MF Global rebounds; Kodak senior paper better; AT&T news too late to help Sprint bonds

By Paul Deckelman

New York, Dec. 19 - Traders said that the quiet distressed-debt markets had few real features being seen on Monday. Most of the price movements they saw were not really fundamentally linked to news, but more reflected year-end position shuffling by accounts looking to clean things up before closing their books.

Nonetheless, a few names here and there were seen standing out.

The traders saw a multi-points gain in the battered bonds of failed New York financial firm MF Global Holdings, Ltd. after those bonds had been hammered down to around the 30 bid level amid nagging questions about $1.2 billion of missing customer money.

Also on the rise were the senior bonds of Eastman Kodak Co., although there was no fresh news out about the photographic products company. Its subordinated bonds were seen little changed on the session.

The news that wireless telecommunications giant AT&T Corp. has abandoned its efforts to acquire smaller rival T-Mobile arrived too late in the session to give much of a boost to the bonds of Sprint Nextel Corp. - the most obvious beneficiary of such a development - although Sprint's shares rose in aftermarket dealings.

Little afternoon trading was seen in Catalyst Paper Corp.'s U.S.-denominated bonds after Canada's Dominion Bond Rating Service downgraded the company's senior secured debt to CC from B.

MF Global moves up

A trader said that MF Global's 6¼% notes due 2016 "were trading up a couple of points," to around the 33 bid level.

He saw no fresh news out on the bankrupt futures brokerage to explain that gain, other than theorizing that the bonds had been hammered down so much that were due for a little upside.

The once high-flying financial company slid into bankruptcy on Oct. 31 after making disastrous big bets on the European sovereign debt of such struggling countries as Greece and Portugal, resulting in massive losses that brought the company down.

Since then, a key focus of federal regulators and Congressional probers has been the whereabouts of $1.2 billion in client money, which went missing and may have been co-mingled with the company's own funds as it sought to stay solvent.

Last week, the firm's resigned former chairman and chief executive officer Jon Corzine and several other company executives were in the hot seat on Capitol Hill, being grilled by Congressional interrogators as to where the money might be.

Corzine and the company's chief operating officer Bradley Abelow and chief financial officer Henri Steenkamp all denied knowing where the money was. Each also denied being the one who gave any alleged orders to co-mingle the customer funds.

Kodak climbs despite news

Elsewhere, a trader said that Eastman Kodak's secured 9¾% notes due 2018 and 10 5/8% notes due 2019 moved up to 75 bid and 76 bid, respectively, calling that "up a couple of points."

At the same time, the Rochester, N.Y.-based photographic products and digital-imaging technology company's 7¼% notes due 2013 were down 1 point, at 39 bid, "so these things [the senior bonds] were improving, but the others were down," on what he called "very light trading, just odd lots."

There was no explanation for the apparent rise in the secured bonds, especially since the only news out on Monday about the company was all bad.

A federal-trade disputes referee announced a delay in Kodak's high-stakes patent-infringement claim against smartphone makers Apple Inc. and Research in Motion Ltd.

The administrative judge overseeing the two-year dispute at the U.S. International Trade Commission - which had been expected to issue a ruling in the case by the end of this month - said the decision now will not be forthcoming until mid-September of 2012.

The delay puts further pressure on cash-hungry Kodak, which is trying to negotiate a licensing deal for some of its patents that it estimates could be worth up to $1 billion. The company was hoping to have a favorable ruling in hand by now to bolster its efforts.

T-Mobile news comes too late

Sprint's bonds were seen little changed Monday in the wake of the not-so-unexpected news released after the stock market closed that Sprint's much bigger rival, AT&T, halted efforts to buy T-Mobile USA for $39 billion.

It will instead walk away from the deal and pay a break-up fee to T-Mobile's owners, taking a $4 billion earnings charge.

Overland Park, Kan.-based Sprint, the third-largest U.S. wireless company, had vehemently opposed AT&T's acquisition efforts.

AT&T, the No. 2 industry player, sought out T- Mobile, which is ranked at No. 4, in hopes of leapfrogging the current industry leader, Verizon Wireless.

Sprint feared that letting the one-time "Ma Bell" buy T-Mobile would put itself at an even greater competitive disadvantage.

Federal authorities agreed, with both the Justice Department and the Federal Communications Commission filing objections on antitrust grounds and ultimately causing AT&T to drop the transaction.

But because of the lateness of the hour - well after 4 p.m. ET - there really were no dealings in Sprint on Monday.

Sprint's busiest issue, its Sprint Capital Corp. 6 7/8% bonds due 2028, saw only about $4 million of large-trade turnover. Those bonds ended down a bit, at 68 7/16 bid.

The one Sprint issue that seemed to have reacted to the news with a few late-session trades was parent Sprint Nextel's 6% notes due 2016, which began the day at just under the 77 level, but went home at 80¾ bid, up 4 points on the day. But a market source described volume as thin and consisting entirely of unrepresentative smallish odd-lot trades.

Sprint's New York Stock Exchange-traded shares went home down 9 cents on the day, or 4%, at $2.16, as the stock market closed before the AT&T/T-Mobile announcement. Volume of 28 million shares was less than half the norm.

But in after-hours trading, the shares firmed smartly, gaining 16 cents, or 7.41%, to end at $2.32.

Hovnanian gets hammered

A trader said that K. Hovnanian Enterprises Inc.'s bonds "went on a ride," moving lower on the day.

He saw the Red Bank, N.J.-based homebuilder's 10 7/8% notes due 2016 quoted down about 3 points on the day, to 71. "But there was not much volume at all in them, just a couple of trades," the trader said.

Hovnanian last week reported in its fourth-quarter and full-year results that it continues to lose money. The company also said it does not expect the downturn in the national housing market to end in the next two years.

Catalyst trading stalls

No secondary market activity was seen in the afternoon in Catalyst Paper's dollar-denominated bonds after DBRS downgraded the company.

"Not seeing anything on Catalyst," one trader said.

The drop followed the Richmond, B.C.-based paper manufacturer's announcement last week that it would defer interest payment of $21 million on its 11% senior secured notes due 2016, pending finalization of its debt-structure strategy.

DBRS said in the ratings announcement that the company faces a higher risk of default if it does not resume interest payments as originally agreed at the end of the 30-day grace period.

Cristal Cody and Rebecca Melvin contributed to this report

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