Linens active, gaining ground; MagnaChip quiet; Calpine bonds, equity better; Mortgage names up

By Stephanie N. Rotondo

Portland, Ore., Jan. 25 - Trading in Friday's bond market remained thin as an approaching weekend and a topsy-turvy equity market resulted in hesitant investors.

"Things seem stronger but very thin trading and mostly quotes," one trader said.

Other traders reported that the general bond market rallied early, along with the stock market. When the equity took a downward turn, the bond market was hesitant to follow.

"The general trend was things kind of shot up out of the gate," a trader said. "Then they settled back in."

Still, the junk sector retreated slightly but managed to close unchanged to slightly better overall.

Linens n'Things Inc. was one of the more active names in the distressed arena. For the second day in a row, the retailer's bonds managed to gain some ground they had lost in previous sessions.

It was mostly quiet on the MagnaChip Semiconductor Ltd. front, after the Korean company posted what one trader called "disappointing" numbers. The chipmaker's debt, which lost about 7 points over the week, ended the day unchanged - or better, depending on whom you asked.

The early equity rally boosted Calpine Corp.'s when-issued stock, which in turn helped out the bonds. The bonds, which have recently been declining with its equity counterpart, ended the day as much as 4 points better.

News that bond insurer Ambac Financial Group has an interested buyer sparked hope throughout a struggling financial sector that all is not lost. Distressed mortgage names such as Residential Capital LLC and Thornburg Mortgage Inc. closed anywhere from 2 to 4 points higher.

Linens active, gaining ground

Following a rally that boosted the sector in the previous session, retailer Linens n'Things remained active and continued on its upward course.

A trader quoted the floating-rate notes due 2014 at 43.5, "give or take," noting that the debt hit a high of 44 during the session. Another trader echoed the 43.5 mark, as well as the day's high.

The first trader said there was "no reason" for the activity in the name, adding, "Everybody's been involved in it." He said there had been short covering, long buying and selling recently.

Earlier in the week, Linens released its fourth-quarter sales numbers. The company reported total net sales of $962.9 million for the fourth quarter of 2007, a 0.6% increase over the same quarter in 2006. A trader said a full 10-K should come out in March.

MagnaChip posts 4Q, bonds quiet

Chipmaker MagnaChip announced "disappointing" numbers, a trader said, despite an increase in sales and a narrower loss.

The Seoul, South Korea-based company posted sales of $246.5 million for the quarter ended Dec. 31, which compared to sales of $162.3 million for the same quarter of 2006. The company also showed a narrower net loss of $29.5 million, compared to $45.6 million.

"With the 2007 recovery and execution culture we have implemented across the company, I am confident that we will continue our growth at higher profitability levels in the future period," said Sang park, chief executive officer, during the quarterly results conference call.

Still, a trader said MagnaChip's debt was "barely trading" and ended the day unchanged after losing 7 points over the week. The trader pegged the 8% notes due 2014 around 63.

However, another trader said the 8% notes rose to 60 bid, 66 offered from 52 bid, 55 offered, and its 6 7/8% notes due 2011 were 5 points better at 75 bid, 79 offered. The Korean computer-chip maker's floating-rate notes due 2011 were also at 75 bid, 79 offered, up 4 points on the day.

Calpine bonds, equity rally

After several sessions of losses, Calpine's debt managed to regain some ground, following its equity counterpart's rally.

A trader deemed the bonds 3 to 4 points better, its 8½% notes due 2011 at 111 from "107 and change," and its 8½% notes due 2008 at 114 from 110.

Another market source placed the 2011 issue at 109.75, up 2.5 points.

The power producer's debt has retreated over the course of the week, as a weakening equity market has put pressure in the company's when-issued common stock. But the stock rallied during Friday trading, closing up 50 cents, or 3.25%, to $15.90.

The San Jose, Calif.-based company plans to emerge from bankruptcy no later than Feb. 5.

Ambac news helps mortgage sector

Struggling mortgage lenders staged a comeback during the last trading day of the week. A trader said the surge could be due to news that bond insurer Ambac Financial Group might have an interested buyer.

"It's the bailout thought process," he said, adding that maybe someone has come up with a plan to help Residential Capital.

That company's bonds were anywhere from 2 to 4 points firmer on the day, the trader said. He quoted the shorter paper, such as the 5.65% notes due 2008, at 85, up from 83 previously. He also saw 6½% notes due 2012 at 62.

Another trader said ResCap's bonds were "up 5 points throughout the day, but then came in toward the close to end up 1 or 2 points." He saw its 6 1/8% notes coming due this November at 77 bid, 78.5 offered, while its 6 7/8% notes due 2015 ended at 61 bid, 63 offered.

Another trader said that its 6½% notes due 2013 were 5 points better at 61 bid, 63 offered. Its 8 3/8% notes due 2015, seen up as much as 7 points earlier in the session, finished up 5 points at 62.

Thornburg Mortgage's bonds were also better, its 8% notes due 2013 at 85 bid, 86 offered. Another source, however, deemed the debt unchanged at 85.25.

Another trader said Thornburg's notes improved by 1.5 points to 85.5 bid, 87.5 offered.

Meanwhile, Countrywide Financial Corp.'s 6¼% notes due 2016 were 1.5 points better at 82.5 bid, 84.5 offered, while its 3¼% notes coming due this year were a point better at 96.5 bid, 97.5 offered.

A subprime mortgage meltdown during 2007 played havoc in the financial sector, causing companies such as Thornburg and ResCap to shut down their subprime divisions and post millions of dollars in losses. Fallout leaked into the financial sector at large, and even big banks were not immune, as exposure to the subprime arena hit everyone in the pocketbook.

Bond insurers also fell victim to the crisis. With a recession looming and credit markets tighter than a drum, many financial companies face disaster, unless a knight in shining armor surfaces. The news that Ambac might have found one may have inspired investors' belief that more saviors are out there.

Large seller in Buffets

When Buffets Inc. filed for Chapter 11 protection earlier in the week, it stated that all of its 600-plus restaurants would remain open for business.

They might have jumped the gun on that one.

In a court filing, the restaurant operator asked a judge to approve the sale of four of its properties, all of which have been closed.

Bondholders likely heard about the news Thursday during a bondholder conference call. According to one trader, a "large seller" came into the market late Thursday. He said the 12½% notes due 2014 were offered at 8.

Another trader said he saw no activity in the name.

According to court papers, four different parties have made offers on the four separate properties. The company said the locations were considered unprofitable, with little hope of becoming so.

Broad market tidbits

Neff Corp.'s 10% notes due 2015 were hot on the trail of the equity market, moving up to 49.5 before settling back in to 45, which one trader called unchanged.

Another trader said Delphi Corp.'s debt was "quieter," closing around 36.

According to a trader, Werner Co.'s former creditors are suing the company for $1 billion, alleging that the owners deliberately lied and drained the company of funds. Bondholders received warrants upon the ladder maker's emergence from bankruptcy, which a trader said held "negligible value."

Paul Deckelman contributed to this article.

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