MBIA post-settlement gains continue; Exide continues rebound; ATP buried at the bottom

By Paul Deckelman

New York, May 13 - Bonds of the formerly beleaguered MBIA Inc. were seen continuing to firm smartly on Monday, extending the trend seen over most of last week after the bond insurer and Bank of America Corp. finally reached a settlement, putting an end to the five-year battle between the two financial firms.

The dispute was over MBIA's efforts to reorganize its business in order to wall off its more profitable operations from the toxic mortgage-backed securities it insured and the untold millions of lost dollars on when that paper nosedived during the subprime mortgage meltdown and resulting financial crisis several years ago.

Another name seen doing better on Monday was automotive and industrial battery maker Exide Technologies Inc. Traders saw its bonds continuing to bounce off the bottom levels it hit several weeks ago when California environmental authorities ordered one of its more important factories closed down on allegations it was violating state safety standards.

On the other hand, distressed-debt players noted the continued deterioration in the badly battered bonds of ATP Oil & Gas Corp., trading in the low pennies-on-the-dollar range - and still sinking - as the energy company remains mired in bankruptcy.

But the number of purely distressed names is seen continuing to shrink, with formerly familiar names having refinanced or otherwise improving their finances so as to be lifted out of the distressed category and more into the mainstream junk-bond world.

Shrinking distressed universe

A trader in distressed bonds declared that Monday was "a pretty quiet day, to say the least."

He lamented that the junk bond market's recent strength had lifted many formerly distressed bonds into the realm of regular high-yield activity.

"Even the Radian [Group Inc.] bonds I used to follow now trade at a premium," he said.

"It doesn't help with activity levels," he added. "It looks like high yield is now having all of the fun."

MBIA gains continue

As an example of the trend of distressed names starting to get a little too good to be considered in that category for long, he noted the gains recently notched by MBIA Inc., a sector peer of Philadelphia-based bond insurer Radian.

He said that the company's 4% surplus notes due 2033 "are well into the 80s," noting that the Armonk, N.Y.-based bond insurance company's paper had shot up dramatically over the past few days from prior levels in the 20s, after MBIA and Bank of America reached a $1.7 billion settlement of the five-year legal battle between the two financial firms.

"It's not really even distressed anymore since [the bonds] are now in the upper 80s," the trader suggested.

A market source at another desk quoted the 14% notes, issued by the company's beleaguered MBIA Insurance Corp. subsidiary, at just over 86 bid. He pointed out, however, that culling out odd-lot trades, the bonds were going home at 82¾ bid, down from their earlier peak at 841/2, but still well up from Friday's close around 80 bid.

A week ago, the bonds were trading at 26½ bid. The big jump - from the 20s to around the 80 level - had taken place last Tuesday, and the notes continued to trade in that 80s context after that.

He also saw MBIA's 7.15% notes due 2027, which had been trading in the mid-80s a week ago, before jumping into the 90s last Tuesday and then pushing as high as 104 bid last week, heading for home Monday at 108¾ bid.

However, he noted that the round-lot trade pushing the bonds that high had taken place late in the day, with the bulk of Monday's action coming in odd-lots, ranging between 104 and 108.

The long-running dispute between MBIA and Bank of America settled last Tuesday arose from MBIA having insured billions of dollars of securities backed by mortgages written by BofA or Countrywide Financial, which was later acquired by the banking giant, only to see those securities turn sour as many of the underlying loans defaulted during the financial crisis that began in 2007.

In 2009, MBIA attempted to reorganize itself to segregate those toxic securities from the rest of its business, only to have that move legally challenged by BofA and 17 other banks. It eventually reached settlements one by one with the other lenders, and BofA was the last holdout until last week.

After that settlement was announced Standard & Poor's, which had dropped MBIA's ratings into Junkbondland four years ago, lifted those ratings by seven notches, to BBB from B-.

Moody's Investors Service continues to rate parent MBIA's bonds at Caa1, with the MBIA Inc. 14% notes carrying a single-C rating.

Also in the financial sphere, one of the traders noted that the legacy paper for the failed New York-based investment bank Lehman Brothers continues to trade in a 25 to 25½ bid context.

Exide gains on the day

Exide Technology's 8 5/8% first-lien notes due 2011 were better on the session, a trader said, seeing the Milton, Ga.-based automotive and industrial storage battery systems company's paper gain 1 point, going home at 71½ bid.

He said that previously they had been hanging around 70 bid.

He said that Monday saw "decent volume" of over $10 million in the credit, making it one of the more active junk names on the day.

Exide, another trader exclaimed "has continued to come back," seeing the notes in a 691/2-to-70 range on Friday and having pushed higher on Monday.

Those bonds have bounced off the lows around the low-to-mid 60s, to which they had slid last month after California's state Department of Toxic Substances and Control issued an order on April 24, telling the company to suspend operations at its plant in Vernon, Calif., Plant.

The agency charged that the facility isn't in compliance with the state's environmental standards.

ATP languishes

While Exide is coming back, a distressed-debt trader said that is definitely not the case in the shell-shocked 11 7/8% notes due 2015 of bankrupt energy operator ATP Oil & Gas Corp.

"I've just watched it go down and down," he said, quoting the bonds at around 1 bid, or a penny on the dollar.

He noted that a week ago, the Houston-based offshore exploration and production company's paper had been around 3½ bid, "but now the last trade is between 1 and 2, which doesn't amount to anything. It's just a crashing bond."

Despite those frighteningly miniscule price levels, though, he noted that the issue still racked up over $10 million of volume in Monday's Trace dealings.

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