Springleaf Finance paper weakens after S&P downgrades company; strength remains in market

By Stephanie N. Rotondo

Portland, Ore., Feb. 6 - Distressed debt was subdued Monday as market players recovered from their "Super Bowl hangover," a trader reported.

"It was a slow, tough slog of a day," another trader said.

Springleaf Finance Corp. was the nom du jour after Standard & Poor's downgraded its ratings on the financial services firm. The company's debt had traded down Thursday on news the company intended to close branches and had hired financial advisers. Some losses were earned back Friday, only to be lost again on Monday.

Mainly, investors continued to focus on the new issue calendar. Overall, a trader said the day ended "sideways."

Springleaf hit with downgrade

Springleaf Finance's debt lost ground Monday after S&P downgraded the company and its debt.

A trader said about $25 million of the 6.9% notes due 2017 changed hands, falling a point to end around 731/4.

The trader also saw the 5 3/8% notes due 2012 dropping a point to 923/4, while the 5.85% notes due 2013 lost 1½ points, closing at 881/4.

Another trader said Springleaf "continued to be active" and "continued to drift a little bit." He also called the 6.9% notes down "about a point" at around 73.

Evansville, Ind.-based Springleaf Finance - formerly known as American General Finance - saw its bonds taking a hefty hit on Thursday after the company announced branch closures and the hiring of advisers.

The financial services provider has been undergoing a strategic review of its operations. Based on its findings, it has decided to shutter about 60 branches in "14 states we do not have a significant presence and in southern Florida," the company said in an 8-K filed with the Securities and Exchange Commission.

The branch closings are expected to result in a pre-tax charge of $6 million in the first quarter of 2012. Up to 210 employees would be laid off immediately and another 190 jobs remain in limbo.

The company also noted that it had hired Alvarez & Marsal North America, LLC and Houlihan Lokey Capital, Inc. "to assist us with identifying ways to streamline our operations and reduce costs, and to provide financial advisory services."

The news then prompted S&P to take action on Monday.

"We believe Springleaf Finance Corp. will have difficulty meeting its unsecured debt maturities in 2012 without securitizing a large amount of assets, significantly scaling back its originations, or conducting a distressed debt exchange," S&P said in a statement.

The company's corporate credit rating was changed to CCC from B, as was its unsecured debt. Its senior secured debt was lowered to CCC+ from B+.

TXU trades actively

A trader said that there was "an awful lot of trading" in CDS contracts giving default protection to holders of various bonds of the Texas utility operator formerly known as TXU Corp.

He also saw "size trading," in the new 11¾% senior secured second-lien notes due 2022 issued by Energy Future Intermediate Holding Co. LLC. That quickly shopped $800 million issue - doubled in size from the originally planned $400 million - priced on Wednesday at 98.535 to yield 12%, then moved up in initial aftermarket trading to 99 5/8 bid, par offered, and by Thursday, to par bid, 100½ offered. On Monday, he saw those notes having firmed still further to 100¾ bid, 101 1/8 offered.

He further saw Energy Future Holdings Corp.'s 10 7/8% notes due 2017 up 3 points on the day, to 82½ bid, 83 offered, which he said was a 4- to 5-point gain from their levels last week. "But it was only on, like three trades - I don't think it was representative."

He saw more dealings in the company's 6.55% bonds due 2034, which traded in the 47½ area, about unchanged. "That was decent volume - $7 million to $10 million traded."

Sprint eases

A trader said that Sprint Nextel Corp.'s paper was fairly active, particularly the Overland Park, Kan.-based wireless service provider's 6 7/8% notes due 2028, which he called "always pretty active." He saw the bonds ending at 74½ bid, 75 offered, which he called down a half point from where they had been over the past few days. He said the activity took place "on decent volume."

Sprint is scheduled to report fourth-quarter earnings on Wednesday, with analysts predicting a loss of 35 to 37 cents per share, almost four times its third-quarter red ink of 10 cents per share, and greater than the 29 cents per share loss seen a year ago. But Sprint's Nasdaq-traded shares have been firming over the past few sessions, and were up another 6% on Monday on nearly twice their normal volume.

Still strength in market

Despite a generally lackluster trading day, a trader said Dynegy Holdings LLC's debt continued to gain steam.

The 8 3/8% notes due 2016 moved up to 651/2, while the 7¾% notes due 2019 improved to 641/2, the said.

Another trader said Exide Technologies' 8 5/8% notes due 2018 were "creeping up," seeing them trade "as high as 85" during Monday's session.

And, a third trader said MF Global Holdings Ltd.'s 6¼% notes due 2016 were trading around 35.

"Sounds kind of unchanged to me," he said.

Paul Deckelman contributed to this article

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