Eastman Kodak CDS settlement sends bonds gyrating; PMI Group notes edge higher on cash balance

By Stephanie N. Rotondo and Paul Deckelman

Portland, Ore., Feb. 22 - Investors were again avoiding distressed bonds in favor of higher-quality credits, particularly First Data Corp.

The credit card processing company launched an extended term loan Wednesday. In exchange for the amendments allowing the extension, the company is also planning to bring a new notes issue, resulting in jockeying in the existing paper.

But in the distressed realm, it was Eastman Kodak Co. that was dubbed the "bond du jour." The company's credit default swaps auction was held during the session, giving the bonds a 23 7/8 value. The bonds reacted to the settlement in a volatile way.

Meanwhile, bankrupt PMI Group Inc. saw its bonds firming a tad. The debt was inching higher as investors reacted to the company's latest monthly financial report.

Kodak gyrates as CDS settled

A trader said Eastman Kodak's 7¼% notes due 2013 were "a little bit volatile" during the midweek trading session, as the CDS auction placed the paper's value at 23 7/8.

He saw the notes trade as low as 23 during the session. That compared to 27½ on Tuesday. The day's high was 271/4, though the bonds eventually leveled out around 241/2, he said.

Another trader also saw the debt hit an intraday low of 23, but saw them going out around 27 by the end of the day.

A third market source called the paper 4 points weaker at 23½ bid.

The Rochester, N.Y.-based bankrupt company was also making headlines as the U.S. International Trade Commission agreed to investigate patent infringement claims Kodak made against Apple Inc. and HTC Corp.

Kodak filed the complaints on Jan. 10. The ITC is also currently looking into another case of infringement Kodak leveled against Apple and Research In Motion Ltd.

PMI paper rises

PMI Group's debt - which tends to trade on top of one another - was up modestly, according to a trader.

He quoted the notes at 21¾ bid, 22 offered.

The trader said the gains were due to the bankrupt mortgage insurance provider's monthly financial report, released on Tuesday.

"The cash balance was higher than expected, but marginally," he said.

For January, the Walnut Creek, Calif.-based company reported a net loss of $69,301 on zero revenues.

Cash on hand was $164.83 million as of Jan. 31, compared to $165.41 million on Dec. 31.

Mortgage insurance stronger

Elsewhere in the mortgage insurer space, a trader said that Radian Group Inc.'s 5 5/8% notes due 2013 "doesn't trade a lot - but it was quoted higher," in an 82-84 context, which he called up 1 point.

"That's moved up - not much volume, but they're quoted higher."

He saw the Philadelphia-based mortgage insurance company's 5 3/8% notes due 2015 also quoted up "a bit," around 68-70, which he called up 4 points from recent levels, on "decent volume."

"So those mortgage types have improved as their stock has improved the last week or so." Radian's New York Stock Exchange-traded shares, which were trading as low as $3.40 a week ago, closed at $4.10 on Tuesday and got as good as $4.20 in Wednesday's intra-day dealings, before coming off those peaks to end down 20 cents on the day, or 4.88%, at $3.90.

He also saw Milwaukee-based sector peer MGIC Investment Corp.'s 5% notes due 2017 around 73 bid, 74 offered, on just five or six trades. He said the bonds were "pretty much unchanged from where they were quoted [Tuesday], though up a few points from last week. But they're holding at the higher levels, on some volume.

"That's because both Radian and MTG's stocks have been up this last week or so." MGIC's NYSE-traded shares lost 33 cents, or 6.57%, on Wednesday, to end at $4.69, but they too have risen from a low of $4.37 a week ago, to Tuesday's close at $5.02 and Wednesday's intra-day peak of $5.03

He further saw Armonk, N.Y.-based mortgage insurer MBIA Inc.'s 14% surplus notes due 2033 up 1 point at 61 bid, 63 offered. However, MBIA's NYSE shares bucked the general sector trend - they were higher a week ago, peaking at $11.98, and going home Wednesday down 28 cents, or 2.39%, at $11.44.

Broad market quiet, firm

Among other distressed credits, Sears Holdings Corp.'s 6 5/8% notes due 2018 were muted ahead of earnings on Thursday. A trader said the bonds were higher, but quoted "pretty wide" at 85½ bid, 87 offered.

A second trader said Dynegy Holdings LLC's debt was "quoted up a little bit," but was also on the subdued side.

He pegged the 7¾% notes due 2019 around 65.

And, NewPage Corp.'s 11 3/8% notes due 2014 were slightly firmer around 58.

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