Distressed debt firms before elections, Fed meeting; filing buzz hurts Ambac; Dynegy trades up

By Stephanie N. Rotondo

Portland, Ore., Nov. 1 - While investors were keeping an eye on Tuesday's elections and a Federal Reserve meeting scheduled for Wednesday, market sources still saw the distressed debt market firming during Monday trading.

But the market's strength couldn't help Ambac Financial Group Inc.'s bonds from falling. The declines came as the company said it would skip an interest payment and that is was also in process of negotiating a pre-packaged bankruptcy plan with creditors.

Meanwhile, Dynegy Inc. won regulatory approval for its Blackstone Group buyout and the bonds traded up in response. The company is continuing its fight against shareholders who are objecting to the acquisition.

News reports, citing anonymous sources, claimed General Motors Corp. was intending to file its plan for an initial public offering by Tuesday. That news helped the company's bonds rally half a point to a full point on the day.

Ambac dips on potential filing

Ambac Financial Group announced it would not make its Nov. 1 interest payment on its 7½% notes due 2023 and that it was in talks with creditors regarding a bankruptcy filing.

The news caused the New York-based debt guarantor's debt to trade "definitely lower," a trader said, though he added "not that those things were trading all that much."

The trader said the 6.15% notes due 2037 had fallen to 1½ bid, 2 offered from 3 bid, 3½ offered. The unsecured paper - such as the 5.95% notes due 2035 - were "drifting into a 23-24 context," he said, adding that the bonds had been trading in the lower-30s previously.

Ambac said it would not make its Nov. 1 payment, noting that it also had a Nov. 15 payment coming up that it presumably will also skip. The company also remarked that it had been unable to raise capital in order to avert a potential bankruptcy and, as such, had begun negotiations with creditors to form a pre-packaged bankruptcy plan.

However, Ambac also pointed out that it would still likely file for bankruptcy, whether an agreement had been reached or not.

Dynegy sale OK'd, bonds up

Dynegy lauded the approval of its previously reported Blackstone Group buyout by the Federal Energy Regulatory Commission and distressed debt traders saw the bonds trending upward in response.

A trader called the bonds up a quarter- to a half-point on the day, the 8 3/8% notes due 2016 around 77 and the 7¾% notes due 2019 around 683/4.

Another trader saw the 8 3/8% notes around "77-ish," noting that the notes' levels' were "trending a little bit higher."

The 7¾% notes were meantime "plus/minus" 69, which he called relatively unchanged from the "wide range" of prints seen Friday.

FERC's approval of the sale to Blackstone and NRG Energy Inc. - which will buy four plants from Blackstone once the Dynegy acquisition is complete - brings the Houston-based company all the more closer to securing the $4.50-per-share transaction.

As previously reported, Dynegy has come under fire from investors such as Carl Icahn, who have called the bid undervalued. Last week, Dynegy sent a letter to shareholders in response to statements made by Seneca Capital, another investor that has opposed the buyout.

"Seneca may have many reasons to take a risk on a deal that our other stockholders do not have," the company said in the letter. "Dynegy does not know all of Seneca's interests in this situation. What Dynegy does know is that Seneca has not been a significant long-term holder of Dynegy stock. In fact, Seneca's public filings showed an ownership position of less than 1% before the Blackstone transaction was announced.

"Perhaps indicating Seneca's true beliefs as to Dynegy's future prospects, Seneca sold approximately 700,000 shares at $2.93 per share on Aug. 12, 2010, the day before Blackstone made its offer public. Blackstone's offer represents a 54% premium to Seneca's sale of these shares."

Dynegy shareholders will vote on the buyout at a meeting on Nov. 17.

GM up on IPO news

General Motors' benchmark 8 3/8% notes due 2033 were "rallying," according to a trader, on word the Detroit automaker plans to file its IPO plan as soon as Tuesday.

The trader called the bonds up "about a point" at 371/2.

Another trader placed the paper around 37, up half a point from Friday.

Yet another trader saw the GM benchmarks "north of 37," quoting them at 37-37.125, on $45 million, one of the busiest bonds of the day.

"It's just amazing," he said. "They keep grinding higher."

It is currently believed that the IPO shares would come from those shares already owned by the U.S. Treasury, the Canadian government and the United Auto Workers union. Those entities would sell their shares - bought in 2009 to help the carmaker continue after its bankruptcy - on the open market and could reduce the Treasury's stake to 43.3% from 60.8%.

The sale is expected to price Nov. 17 and shares could be selling on the New York Stock Exchange as soon as Nov. 18.

Broad market starts strong

In the broader marketplace, Tribune Co.'s bonds were still "well bid for in the high-40s, around 50-ish," a trader said, though he saw little to no trading activity during Monday's session.

First Data Corp.'s 10.55% notes due 2015 meantime inched higher to 851/2, according to another market source.

And, NewPage Corp.'s 10% notes due 2012 were "up again," a trader said, at 64 1/8, while the 11 3/8% notes due 2014 traded up to 961/4.

"I think people expect reasonable numbers from them," the trader said of the upcoming Nov. 4 quarterly report.

Paul Deckelman contributed to this article

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