New valuation hurts Calpine; Retailers slip on Fed report; Residential Capital active, better

By Stephanie N. Rotondo

Portland, Ore., Nov. 20 - As the Thanksgiving holiday quickly approaches, the distressed bond market continued to feel heavy.

Tuesday trading was dominated by Calpine Corp., which released a new valuation report late Monday. The bonds had started to slip in the previous session in anticipation of the new estimate and continued to fall on Tuesday. The new report came in $900 million under the last report - making a full recovery for unsecured creditors unlikely.

The Federal Reserve released minutes from its last meeting, which prompted retailers to further weaken. The report stated that the current state of the market would place more restraints on consumer spending, and distressed retailers - such as Bon-Ton Stores Inc., Claire's Stores Inc. and Linens n'Things - all saw their bonds start to edge lower.

Residential Capital LLC's paper remains one of the more active, but Tuesday brought an unexplained turn of events. The bonds, which have been falling in the last few sessions, actually gained. However, traders could not account for the move.

With one "real" day of trading left in the week, traders gave mixed reports on the amount of activity.

"It was quite active for two days before Thanksgiving," one trader said.

"No, it is very boring," said another. "It's ugly."

New valuation hurts Calpine

Calpine's bonds softened after a new valuation report reduced the company's value by $900 million.

A trader quoted the 8½% notes due 2011 lower at 102 bid, 103 offered. Another trader placed the 8½% notes due 2008 at 101 bid, 103 offered, down 5 points.

At another desk, a trader said the bonds opened 3 points weaker and fell another 1 to 1.5 points throughout the day. He pegged the 2011 issue at 102 bid, 103 offered.

Another trader called trading in Calpine's debt the "most active" during the session. He said the 2011 paper was "all over the place," hitting a high of 103.5 and a low of 102 before closing at 102.5 bid, 103.5 offered.

The trader also saw the 2008 issue at 102 bid, 103 offered, the 6% convertibles notes at 82 bid, 83 offered and the 7¾% convertibles notes at 90 bid, 92 offered.

Another trader saw the 2008 paper 1 point lower at 102.5 bid, 103.5 offered, while the 10% notes due 2014 were 1.5 points down at 60 bid, 62 offered. He saw the 8 3/8% notes due 2014 down at 96 bid, while the 8 3/8% notes due 2014 dropped half a point to 96 bid, 97 offered.

A market source said the 2008 notes fell from Monday's closing levels around 104.5 to about 102.5 at the opening and then fell even lower than that, at one point bottoming around 101, before coming off that low to go out at 102.5. The parent company's 2011 notes, which had closed Monday a little below 104, fell as low as 101 in heavy size trading on Tuesday before stabilizing in the 102s, spending most of the session there, but blipping up to a closing level around 103, down not quite a point on the day.

However, another market source said the 8¾% notes due 2007 swooned 5 points to the 102 level.

Late Monday, the San Jose, Calif.-based power provider released a new valuation estimate, which places its current shares between zero and 41 cents. The previous estimate placed the stock's worth at zero to $3.28 per share.

The new estimate also reduces the probability that the company's unsecured creditors will be paid in full. Currently, that group is slated to receive 96.7% of their principal and interest.

Retailers slip on Fed report

Retailers took another hit after the Federal Reserve released the minutes from their recent meeting.

In the minutes, the Fed forecasted further troubles brought on by the credit crunch and housing debacle, which will further constrain consumer spending - not good news ahead of "Black Friday."

A trader said Bon-Ton's 10¼% notes due 2014 fell "a point or so" during the session, opening at 79 bid, 80 offered, before closing at 78 bid, 78.5 offered. Meanwhile, Claire's Stores 10½% benchmark notes opened at 64.5 bid, 65.5 offered and closed at 63 bid, 63.5 offered.

"I think the Fed minutes got people scared," he said.

The trader also called Linens n'Things floating-rate notes unchanged.

Another trader agreed that Linens' notes were unchanged around 56 and placed Bon-Ton's debt down about half a point at 78.5 bid, 79 offered. He said there was "not a ton of action" in the name.

The trader also said the Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2014 were weaker at 86.

Another trader said Bon-Ton's paper fell 1 point to 78.5 bid, 79.5 offered.

With the current housing and credit problems taking a toll on the equity and debt markets, consumer confidence has also been slipping - meaning people are spending less money.

In its report, the Fed forecasted that individuals will look more toward saving than spending, which will put another crimp in retailers' balance sheets.

And, as "Black Friday" approaches - typically the biggest shopping day of the year - it seems unlikely that consumers will spend enough money to help struggling stores regain their losses.

Elsewhere in the consumer-spending driven sector, Buffets Inc.'s 12½% notes due 2014 were "crushed again," a trader said. He pegged the bonds at 46 bid, 48 offered.

"No one is anticipating a large Thanksgiving crowd at Buffets," he quipped.

ResCap bonds better

After losing ground over the last week, Residental Capital's bonds seemed a little better during Tuesday's session.

A trader said the mortgage lender's longer-dated paper, such as the 8½% notes due 2011, were up a couple points to 55 bid, 57 offered from 53 bid, 54 offered. Another trader pegged the bonds at 54 bid, 55 offered, calling the debt "very active."

Another trader said ResCap's bonds "actually moved up," with its 6½% notes due 2013 at 55 bid, 57 offered, up around 2 points on the day. He said the company's subordinated bonds were all trading in that same lower-50s context.

Another trader also saw ResCap up 2 to 3 points.

When asked what propelled the bonds, the first trader said there was "no reason" for the move.

The GMAC subsidiary is facing a questionable future, as the market speculates whether the parent company - or someone else, for that matter - will help the company turn itself around. Many believe that GMAC and Cerberus Capital Management will allow the company to fall into bankruptcy, although there are questions about whether GMAC can afford to do so.

Elsewhere in the sector, E*Trade Financial Corp.'s bonds fell in line with the generally weaker financial/mortgage sector. A trader saw the 8% notes due 2011 down 1.5 points at 77 bid, 79 offered and its 7 5/8% notes due 2015 down 5 points at 70 bid, 72 offered.

Thornburg Mortgage Inc.'s 8% notes due 2014 were unchanged at 84 bid, 86 offered.

Broad market lower

A trader said Milacron Inc.'s 11½% notes due 2011 slipped to 94 bid, 95 offered.

"I always thought it would be a slow march into hell, but they never moved," he said. He attributed the recent activity to the fact that the company is highly leveraged, is not making enough money to pay its interest payments and has only one year of liquidity.

"Bye-bye," he said.

Pope & Talbot's 8 3/8% notes due 2013 have fallen 5 to 10 points since the company announced that it voluntarily filed for bankruptcy. The paper products company's debt closed at 24 bid, 25 offered, a trader said. He added that the bonds "traded all over the place" between 24 and 25.5.

Vertis Inc.'s 10 7/8% notes due 2009 dropped to 70 bid, 72 offered.

WCI Communities Inc.'s 9 1/8% notes due 2012 lost 1 to 2 points to close around 61.

"Homebuilders are all filing for bankruptcy," a trader said.

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.