Caesars, NewPage hit with negative market trend; Hovnanian paper weakens; Dynegy lower

By Stephanie N. Rotondo

Portland, Ore., Sept. 9 - Distressed bonds were heading downward Friday, as spooked investors feared a European default was imminent.

"The market was kind of taking a little tanker," a trader said, noting a more than 300-point decline in the Dow Jones industrial average.

"Obviously the market is pretty ugly," said another trader. He remarked that no one really wanted to do anything going into the weekend.

"It's very slow," added another trader. "Names are quoted wider, but there's not a lot of activity. It's all about equities and Europe."

Mainstay names like Caesars Entertainment Corp. and NewPage Corp. were weakening with the market - though NewPage might also be declining due to its bankruptcy filing earlier in the week.

As concerns about the economy grew again with the latest brouhaha in Europe - Germany's top representative Jürgen Stark left his post at the European Central Bank in protest to the zone's latest bond-buying spree - investors seemed to be fleeing riskier credits, homebuilders in particular. As such, Hovnanian Enterprises Inc.'s bonds ended weaker.

"Homebuilders are a place nobody really wants to be," a trader said.

Also weaker was Dynegy Inc., though there was no fresh news out on the Houston-based power producer.

Caesars beat down

A trader said Caesars Entertainment's 10% notes due 2018 fell to 70 bid, 71 offered from levels around 73 bid, 73½ offered at the open.

Another trader said the issue was down a couple points to around 71.

There was no news out on the Las Vegas-based casino operator, but traders noted that typical "go-go" names like Caesars were getting rocked during Friday trading.

Elsewhere in the discretionary arena, Rite Aid Corp.'s 9½% notes due 2017 ended around 851/2, according to a trader.

NewPage slipping

NewPage was also seen softening, but that might have been due to the company's bankruptcy filing earlier in the week - though the negative tone of the general market certainly did not help.

One trader quoted the 11 3/8% notes due 2014 at 84 bid, 85 offered. Another pegged the notes at 84½ bid, 85 offered and the 10% notes due 2012 at 13 bid, 14 offered.

The Miamisburg, Ohio-based papermaker said Tuesday that it had voluntarily filed for Chapter 11 protections in an effort to address its balance sheet issues. The news didn't come as a huge surprise, as the company had warned of the possibility at several points throughout the year.

Still, some market watchers are speculating that the restructuring process will be fraught with difficulties.

"We believe the reorganization process will be complicated by disagreement among various creditor groups and the difficulty of valuing a business that is suffering both due to a tepid economy and the secular decline in print media," wrote Gimme Credit LLC analyst Kim Noland in a research report out Friday.

Hovnanian falls with market

A trader said Hovnanian Enterprises' 10 5/8% notes due 2016 began the day around 87 bid, 88 offered, then "eased with the market," falling to 85¼ bid, 86¼ offered.

He noted that trading in that issue was thin but that it was "quoted a lot."

He also saw the 6½% notes due 2014 opening around 67, only to close at 64 bid, 65 offered.

On Wednesday, the Red Bank, N.J.-based homebuilder reported a narrowed loss for the third quarter. Cash consumption, however, raised some concerns.

"Even if Hovnanian could slash its debt by half in a restructuring, leaving only its $800 million secured debt and a $100 million DIP loan, we estimate cash flow still negative and leverage above 60x," wrote Gimme Credit analyst Vicki Bryan in a research report.

Dynegy dips

Dynegy's 7.67% notes due 2016 "traded a little bit," according to a trader.

He pegged the issue around 54.

Another trader said the notes were "down a good bit" at 55.

There was no fresh news out on the Houston-based power producer.

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