Nortel notes head higher; Ambac proposes plan, bonds rise; Fannie, Freddie preferreds take hit

By Stephanie N. Rotondo

Portland, Ore., July 7 - A trader said that a "giant yield grab across high yield" helped the distressed debt market on Thursday.

"It all dribbles down to this stuff," he said.

But another trader saw little goings on in distressed land.

"There's just nothing distressed that is trading," he said.

Nortel Networks Corp. remained the distressed go-to name. The bonds continued to trade actively and gained another 1 to 2 points during the session.

Meanwhile, Ambac Financial Group Inc.'s debt also got a rise after the company announced a reorganization plan proposal that would give bondholders new equity in the company.

In distressed preferreds, Fannie Mae and Freddie Mac got hit following a negative research report put out on Wednesday.

Nortel still popular

A trader said Nortel Networks was all the rage "once again," as investors continue to hope that recoveries will be higher - and get paid faster.

The trader said the 10 1/8% notes due 2013 and the 10¾% notes due 2016 "rallied to 109" on "very heavy volume again."

Another trader called the 10¾% notes up "11/2-ish to 2 points," also around that 109 mark.

On Wednesday, the Toronto-based manufacturer of communications equipment announced that a court-ordered mediator had been appointed in its bankruptcy case, thereby causing many to believe that the drawn out case - Nortel filed for Chapter 11 protections in January 2009 - might soon be coming to a close.

Investors have also been reacting positively to the results from last week's patent portfolio auction, which garnered a $4.5 billion bid from a consortium that included Apple Inc. and Microsoft Corp. Google Inc. had originally made a "stalking horse" bid of $900 million. The inflated price tag has led to expectations that recoveries will be greater than anticipated.

Still, the patent sale still has a few obstacles to clear, including a possible review by the U.S. Department of Justice for antitrust issues. Also, on Wednesday, Canada's Industry Minister, Christian Paradis, said that he is looking into whether the government should review the sale under the Investment Canada Act, which governs foreign investment in Canadian assets.

Ambac rises on plan

Ambac Financial Group's subordinated "holdco" bonds rallied after the company issued a reorganization plan proposal.

A trader saw the bonds closing in a 12-14 context, up from 11-12. He noted that he also saw a high print around 15.

Under the proposed plan - which still needs to get regulator approval - bondholders would get new equity and warrants.

The New York-based bond insurer filed for bankruptcy in November.

Among other financial-related bankruptcies, Lehman Brothers Holdings Inc.'s bonds headed up to 27, according to a trader.

Fannie, Freddie fall

Fannie Mae and Freddie Mac preferreds took a hit as investors reacted to a new CreditSights report published Wednesday, in which the stock was deemed essentially worthless.

Fannie's preferreds (OTCBB: FNMFN) dropped 9 cents, closing at $3.71, with about 1.65 million shares trading. Freddie's preferred Zs (OTCBB: FMCKJ) were also 9 cents weaker at $2.96, on volume of about 950,200 shares.

"Basically, there's been a lot of speculation of late," a trader said, referring to Washington's debates about what to do with the government-backed mortgage issuer. As the debates rage on, there continues to be speculation about how much value there might be in the preferred and common equity.

"CreditSights put out a very negative report on them," the trader continued. The report's title included the phrase "Not much value, if that," which was "obviously not a positive endorsement," the trader said.

The trader added that the report dealt with the agencies' high dividend costs on its Treasury-owned preferreds and how that not only weighs on profitability, but how the burden impairs the privately held preferreds' value.

On Thursday, news outlets reported that lawmakers plan to introduce a bill that would eventually wind down Fannie and Freddie and add a government-run replacement for the two companies.

Kodak steady, Sino gains

Among other recently notable credits, Eastman Kodak Co.'s 7¼% notes due 2013 called unchanged at 89½ bid, 90 offered.

"The name in general has been kind of heavy," a trader said.

He also saw Sino-Forest Corp.'s 6¼% notes due 2017 "straddling 50, which is a few points better."

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