Bon-Ton bonds slide ahead of earnings report; MF Global moves up; Dynegy weakens post-results

By Stephanie N. Rotondo and Paul Deckelman

Portland, Ore., Nov. 16 - Distressed debt "definitely felt weaker in general," a trader reported Wednesday.

Bon-Ton Stores Inc.'s notes were on the decline ahead of the company's official earnings release on Thursday. The York, Pa.-based retailer had revised guidance earlier in the month after reporting disappointing same-store sales.

Meanwhile, MF Global Holdings Ltd.'s debt was seen moving upward. The gains came a day before a judge was expected to rule on whether the company could return about $520 million in cash to customers.

After Dynegy Inc. posted a wider loss for the third quarter on Tuesday, Dynegy Holdings LLC paper was "down a little bit," according to a trader. The power-producing subsidiary filed for Chapter 11 protection last week.

Bon-Ton soft ahead of numbers

Bon-Ton Stores is expected to report earnings on Thursday and ahead of the release, the bonds were on the decline.

A trader quoted the 10¼% notes due 2015 at 59 bid, 60 offered.

On Nov. 3, the retailer reduced its fiscal year guidance in the wake a disappointing October same-store sales report. Net loss was lowered to 65 cents per share to 25 cents per share, versus previous guidance of $1 to $1.25.

For the third quarter, sales were down 6.3% to $656.1 million. Same-stores sales were down 5.9%.

For the month of October, sales dropped 10% to $192 million and same-store sales were also down 10%.

Last week, Standard & Poor's lowered its outlook on the company to negative, citing the weak operating performance.

MF gains ground

MF Global customers are awaiting a bankruptcy judge's decision Thursday to find out if they will recover up to $520 million in cash from the bankrupt futures broker.

A trader said he saw the firm's 6¼% notes due 2016 rising 3 points on the day, but he was not sure if it was due to the news or not.

He pegged the issue around "37-ish."

The trustee overseeing the liquidation of the broker-dealer operations has asked the judge overseeing the bankruptcy case to release the funds to between 15,000 and 21,000 commodities customers who held cash in their accounts. Regulators have called for increased oversight on how the money is distributed.

Additionally, regulators are still searching for about $600 million in missing funds.

In related credits, Jefferies Group Inc.'s 5 1/8% notes due 2018 were placed "around 80," which a trader said was down 1 to 2 points on the day.

Dynegy weaker post-earnings

Dynegy Holdings' debt was dipping Wednesday, just one day after the company's parent reported a wider third-quarter loss.

A trader saw the 7½% notes due 2015 at 70½ bid, 71 offered and the 8 3/8% notes due 2016 at 71 bid, 71½ offered.

He called both issues "down a little bit."

At another desk, a market source called the 7¾% notes due 2019 down over 3 points at 70½ bid.

For the quarter, Houston-based Dynegy reported a net loss of $75 million, or 61 cents per share. That compared to a loss of $24 million, or 20 cents per share, the year before.

Revenues drifted down 33% to $516 million.

Sino-Forest sinks on news

A trader quoted beleaguered timber operator Sino Forest Corp.'s 10¼% notes due 2014 at 53 bid, calling the bonds down 9 points on the session.

"They've been in the news, he said, "kind of just headlines."

He said that in the current environment, "when bad news comes out about a company, it doesn't just trade down a couple of points, it trades off a cliff."

He likened it to "someone who gets mono [i.e. mononucleosis] - no one wants to go near them for a while."

However, another trader did not see those kinds of gyrations in the troubled Canadian-Chinese timber company's paper - he said the 101/4s started the day around a 56-58 context, and then retreated around a point, to 55-57. He also saw its 6¼% notes due 2017 down ½ to 1 point at 47 bid, 48½ offered.

At another desk, a market source said the bonds' gyrations took place against the backdrop of a report issued on Tuesday, when most of the action in Sino-Forest took place - Wednesday was just a mopping up session, he said.

On Tuesday, an independent committee empanelled earlier this year delivered its preliminary report. The committee was set up after Sino-Forest was rocked by scathing accusations from Hong Kong-based investment firm Muddy Waters LLC that the timber plantation company was little more than a "Ponzi scheme" and "a near total fraud." However its report essentially exonerated Sino-Forest of those serious charges, although it did find some problems.

News that the report had debunked the most serious Muddy Waters accusations caused the 101/4s and the 61/4s, which both had previously been trading in a 31-32 range, to shoot right up at the open on Tuesday, both to around the 60 level, about double their previous quotes. The 101/4s went home Tuesday trading around 62 bid, while the 61/4s fell from its early peaks to end at 50 bid, both on volume of about $14 million.

With investors having had a chance to read about the report more thoroughly, including the problems uncovered, both bonds fell back a little on Wednesday, though in much less-busy trading, with the 101/4s ending the day down 9 points at around 53, but with a last round-lot trade a bit higher, at 57, while the 61/4s retreated to around 47 bid, with about $4 million having changed hands.

Both issues actually were trading on Wednesday at the respective levels around where most of Tuesday's activity had taken place before those prices were lifted late in the session Tuesday.

While the report appeared to largely discredit the spectacular allegations of fraud raised by Muddy Waters CEO Carson Block - who rejected the independent report as a whitewash - it did find some potentially serious problems with the company, including missing or even possibly falsified records, and the absence of an internal audit function. It also noted that some executives had been uncooperative, and, according to published reports, found that some employees had formed unusually and possibly suspiciously close relationships with suppliers and customer intermediaries, including, in one case, shared access to bank accounts.

Canadian authorities meantime continue to investigate the Toronto-based company.

ATP gains, Caesars slips

Elsewhere in the distressed debt arena, a trader said ATP Oil & Gas Corp.'s 11 5/8% notes due 2015 were "up a couple points after getting slaughtered in the past few sessions."

He pegged the issue around 66.

Caesars Entertainment Corp.'s 10% notes due 2018 meantime dropped 1 to 2 points, ending around 66 bid, 67 offered.

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