Countrywide down on bankruptcy rumors; housing sector hit; Calpine, Delphi lower

By Stephanie Rotondo

Portland, Ore., Jan. 8 - Continued turmoil in the housing and mortgage industries played havoc on the distressed bond arena Tuesday as well as the equity markets.

"Everything is getting killed with the equity market," one trader remarked.

"Everything is getting slaughtered," opined another.

The Dow Jones Industrial Average fluctuated throughout the trading day, opening up slightly, only to plummet 238 points by the close of business. The rocky market was prompted by scuttlebutt that Countrywide Financial Corp., the largest mortgage lender in the United States, was planning to file for bankruptcy.

Despite the company's vehement denial that it would file for bankruptcy, the rumor was enough to send the lender's bonds down as much as 10 points on the day. Traders by and large were unsure whether to believe the rumor.

The Countrywide buzz, plus poor sector quarterly numbers from KB Homes and further weakening housing data, did little to help anything remotely related to the struggling housing and mortgage sectors. Neff Corp. saw its bonds slip as much as 7 points, while homebuilders, such as Tousa Inc., and retailers alike also felt the pressure.

With no real news to speak of in the name, Delphi Corp. paper continued its downward descent, losing another 4 points during the session. Those losses were on top of a 3- to 6-point decline in the previous session, as well as losses earned last week.

But even stronger credits, such as Calpine Corp., were heavier. A trader said the power producer's bonds fell slightly, even as the company received approval on its exit financing.

"All kinds of fun and games going on," one trader quipped.

"It's ugly out there," said another trader. "This is not a seller's market."

Countrywide buzz prompts losses

Rumor that Countrywide Financial might be filing for Chapter 11 protection was the talk of Wall Street. Though the company denied any such intentions, the denial did not stop its bonds from going into freefall.

One trader said the 3¼% notes due 2008 - a four-month piece of paper - ended the day softer at 82.5 bid, 83 offered, with a 55% yield. Another trader pegged that issue at 82.5 bid, 84.5 offered, down from 88.5 bid, 89.5 offered in the previous session.

The second trader also quoted the 6¼% notes due 2016 at 46.5 bid, 49 offered, down 3.5 to 4 points.

"They were the big loser," he said.

Another trader deemed the 5.8% notes due 2012 weaker by 8 to 9 points, trading in the high-50s. He added that, depending on the issue, Countrywide's debt was down 5 to 10 points across the board.

But the bad news kept coming. A New York Times article claimed Countrywide "recreated" certain letters claiming a borrower owed the company $4,700, even though the borrower was under bankruptcy protection. Again, the company denied the allegation. That case is just one of many in the state of Pennsylvania, where certain practices of the mortgage lender have come under scrutiny.

To add insult to injury, a report published by Lehman stated that it was doubtful the company would be able to return to its previous levels of profitability. According to one source, the report also said that Countrywide needed to raise $4 billion in the next few weeks - a fair task in the current credit market.

Still, no one was able to say definitively if Countrywide was in fact in danger of going bankrupt.

"That's a good question," one trader said. "I don't know."

Another trader said he did not believe the company would file, though he conceded, "That's what we thought with Enron and WorldCom."

Regardless, the situation will have "pretty bad implications," a trader said.

"We wish we felt reassured by Countrywide's statement that there is "no substance" to the rumors about a possible bankruptcy and/or ratings downgrade," Gimme Credit analyst Kathleen Shanley wrote in an afternoon report. "Investors have turned decidedly negative on the outlook for the housing and mortgage sectors since the turn of the New Year. Countrywide needs some stabilization of the overall mortgage sector to restore confidence that it can survive the current crisis."

Elsewhere in the sector, Thornburg Mortgage Corp.'s 8% notes due 2013 dipped in sympathy with its fellow lender. A trader called the bonds down 2 points at 82.75 bid, 83.75 offered. Another trader quoted the bonds at 81.5 bid, 83.5 offered, down from 84 bid, 86 offered.

Residential Capital LLC's 6% notes due 2013 were off 4 points at 54 bid, 56 offered.

Housing, mortgage bad news felt all over

The Countrywide tittle-tattle was not the only bad news out Tuesday. Homebuilder KB Homes posted a wider fourth-quarter loss, just as new - and disappointing - housing data were released.

The National Association of Realtors reported that its seasonally adjusted index of pending sales for existing homes fell 2.6% to 87.6 from an upwardly revised October index of 89.9. The reading was interpreted by many to signal more troubles to come in that sector.

It was therefore no surprise that anything remotely connected to the mortgage and housing industry lost its shirt in Tuesday trading.

Rental services company Neff fell as much as 7 points, traders said. One trader placed the 10% notes due 2015 down that much to 43, while another deemed the debt 4 to 5 points weaker at 43 bid, 44 offered, down from 48.5 bid, 49.5 offered.

There has been no news out on the private company, which makes it harder to understand why the bonds lost that much weight. However, "somebody's getting the financials," one trader said. "And they aren't liking it."

There has also not been anything new out on Tousa, though many in the market are hard at work trying to find out what is going on.

"It seems like someone is buying up the subordinated notes," a trader said. "But I can't figure out if it is short covering or someone buying into them."

Still, activity in that name has slumped off, and the trader noted that, while the bonds appear to be better, they are really not that much changed compared to their year-end levels.

According to the trader, the 9% notes due 2010 ended the year at 41 bid, 43 offered, with about 4.5 points of accrued interest. Now, as the bonds are trading flat, they are 45.5 bid, 47.5 offered.

The trader also quoted the subordinated issues - the 10 3/8% notes due 2012 and the 7½% notes due 2011 and 2015, respectively - at 11 bid, 12 offered.

Another trader pegged the 9% notes and the 8¼% notes due 2011 at 46 offered, looking for a bid.

Retailers, which have been caught up in the housing and mortgage debacle, also buckled under the pressure. A trader called Bon-Ton Stores Inc.'s 10¼% note due 2014 unchanged at 71.5 bid, 72.5 offered, though he said that it was a name "people have started to talk about." Another trader, however, placed the debt down at least 1 point to 70.5 bid, 71 offered. That trader also saw Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2014 slip 1 to 2 points to a wide 7 1bid, 76 offered.

Meanwhile, Realogy Corp. - called an "ugly situation" by a trader - was quoted frequently as well. The trader said the 12 3/8% notes due 2015 fell 3.5 points to 53.5 bid, 55 offered, while the 10½% notes due 2014 were also lower at 70 bid, 71 offered.

But corporate bonds were not the only thing to take a hit during the session. Consumer-related names continued to take a beating in trading, including Claire's Stores Inc. and Swift Transportation Co. Inc.

Claire's Stores' term loan B was quoted at 81 bid, 82 offered, down about a point or two on the day, the trader said.

And, Swift Transportation's term loan B was quoted at 79 bid, 80 offered, down from 80.5 bid, 81.5 offered, the trader continued.

"It's nothing specific. [It is] just cause they're consumer related," the trader added.

Delphi loses ground...again

Delphi continued to lose ground, declining another 4 to 5 points on the day.

A trader said the automotive parts supplier's debt was down that much across the board, its 6.55% notes that were to have matured in 2006 at 42 bid, 43 offered, its 6½% notes due 2009 at 41 bid, 42 offered and its 7 1/8% notes due 2029 at 40 bid, 41 offered.

Another trader pegged the senior debt around 42, down 4.5 points.

At another desk, a trader said Delphi's bonds "continued to get killed," its 6.55% notes at 41 bid, 43 offered, down 5 points.

Another trader said the bonds were "hit hard again," down that same 5 points, also at 41 bid, 42 offered.

The Troy, Mich.-based company is expected to launch for syndication its exit financing loans soon. Given the tight credit market, the company has asked the bankruptcy judge overseeing its case to allow certain shareholders and creditors to take part in the process, a move typically discouraged as it can result in the release of non-public information. However, as the company has already reduced its exit loan by $2 billion, it felt that the current market conditions warranted such a move, adding that most information is already public.

Calpine slips

In a weakened marketplace, even stronger credits are not safe.

Such was the case of Calpine, whose bonds dipped just slightly during Tuesday's session.

A trader quoted the 8½% notes due 2011 at 112.5 bid, 113.5 offered and the 8½% notes due 2008 at 115 bid, 116 offered, noting that the issues are "widening out again."

The San Jose, Calif.-based power producer is slated to emerge from bankruptcy soon. On Tuesday, the bankruptcy judge overseeing its case approved its exit financing. In a conference call held Tuesday, the company also said that it would syndicate at a later point $2.6 billion in incremental term loan debt.

Broad market weaker

Charter Communications Inc.'s debt was called "one of the most active" names Tuesday. A trader said the cable provider's bonds "got hammered again," its 11% notes due 2015 down 3 points to 70 and its 13½% notes due 2011 ending at 59, down from 65.

Another trader said the 10% notes due 2014 fell from a 52 bid, 54 offered, opened all the way down to 42 bid, 44 offered, before coming off those lows to end at 45 bid, 47 offered. Its 8 3/8% senior notes due 2014 meantime lost half a point to end at 93 bid, 94 offered.

Another trader saw Charter's 11¾% notes due 2014 down 10 points at 47 bid, 49 offered. He said that something was obviously happening with the credit, but he didn't know what.

Trump Entertainment Resorts Inc.'s 8½% notes due 2015 were 1 to 1.5 points lighter around 72, while Tropicana Entertainment LLC, also known as Wymar Operating, closed the session in the 61.5 area.

Constar International Inc.'s 11% notes due 2012 dipped to 70 bid, 72 offered from 73 bid, 75 offered on Monday.

Solo Cup Co.'s 8½% notes due 2014 were off 1 point at 84 bid, 86 offered, while Spectrum Brands Inc.'s 11% notes due 2013 were 2 points lower at 86 bid, 88 offered.

Tembec Corp.'s 8 5/8% notes due 2009 were down a point at 45 bid, 47 offered.

Sara Rosenberg and Paul Deckelman contributed to this article.

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