WaMu plan denied again, bonds quoted lower; Nortel Networks debt also pressured by WaMu ruling

By Stephanie N. Rotondo

Portland, Ore., Sept. 14 - Distressed bonds were "a little bit firmer," a trader said Wednesday, helped out by a rise in the equity markets.

"Volume is still muted, it seems," he added, seeing $1.2 billion in turnover in the secondary space. "Not terrible I guess."

He noted that investors were on a "hunt for yield," but there is "no new issue market, so it's all secondary."

The big news of the day in the distressed sphere was a judge's denial of Washington Mutual Inc.'s reorganization plan. That marked the second time the plan was given the heave-ho and while traders said WaMu debt was not trading, it was quoted lower.

The news also impacted Nortel Networks Corp.'s bonds, as WaMu creditors lost a bid to receive higher interest based on original contracts. The judge instead allowed them to get what is known as the federal judgment rate, which could potentially be lower than anticipated. Investors, worried that the ruling could spill over into Nortel's case, pushed the company's debt lower.

Away from the WaMu debacle, Bon-Ton Stores Inc.'s bonds were seen holding steady to falling slightly. Though the move was not huge, it was notable given that the rest of the market - including most retailers - was firm, a trader said.

WaMu quoted weaker

Defunct Seattle-based thrift Washington Mutual saw its bonds quoted lower as a bankruptcy judge denied the company's plan of reorganization for a second time.

"People are getting fatigued with the name," a trader said.

The company filed for bankruptcy in 2008.

The trader said that bonds weren't trading, but that the senior "holdco" paper was quoted down a couple points. The hybrids "got beat up pretty good," he said, seeing them fall "down somewhere between 4 and 5."

"Those bonds did nothing," said another trader. "They were quoted lower" initially, but then came back to about unchanged.

"There wasn't a single trade," he said.

He said the 5%, 5¼% and 5½% senior notes were trading around 109 bid, 111 offered.

He noted that the preferreds - the 5.375% preferreds due 2041(Pink Sheets: WAHUQ) - had fallen substantially.

"Apparently all the action was in the preferreds," he said, noting that the stock was the "fulcrum security."

The preferreds fell $10.42, or 71.86%, to $4.08.

Nortel impacted by WaMu

As WaMu creditors lost in their attempt to get a higher interest rate in recovery, Nortel Networks' debt fell as investors worried it could happen in that case as well.

A trader said Nortel was the "bond du jour," calling the 10 1/8% notes due 2013 and the 10¾% notes due 2016 down "3 and change points" to around 1081/2.

"They got dragged down with WaMu," said another trader, also seeing the paper around the 108½ area.

Another trader said the notes were the busiest in the junk space on Wednesday, with more than $55 million of its 10¾% notes having changed hands.

He saw them finishing at 107¾ bid, 108¾ offered, down more than a point on the day after having begun the session at 109-110.

A second trader saw "a lot of activity, a ton of trading" in the credit, pegging the bonds in the 108-109 range all day.

The company's 10 1/8% notes were also fairly busy, with more than $23 million traded. He said that these two were down 1 point, at 108 bid, 108½ offered.

Instead of receiving the higher interest rate based on their original contracts, WaMu creditors will instead get the federal judgment rate, which is typically lower than most contracts. Because of that ruling, Nortel investors are wondering how it "might impact [their] recoveries," the trader said.

Nortel is a Toronto-based telecommunications equipment provider.

Bon-Ton underperforms

A trader said Bon-Ton Stores' 10¼% notes due 2014 "remained weak," even as the rest of the market - including most retailers - gained ground.

He said the paper was offered at 841/2, which was unchanged, but still notable given the broader market's performance.

Another trader called the issue "about unchanged, maybe a little lower" at 84 bid, 84½ offered.

Bon-Ton is a York, Pa.-based retailer.

In the rest of the retail space, a trader said that Rite Aid Corp.'s bonds "moved up a bit," seeing the Camp Hill, Pa.-based drugstore chain operator's 9½ notes due 2017 finishing up 1 point, at 87 bid, on "decent volume."

A market source at another desk also quoted the bonds at 87, on busy volume of more than $12 million.

Broad market gains

Also in distressed territory, a trader said Caesars Entertainment Corp.'s 10% notes due 2018 were once again very active and better.

He said the notes opened around 70½ bid - up from 69½ bid, 70 offered at Tuesday's close - and moved up to end at 71½ bid.

Another trader saw Clear Channel Communications Inc.'s 5½% notes due 2014 around 60, up from 58 bid, 59 offered.

"They probably got a boost with the equity markets," he said.

Paul Deckelman contributed to this article.

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