Sprint reports wider loss, bonds gain; Jones Group earnings fair, debt moves up; ResCap drops

By Stephanie N. Rotondo and Paul Deckelman

Portland, Ore., Feb. 8 - Distressed debt was generally "strong again," a trader said Wednesday, but not everyone was benefiting from the positive tone.

Sprint Nextel Corp. was on the rise, despite the company reporting a wider loss for the fourth quarter. A trader said the company's debt was "some of the big movers and shakers."

Jones Group Inc. also had earnings out. The numbers "must have been pretty decent," a trader said, because the bonds moved up 3 points in response.

Meanwhile, Residential Capital LLC paper was on the decline on news that parent company Ally Financial Inc. was seeking buyers for the money-losing mortgage lender.

Sprint up despite wider loss

Sprint Nextel paper was grinding higher Wednesday, despite reporting a wider quarterly loss due to its addition of the iPhone.

A trader saw the 6 7/8% notes due 2028 at 761/4, up nearly a deuce on the day. The 7 3/8% notes due 2015 meantime inched up about a point to 971/2, while the 8¾% notes due 2032 earned almost 3 points, finishing around 86 7/8.

At another shop, a trader said that Sprint's bonds were higher across the board.

He said that "most of the Sprint issues were up 1 to 1½ points," the 6 7/8% notes up 1¾ points, last trading at 76¼ bid, while the parent company's 8 3/8% notes due 2017 were up 1 3/8 points to 96 bid, and the 7 3/8% were 1 point better, at 97½ bid.

"Sprint seemed to be a little better on the news," a third trader said, also quoting the 7 3/8s at 971/2, which he called a three-quarter-point gain. He pegged the 6 7/8s in a 76-to-76½ context, up 1½ points, "with good volume in both."

The Overland Park, Kan.-based telecommunications provider reported a net loss of $1.3 billion and a diluted loss of 43 cents per share for the quarter, which includes pre-tax, non-cash charges of $241 million, or 8 cents per share. The charges included asset and impairment charges of $78 million on property, plant and equipment, $135 million on Sprint's investment in Clearwire Corp. and $28 million in severance costs.

In terms of subscribers, the company added 1.6 million new customers in the fourth quarter, the best in six years. The additions also gave Sprint its highest level of subscribers in its history.

But, the addition of the iPhone was not generating the turnaround previously expected. Sprint did sell 1.8 million of the Apple-based phones - fewer than was expected by analysts - and of those sales, 40% were to new subscribers.

Subsidy expenses - that is, the losses providers will take on a device in order to get a multiyear contract with a customer - were up about 40%, based in large part on the iPhone.

"We expect margins to decline significantly again in 2012," wrote Gimme Credit LLC analyst Dave Novosel in an afternoon commentary. "Besides weakness in wireless, wireline margins will suffer from the resetting of intercompany traffic rates to reflect current prices and the migration of cable VoIP traffic away from Sprint."

Novosel also opined that leverage is likely to increase "considerably" in the next year.

Jones gains on numbers

A trader said more and more accounts were asking about Jones Group's 6 7/8% notes due 2019. During the midweek session, he saw the bonds rising as much as 3 points on the back of earnings.

"They must have been pretty decent," he said.

He pegged the notes at 931/2.

For the fourth quarter, the apparel marketer managed to narrow its loss. Total loss was $21.2 million, or 27 cents per share, versus $40.1 million, or 47 cents per share, the year before.

Revenues gained 2.3% to $893.6 million and gross margins rose to $35.8%. Material costs declined by 5%.

ResCap gets beat up

Residential Capital paper was weaker Wednesday, seeing the 9 5/8% notes due 2015 dipping to a 78-80 context, according to a trader.

He cited news reports "that Ally is looking to possibly pre-pack [bankruptcy] ResCap," the automotive lender and bank holding company's money-losing Minneapolis-based residential mortgage unit.

Another trader called the debt down nearly 3 points around 79, with volume of over $25 million "ish" changing hands.

"That's pretty heavy volume for them," he said.

News outlets reported Wednesday that parent company Ally Financial was talking to buyout groups such as Fortress Investment Group LLC and Cerberus Capital Management LP. Additionally, ResCap is reported to have contacted Centerbridge Capital Partners LLC and Leucadia National Corp. The plan would be to find a buyer and then put ResCap into a prepackaged bankruptcy to facilitate the sale.

The reports cited "people with knowledge of the matter."

ResCap has been losing money for some time now and is also currently facing at least 22 mortgage-linked securities lawsuits. Though the parent company has provided support for the unit thus far, it has expressed its desire to decrease its amount of support in the near term.

But bondholders have already stated they would oppose any situation where ResCap would be forced into bankruptcy. Some believe bondholders might fight a bankruptcy and any attached sale by saying that ResCap was not ring-fenced and therefore cannot be separated from its parent organization.

Springleaf fighting back

A trader saw decent activity in Evansville, Ind.-based Springleaf Finance Corp.'s bonds, quoting the 6.90% notes due 2017 at 74-75, calling the 74½ mid-point up 1 point, on "good volume in the name."

He saw its 5.85% notes due 2013 finishing at 89 bid, 89¾ offered. While those bonds had traded earlier in the session as high as 91 bid, they were still closing out up 3 points on the day, versus Tuesday's 85-86 finish on "really, not much volume.

"So they were up but they were up even higher before," he said. "Up 3 points from [Tuesday], but still 2 points off the high, on good volume."

He said he "only see the quotes; I don't see any news" that might explain the troubled issuer's roller-coaster-like gyrations.

A second trader saw "better buyers" for Springleaf - "we had buyers across the board in that name."

He quoted its 6.90% notes "probably up 1 or 2" at 74-75.

Another trader said Springleaf was "still trading heavily" and that the bonds were "fighting their way back."

He pegged the 6.9% notes at 743/4, up 1¼ points on about $14 million traded.

© 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.