Short covering seen impacting Alliance Data, Ambac; Congoleum shares tank on amended reorg plan

By Paul A. Harris

St. Louis, Jan. 18 - Even as the major U.S. indexes spent the better part of Friday doing the butterfly stroke through the red ink sea, trailing Thursday's "wipeout" session, some situations played out contrary to the currents of the markets, and in seeming defiance of the headline news.

Although equities overall lost ground, the decline seemed inconsequential when compared to those of the previous session.

The S&P 500 gave up the most ground, ending 0.60% lower, down 8.06 to close at 1,325.

Meanwhile the Dow lost 0.49%, down 59.91 to close at 12,099.

The Nasdaq bled the least, 0.29%, ending 6.88 lower to close at 2,340.

But some names stood out in trading Friday.

In the face of both the slings and the arrows - a pulled equity deal and a dreaded credit rating downgrade - Ambac Financial Group, Inc. closed the session only $0.04 lower, after having spent most of Friday riding above the day's opening price.

And shares of Alliance Data Systems Corp. saw a 17.25% gain.

A hedge fund manager told Prospect News that both cases bore tell-tale sings of short covering.

Fitch lowers Ambac to AA

Bond insurer Ambac began the Friday session by announcing that it would pull a $1 billion minimum offering of equity and equity-linked securities because of present market conditions and other factors, "including the recent actions of certain ratings agencies."

A conference call is scheduled for Tuesday.

Meanwhile Fitch Ratings agency, which had placed Ambac on Rating Watch Negative on Dec. 21, 2007, because of "a modeled capital shortfall of $1 billion at the AAA rating threshold," lowered the company's insurer financial strength to AA from AAA, and lowered Ambac Financial Group, Inc.'s long-term rating to A from AA.

In the face of this double-whammy - the pulled equity offering and the loss of one of its triple-A ratings - Ambac's shares (NYSE: ABK) gave up next to no ground after spending most of the session riding above their opening price.

Ambac's shares closed at $6.20, down $0.04 (0.64%).

A hedge fund manager, pointing out that Ambac was trading in the low $20s just a few days ago, said that the stock has been under pressure from short sellers, and also from "credit default people."

"They have been driving the Ambac price down because they thought they would be able to cover a lot of stock with an equity offering.

"And now the company said it wouldn't raise equity capital because they thought the price was too cheap.

"This is making the shorts a little nervous."

Elsewhere in the battered monolines sector MBIA Inc. (NYSE: MBI) closed the day $0.67 lower (7.27%) at $8.55.

Alliance has a deal

The hedge fund manager also sensed short covering in the trading of Alliance Data Systems (NYSE: ADS) stock on Friday.

Rumors earlier in the week that either the Blackstone Group or lead bank Credit Suisse would walk away from the $7.8 billion, $81.75 per share LBO of Alliance Data, or attempt to renegotiate the deal, caused its share price to tumble 16%.

However in a Thursday press release the company asserted that there have been no discussions with regard to a renegotiation of the previously announced transaction, and added that Alliance Data believes that the transaction financing remains fully committed by the banking group.

Alliance Data shares closed Friday at $61.93, up $9.11 or 17.25%.

"A lot of people have speculated that the deal terms will be changed, or the deal will be canceled altogether," the hedge fund manager said.

"Like all of these potential takeovers, it's been under pressure.

"The stock is up today, but still a long way from the potential takeover price.

"But shorts get nervous when the company announces there is no change in the deal."

Congoleum stock tanks

Elsewhere, news that Congoleum Corp.'s amended reorganization plan is expected to receive the support of the official bondholders' committee and the official asbestos claimants' committee sent the company's shares into the tank.

According to the plan, Congoleum will issue new common stock which will go to asbestos claimants and creditors.

Existing class A and class B common shares of Congoleum "will be canceled when the plan takes effect and holders of those shares, including the current controlling shareholder, American Biltrite, will not receive anything on account of their canceled shares," according to the Friday press release.

Congoleum (AMEX: CGM) lost $0.39 on the day, down $0.08, or 82.98%.

The reorganization plan is expected to settle all asbestos claims against Congoleum, which filed for Chapter 11 bankruptcy protection on Dec. 31, 2003.

Shares of American Biltrite, which owns 55% of Congoleum, closed at $5.00 on Friday, down $1.75 (25.93%) on the session.

© 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.