Idearc lower amid executive shake up; junk mostly lower in listless session; Quebecor gyrates sharply

By Paul Deckelman and Paul A. Harris

New York, Feb. 19 - Idearc Inc.'s bonds were seen down around a point or two Tuesday in active dealings, after the embattled telephone-directory publisher announced an abrupt change in its top management. Bonds of competitor R.H. Donnelley Corp. meantime continued to move pretty much in tandem with those of its rival.

News of a similar executive shakeup at MBIA Inc. apparently had no real impact on the company's junk bond-like 14% notes.

Traders reported an otherwise fairly dull and quiet first day back after the long Presidents Day holiday break, with most activity to the downside. The big automotive benchmark bonds of General Motors Corp. and Ford Motor Co. were lower on the day.

Quebecor World Inc.'s bonds pretty much hugged the same very distressed levels they have recently held - although there was a sharp, if short-lived flurry of upside activity in one of its issues late in the trading day.

Primary market activity meantime remained muted.

Market indicators pointing south

A trader said that the widely-followed CDX index of junk market performance eased by ¼ point on the day Tuesday to 87 3/8 bid, 87 5/8 offered. Meanwhile, the KDP High Yield Daily Index lost 0.10 as it moved down to 73.94, while its yield widened by 3 basis points to 9.66%.

In the broader market, declining issues led advancers by about a five-to-three margin. Overall activity, reflected in dollar volumes, rose by nearly 21% from Friday's abbreviated pre-holiday levels.

"There was not too much going on," the trader said, with market participants still straggling back from the long Presidents Day holiday break that saw an early fixed-income market dismissal and Friday and a full closure of the financial markets on Monday. He did observe that "credit got hurt" with the mostly lower levels and thin volumes.

Idearc off amid CEO shuffle

One name which did stand out as a definite feature was the Dallas-based phone directory publisher Idearc.

A trader said the company's 8% notes due 2016 were off 2 points on the day at 68 bid, 69 offered. Another source saw them down 2 points to 69, while a third saw the bonds off nearly 2 points to stand just above the 69 mark.

At another desk, a participant pegged them at 68.25 bid, 69 offered which he said was down from 71.5 bid, 72 offered a couple of days ago.

The bonds retreated in tandem with a slide in the company's New York Stock Exchange-traded shares, which lost 86 cents, or 9.85%, to finish at $7.87. Volume of 5.6 million shares was nearly triple the norm.

Those movements came against the backdrop of the company's early-morning announcement that its chief executive officer, Kathy Harless, was out, to be replaced by its chairman, John J. Mueller, who assumed the CEO duties effective immediately. The company announcement, while praising Harless' contributions to the company as president and CEO and touting Mueller's long experience in the industry, did not shed much light on the circumstances of the change.

Idearc - spun off from telecom giant Verizon Communications Inc. in 2006 - has been taking its lumps in the bond market over the last several weeks. In that time, its bonds, which were trading above the 90 mark at the beginning of the month, have been hammered down to present levels under 70 by investor fears that the slowing economy would result in businesses cutting back their phone-directory advertising - fears which seemed to be borne out on Feb. 7, when the company reported that its fourth-quarter net income fell to $100 million, or 68 cents a share, from $107 million, or 73 cents share, a year earlier. Sales meantime retreated 1.7% percent to $787 million. Company executives explained that gains from its fledgling online directory operations weren't enough to offset a 3.5% decline in revenues from its core print advertising business.

A trader, while acknowledging the impact which the slower economy has had on the fortunes of companies like Idearc, competitor R.H. Donnelley and the latter's Dex Media Inc. unit, called the downturn in the bonds of the directory companies "a sign of the times that started with the newspaper companies." Indeed, bonds of the latter companies have recently been getting shellacked as well - last week saw downturns in such names as Tribune Co. and Media News Group Inc.

While also acknowledging that the numbers reported two weeks ago by Idearc were "terrible," the trader sought to make the distinction between the newspapers - who have been beset by escalating costs, competition from other media and declining circulations for years, if not decades, many of them hurting even when the economy is doing well - and the directory companies, calling the latter a generally "good, solid, safe business."

Directories, he said, "are a whole different animal" than newspapers and other kinds of publishers. He said that the core Yellow Pages business of companies like Idearc and Donnelley had proven over time to be a "cost-effective" tool for advertisers, and wondered whether investors were unfairly and incorrectly assuming that their troubles were structural and permanent, like those of the newspaper companies, and were "throwing out the baby with the bath water."

Another trader meantime saw R.H. Donnelley's 8 7/8% notes due 2016 at 69 bid, 70 offered. The Cary, N.C.-based directory publisher's wholly owned Dex Media unit's 8% notes due 2013 were quoted a point higher at 81 bid.

MBIA little changed despite shakeup

Idearc was not the only recently troubled company where executive heads were rolling on Tuesday. At leading bond insurer MBIA, CEO Gary Dunton is out, and former CEO Joseph Brown is back in, retaking the reins of the company he left in 2004 and reportedly studying the idea of restructuring the Armonk, N.Y. -based industry leader by possibly splitting it into two entities. That is an idea that smaller rival FGIC Corp. is already pursuing and Number-Two industry player Ambac Financial Group Inc. is also reportedly considering.

Despite the fact that such momentous change is in the air, junk market participants said they hadn't seen much on Tuesday of the company's 14% surplus notes due 2033 - nominally investment-grade instruments which have been actively traded around in the junk market over the last month after having priced at par in mid-January. The bonds then plummeted all the way down to 70 in the subsequent weeks, before bouncing back late last month and in early February to current levels around 90 bid on speculation that banks and insurance regulators might craft a plan to give companies like MBIA and its rivals an infusion of billions of dollars of badly needed capital needed to keep their vaunted AAA financial strength ratings from the major agencies, allowing them to remain in business.

Quebecor questions as issue jumps around

Some wild gyrations were reported in Quebecor World's 6 1/8% notes due 2013, although there was no specific reason seen why such movements would take place. A market source indicated that the bankrupt Montreal-based printing company's bonds - which have recently been mired down around 41.5 - suddenly and for no discernable reason jumped to around the par level very late in the session - an amazing leap of some 58 points - with four big-block trades of more than $1 million reported within the space of a minute on the Financial Industry Regulatory Authority Trace bond-tracking system. But the would-be rally faded as quickly as it appeared, with another, final $1 million trade minutes later taking the bonds back down to the 41.5 neighborhood.

No similar moves were seen in the company's 4 7/8% notes slated to come due on Nov. 15, which trade around that same 41.5 level.

Quebecor World meantime extended its stay under creditor protection until May 12. And an auction to fix a cash settlement price for credit default swaps linked to the company's debt came up with a figure of 41.25.

Auto benchmarks lower

Elsewhere, trading was largely uneventful. A trader saw GM's benchmark 8 3/8% notes due 2033 down a point at 79 bid, 80 offered, and saw domestic arch-rival Ford's flagship issue, the 7.45% bonds due 2031at 70 bid, 71 offered.

Another trader saw the gm bonds unchanged at that 79 bid, 80 offered level, while the Ford bonds were a point lower at 69 bid, 70 offered.

Smithfield active as pig production to fall

A trader saw Smithfield Foods Inc.'s 7% notes due 2011 down ¼ point on the day at 97.75 bid, 98.75 offered. He said the bonds didn't move that much "but were very active. There was no news - it was just a heavily traded name."

The Smithfield, Va.-based meat processing company did say during the session that it planned to cut its U.S. sow herd by between 4% and 5% - about 40,000 to 50,000 animals - an action that will result in the production of between 800,000 and 1 million fewer market hogs annually, out of current production of around 18 million market hogs each year.

Smithfield cited the impact of rising costs of grain, its primary feed for the animals.

Late-day retreat for Rite Aid

A trader saw a late-session downturn in Rite Aid Corp.'s bonds, although he said that he had not seen any news out about the Camp Hill, Pa.-based drugstore chain operator or other factor to explain that slide.

"Toward the end of the day, they started losing," he said, quoting Rite Aid's 8 1/8% senior notes due 2010 off a point at 96 bid, 97 offered and its subordinated 6 7/8% notes due 2013 also down a point at 64 bid, 65 offered.

However, another market source saw Rite Aid's 8 5/8% notes due 2015 up ½ point around the 75 level.

Mortgage names unchanged to easier

A trader saw Residential Capital LLC's several issues of bonds at 60 bid, 62 offered, down from 62 bid, 63 offered. He saw ResCap parent GMAC LLC's 8% bonds due 2031 off 2 points at 79 bid, 81 offered.

Countrywide Financial Corp.'s 6¼% notes due 2016 were at 87.5 bid, while its 3¼% notes due 2008 were at 97.5 bid, 97.75 offered.

Another trader said that Countrywide's 6¼% notes were "active recently," but were unchanged on the day at 85.5 bid, 87.5 offered.

European primary: 'challenging'

A senior high yield syndicate official in London characterized the European new issue market as "challenging" at present.

However this source remains confident that some level of new issue activity will resume at some point.

The official said that while there is no real announced calendar per se, in Europe, there are "legacy issuers" including TNK International Ltd. and Basell BV that would like to issue at some point.

The official also has visibility on some modest bridge requests - "very, very modest" - in the United States.

"What we might see is a reopening in the private market, to avoid mark-to-market considerations that at the moment are making it difficult for investors to accept even what appears to be well priced risk," the official suggested.

Thin U.S. calendar

Meanwhile in the U.S. the Tuesday session produced no additions to the new deal calendar.

Ainsworth Lumber Co. Ltd. is in the market with a $50 million to $75 million offering of six-year senior secured first-lien notes which are set to price late next week of Feb. 25.

Barclays Capital has the books for the general corporate purposes deal which is being marketed without an investor roadshow.

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