Distressed market takes backseat to new issues; MBIA debt mixed after bank lawsuit dismissed

By Stephanie N. Rotondo

Portland, Ore., Jan. 11 - The distressed debt market remained muted Tuesday, as investors continued to focus on the new issue line-up.

"It's kind of dominating the landscape right now," a trader said.

There was, however, a decent bit of action going on in MBIA Inc. An appellate court overturned a lower court ruling in regard to a lawsuit the company is currently facing, allowing the case to be dismissed. But the bonds did not act in unison, instead ending the day in mixed fashion.

Sprint Nextel Corp. debt was also mixed, traders reported. The up-and-down in the notes came as Verizon Wireless announced it would soon be adding the Apple iPhone to its cellular offerings. The addition could be another nail in Sprint's coffin, as it could lose more market share.

MBIA mixed as lawsuit nixed

Bond insurer MBIA saw its bonds end the day mixed as an appellate court dismissed a lawsuit against the company brought by several lenders, including ABN Amro Bank NV and UBS.

One trader said the 14% surplus notes due 2014 "traded down into the low-50s." But another trader saw the 5.70% notes due 2034 close around 68, which was "better by like a point or 2."

Another trader saw the 14% notes dip to bids between 51 and 53, down from 56 bid.

The dismissal of the lawsuit overturned a lower court's ruling. The suit was brought in response to MBIA's 2009 restructuring plan that split off parts of the company.

The plaintiffs in the case - one of two lawsuits brought after the plan was announced - were asserting that the restructuring plan resulted in a fraudulent conveyance and a breach of contract with some of its clients. The plaintiffs claimed that the split then depleted the company's coffers, making it unable to pay out on its policies.

The financial crisis hit MBIA hard as defaults rose. MBIA filed lawsuits against financial institutions for their role in the demise, and MBIA and its rival Ambac Financial Group Inc. have argued that lenders misled them in order to secure insurance policies on their securities.

Ambac filed for bankruptcy in November.

Sprint bonds wishy-washy

Sprint Nextel paper also closed out the session in mixed fashion as rival Verizon Wireless announced it would soon carry the Apple iPhone.

One market source deemed the 6% notes due 2016 a point softer at 98½ bid.

But another source said the 8¾% notes due 2032 were slightly better at 1043/4, while the 8 3/8% notes due 2017 were "about unchanged" at 1091/4.

At another shop, a trader said the 8¾% notes were up nearly a point at 104 7/8 and the 8 3/8% notes due 2012 were about half a point higher at 1063/4.

That trader also noted that the Overland Park, Kan.-based wireless telecommunications provider's debt was trading higher than it should.

Verizon will add the iPhone to its offered phones in mid-February, joining AT&T as the only carriers compatible with the Apple product. The addition could put more pressure on Sprint, which has been losing market share to both carriers for several years.

A&P investors worried

A trader said that bondholders of Great Atlantic & Pacific Tea Co. Inc. "do not know what to do. They're very unhappy with the terms of the reorganization. They're subordinated to the debtor-in-possession financing, which was larger than anticipated."

For that reason, he said, the bankrupt Montvale, N.J.-based supermarket operator's 11 3/8% senior secured notes due 2015 were being offered around 90. He said that he "couldn't believe" that those bonds had traded as high as 93 bid, 94 offered in the days immediately following the company's Dec. 12 Chapter 11 filing, and they have since come down on investor qualms. "There's a lot of little nervousness there."

The company's two convertible issues - the 5 1/8% notes slated to come due on June 15 and the 6¾% notes due 2012 - continue to trade in the lower 30s, in effect turned into plain old unsecured junk bonds by the erosion of the company's now-delisted shares down to penny-stock territory, at around 20 cents per share.

Broad market loses ground

Among other distressed debt market mainstay, OPTI Canada Inc.'s 7 7/8% notes due 2014 "traded back down," a trader said, dropping to 69½ from 72.

Harrah's Entertainment Inc./Caesar's Entertainment Inc.'s 10% notes due 2017 meanwhile held steady at 901/4.

Paul Deckelman contributed to this article

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