Coal boosted by pricing speculation; Freddie Mac preferreds jump; Kodak patent bids lackluster

By Stephanie N. Rotondo

Phoenix, Aug. 7 - There was "not much to speak of on the downside" in the distressed debt market on Tuesday, according to a trader.

"Stuff was generally stronger," said another source.

Coal, for instance, was one the rise. A trader said late-day gains in names like James River Coal Corp. occurred because "somebody put something out about coal prices bottoming."

In distressed preferred stocks, Freddie Mac preferreds were up 25 cents to 35 cents on the back of a $3 billion second-quarter profit. The government-backed mortgage company also said that it would not need additional federal aid.

"There might be a ray of hope that someday those are worth something," a preferred stock trader said.

Eastman Kodak Co., however, did not hold on to its recent gains, falling anywhere from 2 to 4 points on the day, according to traders. The company's debt lost momentum on news indicating that initial bids for its patent portfolio were not as high as previously hoped.

Coal rises on price speculation

A trader said there was chatter in the market that coal prices had hit their lows, which resulted in a late-day boost for the sector at large.

"Looks like that little bit of news was making coal guys jump," the trader said.

He saw James River Coal's 7 7/8% notes due 2019 pop up to 52 from 501/2, even seeing paper trade as high as 53.

Another market source saw Alpha Natural Resources Inc.'s 6¼% notes due 2021 climb up a point to 88½ bid, as Patriot Coal Corp.'s 8¼% notes due 2018 inched up to 47¼ bid.

Freddie rises on earnings

Freddie Mac's preferreds "were pretty active," a market source said, after the government-backed mortgage provider reported a $3 billion profit for the second quarter and said that it would not need federal aid at this time.

A trader said the news boosted Freddie's preferreds by 25 to 35 cents.

Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) rose 36 cents, or 18.27%, to $2.33. The 5.79% noncumulative perpetual preferreds (OTCBB: FMCCK) increased 29 cents, or 10.86%, to $2.96.

Freddie saw its bottom line helped by an improving housing market. For the quarter, the company provided for loan losses of $200 million, down from $1.9 billion in the first quarter. In addition to boosting profit, that meant there was enough cash flow to make a $1.8 billion dividend payment to the government.

Given the profit, the company said it would not have to seek federal aid for the time being. That leaves its current bill from taxpayers at $72.3 billion.

"It's very speculative in nature," a market source said, obviously not believing the hype. "It doesn't mean much. They're not paying all that [taxpayer money] back anytime soon."

In related news, MGIC Investment Corp.'s 5 3/8% notes due 2015 were "up a couple points," a trader said, quoting the issue at 67 bid, 67½ offered.

MGIC, a U.S. mortgage insurer, is currently embroiled in a fight with Freddie over loss limit policies that it bought from MGIC. MGIC has recently come up with a plan to help it get back on track, but to do so would require issuing new policies - something Freddie won't sign off on until the dispute is settled.

Kodak falls on lackluster bids

Kodak bonds reversed course Tuesday after the Wall Street Journal reported that initial bids for the company's patent portfolio were below expectations.

A trader called the 9¾% second-lien notes due 2018 down 3 to 4 points at 80 bid, 81 offered. Another trader echoed that market, deeming it down from 84 bid, 85 offered.

The first trader pegged the 7¼% notes due 2013 at 22 bid, 23 offered, as the second placed it around 21.

"I guess there was still some sort of hope that the numbers would be ridiculously high," said the first trader, adding that many analysts had been using models that placed the portfolios value at zero.

Two investor groups - one including Apple Inc. and the other Google Inc. - submitted initial bids for the patent portfolio, but the offers came in well below the estimated $2.6 billion Kodak had claimed the patents were worth.

The bids were between $150 million and $250 million.

The Rochester, N.Y.-based company filed for bankruptcy in January.

Momentive earnings disappoint

Momentive Performance Materials Inc.'s 9% notes due 2021 lost a couple points Tuesday, following the release of the company's second-quarter results.

A trader placed the notes around 70.

The Albany, N.Y.-based company said Tuesday that net sales in the quarter ending June 30 dropped to $627 million from $728 million the year before. The revenue decline was blamed on price decreases and product mix shift.

Operating loss was $24 million, versus an operating profit of $70 million for the second quarter of 2011. The swing to loss was attributed in part to increased restructuring costs.

And, net loss came to $88 million compared to $11 million the previous year.

Momentive is a manufacturer of specialty chemicals.

NII rallies back

NII Capital Corp.'s 7 5/8% notes due 2021 "rebounded from their lows," which came as the parent company, NII Holdings Inc., reported weaker-than-expected financial results.

The trader said the bonds dropped as low as 69 before coming back to end at 71 bid, 72 offered.

The Reston, Va.-based wireless provider - it operates mainly in South and Central America - posted a net loss of $104 million, or 60 cents per share, for the second quarter. Revenues declined 15% to $1.5 billion.

Furthermore, the company revised down its full-year forecast, citing weaker Latin American currencies, as well as more competition.

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