of unchanged" at 65.

Another trader said the 8 3/8% notes due 2016 were "probably up a little bit, not much" at 65½ bid, 67½ offered.

A third market source deemed the 7¾% notes up over a point at 66 bid.

Dynegy is said to be in talks with bondholders about potentially putting the Houston-based power producer's subsidiary into bankruptcy in order to deal with its mountain of debt. Debtholders have by and large shunned a recent $1.25 billion refinancing deal that calls for a 30% or mote haircut on their holdings.

Additionally, it is thought that bondholders might encourage a Chapter 11 filing, as it could give them an opportunity to fight a recent reshuffling of assets that they claim was a fraudulent transfer that stripped them of assets.

The reshuffle, which created two new entities - CoalCo and GasCo - left the subsidiary with $3.5 billion in debt and $700 million in lease payments over the next five years. However, as certain assets were removed from the Dynegy Holdings banner, the subsidiary now has only two unprofitable leased power plants.

Realogy stays busy, better

Realogy paper has been climbing this week, as investors prepare for the Parsippany, N.J.-based company's earnings announcement next week.

A trader called the 11½% notes due 2016 "busy" and up a deuce at 78.

"It's the busiest day I've seen in them for awhile," he said.

Another trader called the issue up 1½ points also to the 78 mark.

Realogy is a real estate services and relocation services provider.

Sprint bonds decline

Sprint Nextel bonds were not benefitting form the otherwise positive tone of the market, despite posting a narrowed loss for the third quarter.

"They weren't that bad," a trader said of the numbers. "They're never that good."

He saw the 6.90% notes due 2019 dropping 4 points to 86, the 8¾% notes due 2032 falling 3 points to 85 and the 6% notes due 2016 slipping a point to 88.

For the quarter, Sprint added 1.3 million new subscribers and metric churn of contract subscribers fell to 1.91% from 1.93% the year before.

Net loss was $301 million, or $0.10 per share, versus a loss of $911 million, or $0.30 per share, for the same quarter of 2010.

Revenues were up 2.2% at $8.33 billion.

What investors did not like was the fact that with the addition of Apple Inc.'s iPhone - and the subsequent payout of at least $15.5 billion to the iPhone creator over the next four years - turning a profit before 2015 seemed unlikely.

In the next year, the Overland Park, Kan.-based company said it would face a cash shortfall of up to $2.2 billion and as much as $5.2 billion in 2013. Sprint said it would likely have to visit the capital markets in search of up to $7 billion to continue funding its operations.

Also, a trader said that Clearwire Corp.'s bonds were up sharply on the news that majority owner Sprint- which earlier this month gave investors the impression that it planned to abandon Clearwire and go it alone in building out its new network - said Wednesday that it had reached an agreement with Clearwire on technical cooperation between the two telecommunications companies.

"The comments on the Sprint call really impacted them," he said, seeing the Kirkland, Wash.-based company's 12% second-lien notes due 2017, recently seen in the mid-40s, closing up 6 points in the day while its 12% first-lien paper due 2015, which had been in the mid-70s, was up around 3 points, "and both of those levels were probably 3 to 4 points off their highs" for the day.

He said Clearwire was "very active, very volatile, and much better."

Paul Deckelman contributed to this article

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.