Countrywide up despite poor BofA numbers; Charter paper slips; Swift bonds drive lower

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., April 21 - Countrywide Financial Corp.'s paper was deemed a "smidge better" Monday, after its savior Bank of America reported its first-quarter numbers - which came in lower than most analysts' expectations.

Charter Communications Inc.'s bonds were seen a touch lower, though traders reported there was very light volume in the name.

The bonds were edging up Friday, despite the news that the company had received a noncompliance letter from the Nasdaq Stock Market. The cable operator's debt reversed direction come Monday, losing as much as a point on the day.

Swift Transportation Co. Inc. saw its bonds close unchanged to lower during the session, as oil and gas prices once again hit new highs.

But overall traders were disappointed with the level of activity in the day. The lack of volume was blamed on everything from Spring Break to the Boston Marathon to the Passover holiday.

"It was definitely a bit of a snooze," said one trader, who called the market mostly unchanged.

"It is unbelievably quiet," said another source. "It is almost like a half-day holiday."

"Absolutely brutal," a trader stated. "We were just spinning our wheels."

A high yield syndicate official saw cash bonds unchanged to up ¼ point in the quiet session.

The only news from the primary market concerned FireKeepers Development Authority, which set price talk for its $325 million offering of seven-year senior secured notes (B) with a 14% area coupon at an original issue discount of four to five basis points.

The Merrill Lynch-led tribal casino project-financing deal is expected to price on Tuesday.

Aside from FireKeepers, the only deal in the market is Calgary, Alta.-based waste management company CCS Inc.'s $312 million offering of senior unsecured notes due Nov. 15, 2015. The bridge refinancing via Goldman Sachs and Deutsche Bank Securities is also expected to price before the end of the week.

Bond indexes change only slightly

A trader said there was little to no change "across the board" in the major indexes. He quoted the CDX index at 96.5 bid, 97 offered.

"It is a little lower, but indiscernible," he said.

The KDP High Yield Daily Index inched marginally upward, closing at 75.37 compared to Friday's level of 75.30. Monday's yield tightened to 9.32% versus 9.34% Friday.

Still, traders reported a generally firmer market, even as the equity markets fell behind.

A heavy foot lifts

A money manager from a mutual fund, whose portfolio includes both junk bonds and leveraged loans, said that recent improvements in the bank loan market - most notably a rapid sell-down of the LBO-related loan backlog - has set in train improvements in the high yield.

"As the bank loan market goes up it allows the high yield to come up underneath it," the investor asserted.

"The loan market had been stepping on the high yield market's neck. Now the pressure is easing off the foot.

"The high yield is rallying nicely.

"Lately it has been wanting to rally but couldn't, because of the loan market.

"Now it has room to go up."

Quick turnaround

The investor remarked that the apparent turnaround in the loan market seems to have taken place with a rather astonishing quickness.

"Right now I don't think there are any natural sellers in the loan market. And there is plenty of buying interest which you are seeing reflected in prices.

"It's the opposite of what happened on the way down, where there were not a lot of natural buyers, and you sold if you had to.

"And it dropped really quickly."

Technical cleanup underway

The portfolio manager said that the cleanup of the technical mess in the leveraged markets seems unmistakably to be underway.

However, the source added, "I think we're going to be trading on fundamentals pretty soon.

"And the fundamentals are way worse than they were six months ago."

This investor's perception is that the U.S. economy is presently in a recession.

"People who are saying 'No recession' are really adding up numbers in a very specific way which gets them just positive," the source asserted, adding that the "no recession" scenario hinges on present strength among exporters, due to the relative weakness of the dollar.

"They're slightly offsetting the negatives of the consumers, etc.," the investor added.

"So it's a recession for everybody except exporters."

However, the portfolio manager added, there is at least one novel aspect to the present downturn: high yield defaults have been notably slow at lifting off their historic lows.

The investor cited a report published last week by Moody's Investors Service which noted that several factors unique to the current corporate credit environment suggest that default rates may not increase as rapidly in 2008 as had previously been foretasted by the Moody's model.

While the model is currently forecasting a 5% global speculative-grade default rate by year-end 2008, Moody's said it now believes that the default rate will more likely end 2008 in the 3% to 4% range, still up sharply from its current level of 1.5%.

"That sounds right to me," the investor commented.

"It's hard to look, name by name, and get the default rate to 5% in 2008.

"Maybe defaults will be 3% or 4% this year, and 3% or 4% next year.

"That would be a weird recession."

Countrywide up despite poor BofA numbers

On Monday, Bank of America reported its first-quarter results, which showed profit falling for the third-straight quarter.

Still, investors did not seem too concerned about what that might mean for Countrywide and the bank's proposal to buy the lender for $4 billion. The company's bonds managed to close a "smidge better," as one trader put it.

The trader said there was not a lot of activity in the lender's debt - though there was not a lot of activity in the market as a whole, he noted - and its 6¼% notes due 2016 ended at 86 bid, 87 offered.

Another trader saw the 3¼% notes coming due in May at 99 bid, par offered and the 6¼% notes at 85.5 bid, 87 offered. The trader added that he could not tell if that was better or worse on the day.

For the first quarter, Bank of America's net income fell 77% to $1.21 billion, compared to $5.26 billion the year before. The company also lowered its earnings growth forecast for the year.

Countrywide itself has posted losses of $1.6 billion over the last two years. The company is expected to release its first-quarter financials next week.

Countrywide is a Calabasas, Calif.-based mortgage lender.

Elsewhere in the financial sector, Thornburg Mortgage Inc.'s 8% notes due 2013 closed unchanged at 73 bid, 75 offered, while GMAC LLC's 8% notes due 2031 gained a point to 77.5 bid, 78.5 offered.

Charter paper slips

Charter Communications' debt slipped anywhere from ¼ point to a full point during Monday's session, depending upon the issue in question.

One trader called the name "a little softer," its 11% notes due 2015 ending around 76, versus levels of 76.5 bid, 77 offered on Friday.

"It was kind of mixed," he said of the company's various issues, calling them ¼ to ½ point weaker.

Another trader called the 11% notes down ¼ point at 75.5 bid, 76.7 offered, noting that the bonds hit a high of 77 during the trading day. The trader also quoted the 10% notes due 2014 at 51 bid, 52 offered, unchanged from Friday.

At another desk, a trader pegged the 11% notes at 75.5 bid, 76.5 offered, and the 9.92% notes at 51 bid, 52 offered.

"That's about a point lower," he said. "Not that big of a deal."

On Friday, Charter received a letter of noncompliance from Nasdaq as its stock has traded under $1 for 30 consecutive business days. The company has until October to bring up that price, or it could face repercussions, such as being delisted.

Charter Communications is a St. Louis-based cable and internet provider.

Swift drives lower

Swift Transportation's debt keeps on trucking lower, traders reported, as rising oil and gas prices put pressure on the industry as a whole.

One trader called the 12½% notes due 2017 unchanged at 38.5 bid, 39.5 offered. Another trader, however, said he saw the bonds offered at 38, adding "I am not even seeing a bid side now."

"They are just going lower, aren't they," he said, noting that the debt had been at 38.25 bid, 39.25 offered last week.

The trucking industry has faced hard times of late, with consumer spending declining and oil and gas prices steadily gaining. Crude oil topped $117 a barrel Monday, yet another record high. The national average price of gasoline also hit a record at $3.50 per gallon.

Swift Transportation is a Phoenix, Ariz.-based transportation provider.

Broad market mostly firmer

Pilgrim's Pride's 8 3/8% notes due 2017 inched up a point on "positive press from Barron's," a trader said. The bonds closed at 88.5 bid, 89.5 offered.

But bad news - or at least potential bad news - dropped Sabine Pass's 7½% notes due 2016 by 4 points to 89 bid, 91 offered. On Monday, Moody's Investors Service said it was reviewing the name for a possible downgrade, citing pressure on the financial and business prospects of Cheniere Energy Inc., which holds a 90.6% interest in Cheniere Energy Partners, which controls the Sabine Pass LNG regasification terminal, located in Cameron Parish in Louisiana.

General Motors Corp.'s 8 3/8% notes due 2033 ended 2 points higher at 74 bid, 76 offered, while Ford Motor Corp.'s 7.45% notes due 2031 were unchanged at 72.5 bid, 74.5 offered.

Idearc Inc.'s 8% notes due 2013 ended unchanged at 71 bid, 72 offered.

Linens n' Things floating-rate notes due 2014 "continue to creep up," a trader said, closing around 44.5, versus levels near 42 bid, 43 offered last week.

Tekni-Plex Inc.'s 12¾% notes due 2010 gained a whopping 8 points, a trader said, to 68 bid, 70 offered. He said he saw no reason for the move.

The trader also saw Six Flags Inc.'s 8 7/8% notes due 2010 up 1 ½ points at 78 bid, 79 offered.

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