Dynegy Holdings debt declines; homebuilders gain as sentiment builds; Catalyst: No bankruptcy

By Stephanie N. Rotondo

Portland, Ore., Jan. 18 - Distressed debt closed Wednesday's session " a little bit firmer," according to a trader.

Still, he noted that it was "an uneventful day."

Another trader remarked that there were "nothing but buyers" and supply was not meeting demand.

"Dealer inventories are very low," he said.

Dynegy Holdings LLC's bonds were bucking the overall trend of the day, falling as much as 3 points. The declines came as the company's bankruptcy case examiners sought to subpoena Lazard Ltd. and White & Case LLP to find out more about the role the advisors played in a restructuring effort that had bondholders in an uproar.

Meanwhile, homebuilders were moving modestly higher after a new survey came out indicating that homebuilder sentiment had reached its highest point since before the housing bubble burst. A trader noted that many homebuilder stocks were up significantly - in some cases, as much as 35% - since the beginning of 2012.

It was a quiet day for Catalyst Paper Corp., despite news that it had filed for bankruptcy protections. Over the weekend, the Richmond, B.C.-based papermaker had said that it had inked a recapitalization agreement that would result in "a significantly reduced debt burden."

Later in the day, the company clarified what was going on and said that contrary to media reports, it had not sought bankruptcy protections.

Dynegy takes a dip

Dynegy paper was on the decline Wednesday, as the examiner appointed to investigate the restructuring efforts of its parent company, Dynegy Inc., sought approval to issue subpoenas to Lazard Ltd. and White & Case LLP.

Lazard and White & Case advised the parent company on the restructuring plan that bondholders say stripped them of assets and ultimately resulted in the Dynegy Holdings subsidiary filing for Chapter 11 protections.

One market source called the 7¾% notes due 2019 down 3 points to 62½ bid.

Another source quoted the 8 3/8% notes due 2012 at 61 bid, 64 offered.

At an upcoming hearing, the examiner - Susheel Kirpalani - intends to ask the judge to rule that Dynegy or third parties involved in the restructuring cannot deny access to documentation regarding the effort on the basis of privilege.

Dynegy is a Houston-based power producer.

Homebuilders, sentiment rise

An unexpected uptick in homebuilder sentiment helped the sector's bonds gain ground on Wednesday, a trader reported.

He called Beazer Homes USA Inc.'s 9 1/8% notes due 2018 up 2½ points, ending at 771/2.

"Homebuilder stocks have rallied 35% since the beginning of the year," he said.

Another market source deemed Hovnanian Enterprises Inc.'s 10 5/8% notes due 2016 up half a point at 821/2.

But another trader called the Hovnanian paper unchanged around 82.

"[Homebuilder bonds] really aren't that active," he said.

Beazer's stock (NYSE: BZH) meantime closed up 19 cents, or 6.44%, to $3.14. Hovnanian's shares (NYSE: HOV) were up 26 cents, or 12.21%, to $2.39.

The NAHB/Wells Fargo Housing Market index rose to 25 in January from 21 in December, the organization said in a statement released Wednesday. The unexpected gain - the highest reading since June 2007 - seemed to indicate that the housing market was in fact improving.

"Builders are seeing greater interest among potential buyers as employment and consumer confidence slowly improve in a growing number of markets, and this has helped to move the confidence gauge up from near-historic lows in the first half of 2011," David Crowe, chief economist at NAHB, said in the statement.

"That said, caution remains the word of the day as many builders continue to voice concerns about potential clients being unable to qualify for an affordable mortgage, appraisals coming through below construction cost, and the continuing flow of foreclosed properties hitting the market."

Catalyst steady, muted

A trader said that Catalyst Paper's 11% notes due 2016 were steady in the mid-60s despite news the company had filed for bankruptcy protections.

Another trader pegged the 11% notes at 64½ bid, 65 offered and the 7 3/8% notes due 2014 at 8 bid, 10 offered.

Later in Wednesday's session, Catalyst came out to clarify the news of the bankruptcy filing.

"Contrary to certain media reports this is not a bankruptcy proceeding," the company said, referring to its application and receipt of an initial court order from the Canadian courts to begin a consensual restructuring proceeding.

Over the weekend, Catalyst announced that it had entered into an agreement for a recapitalization transaction, which it says will result in "a significantly reduced debt burden."

Catalyst said that it intended to implement the recapitalization through a plan of arrangement under the Canada Business Corporations Act, subject to approval by at least 66% of the votes cast by holders of the 11% notes and Catalyst's 7 3/8% notes due 2014 at meetings to be held to consider the arrangement.

Holders of some $208.1 million of its 11% notes, or more than 53.2% of the total amount outstanding, and holders of some $54.5 million of the 7 3/8% notes, representing more than 21.7% of the total outstanding, have signed the agreement and have agreed to vote in favor of, and support the recapitalization. The company expects further support of the recapitalization from additional holders of both classes of notes.

Elsewhere in the paper arena, NewPage Corp.'s 11 3/8% first-lien notes due 2014 were deemed "a little better" by a trader, placing them at 67 bid, 68 offered.

Another trader called the issue up a point at 67 bid, 67½ offered.

Broad market grows stronger

Elsewhere in the distressed debt space, a trader said Lehman Brothers Holdings Inc.'s bonds were "stronger still," closing around "27-ish." He said that was up a quarter-point to a half-point on the day.

The trader also saw AMR Corp.'s subordinated issues "up a touch" at "231/2-ish."

Continuing the trend, Dex One Corp.'s 12% PIK notes due 2014 were quoted higher at 24 bid, 25 offered, though the trader said there were no trades in the name.

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