Distressed market ends firm; Michaels tender news drives active trading; Lehman paper steady

By Stephanie N. Rotondo

Portland, Ore., Oct. 6 - Distressed debt continued to hold its ground as new issues continued to "take up everyone's time," a trader said Wednesday.

Michaels Stores Inc. announced it would launch a new issue to pay for a tender offer for its next maturing notes. As a result, the notes being tendered for traded actively, but unchanged.

Lehman Brothers Holdings Inc. was also about unchanged on the day on news that bond insurer Ambac Financial Group Inc. had dropped over $6 billion in claims against the investment firm. Ambac's bonds, however, traded higher, but in light trading.

Elsewhere, a market source called Standard & Poor's recent announcement regarding a potential rating change in Primus Telecommunications Group Inc. into question. The rating agency said it was considering cutting its rating on Primus due to a recent management shakeup. But in his view, the change is a positive one.

Michaels' bonds active on tender

A trader said a "bunch" of Michaels Stores' 10% notes due 2014 changed hands on news the company was planning a tender offer.

He quoted the paper at 105 3/8 bid, 105 5/8 offered.

Another trader pegged the issue at 105½ bid, 105 5/8 offered, unchanged on the day.

The Irving, Texas-based company plans to sell $750 million of new senior unsecured debt due October 2018 in order to finance the tender.

The 10% notes have a redemption option coming up on Nov. 1, when the bonds can be called for 105 cents on the dollar.

Moody's Investors Service placed a Caa1 rating on the proposed new issue.

Lehman steady, Ambac higher

Lehman Brothers' paper closed the day unchanged following news that Ambac Financial Group had agreed to drop over $6 billion in claims against the defunct investment bank.

A trader said Lehman bonds were trading between 22 and 23 depending on the issue.

"They don't really move," he said. "It's more just pushing paper around."

Ambac debt, however, inched up slightly, though in thin trading.

Several traders saw the 5.95% notes due 2035 inching up to 28.

At another desk, a trader saw Lehamn's 5 5/8% notes due 2013 around 22 5/8 bid, 23¼ offered while its 6 7/8% notes due 2018 were at 23½ bid, 24 offered.

"That's where they've been and where they were [Tuesday]," pre-news," he said. "There's always good volume in the name, big size - these are $1 billion deals," but he saw no bond price movement.

Another trader, though, said that there was "not a lot of volume" today in Lehman, seeing perhaps $4 million of the 5 5/8% notes trading, unchanged, at 23¼ bid, while "on all of the others, it was just one trade, for $1 million."

That trader also saw just one trade in Ambac's 5.95% bonds due 2035, at 28 bid, suggesting that the credit "is just not actively followed."

Ambac and Lehman had previously been battling over Lehman's "purported breach of obligations" in regard to residential mortgage-backed securities deals with Ambac. The settlement allows Lehman to release the bond insurer from any payments and liabilities related to derivatives transactions insured by Ambac.

Last week, Ambac said it was suing Bank of America Corp. over $16.7 billion of mortgage-backed securities tied to Countrywide Financial Corp. Ambac is alleging that the unit fraudulently induced it to insure debt that was secured by improperly made mortgages.

Primus notes unfazed

Primus Telecommunications' debt was unmoved by an announcement from Standard & Poor's, in which the rating agency said it might cut the company's rating due to recent management changes.

Primus' corporate credit rating is currently B- and the company is on CreditWatch with negative implications.

In early September, the McLean, Va.-based telecommunications provider said its board had replaced its chief executive and chief financial officers with acting appointees until replacements could be found.

Primus did not disclose why the board acted as it did and S&P said it would evaluate how the shakeup would affect the company.

Still, there was little to no movement in the company's bonds and one market source had an opinion as to why.

"It's a tightly held name," the source said. "S&P doesn't know what they are doing. Management changes are good for creditors in this case.

"Previous management would never sell the company," he added.

When asked to elaborate on whether some investors wanted to sell off the company, he remarked that he was "just saying the previous guys never would and they weren't well liked."

Another trader saw a market of 99 bid, 99¾ offered for the 14¼% notes due 2013, though he also said there were no actual trades in the credit.

A&P slips

A trader saw the Great Atlantic & Pacific Co., Inc.'s 11 3/8% senior secured notes due 2015 at 75 bid, 77 offered, which he said was "maybe down 1 point," following the Montvale, N.J.-based supermarket operator's bonds' gyrations Tuesday on investor angst over A&P's decision to break the leases of more than two dozen of its now-closed Farmer Jack stores in the Midwest.

Another trader saw those bonds offered at 78 in the morning but did not see anything happening with them otherwise. He saw the company's 5 1/8% notes due 2011 at 70½ bid and its 6¾% notes due 2012 at 52 bid, 54 offered, on "small size," versus Tuesday levels around 69 and 53, respectively.

Sorenson gains

A trader said Sorenson Communications Inc.'s 10½% notes due 2015 "moved up," trading in a 60½ bid, 62 range before ending at 61 bid, which he called up a point. "There was some trading today in it," he said.

There was no fresh news out on the Salt Lake City, Utah-based provider of telecommunications services to the hearing impaired. Its bonds, though, have recently been edging gradually higher.

Paul Deckelman contributed to this article

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