Idearc up, Donnelley 'flushed'; Pilgrim's Pride hurt by bankruptcy buzz; Masonite drops on downgrades

By Stephanie N. Rotondo

Portland, Ore., Oct. 17 - The distressed bond market was "still languishing," a trader said Friday, even as the equity markets posted early gains.

"It was better by choice," he said, "but not enough to matter."

Idearc Inc.'s bonds ended firmer on the day after the company's top executive made encouraging comments about its liquidity situation. However, R.H. Donnelley Corp.'s debt did not fare as well. Those bonds closed at least 2 points weaker on the day.

Meanwhile, potential bankruptcy buzz put pressure on Pilgrim's Pride Corp.'s notes. Even the company's assertion that a Chapter 11 filing was not in the cards did not ease investors' concern and the bonds fell 5 to 6 points.

Masonite International Inc. missed an interest payment this week and, as a result, the company received two downgrades Friday. Though traders said trading was thin in the name, the bonds were decidedly weaker by the end of the day.

Idearc up, Donnelley 'flushed'

Idearc's bonds got a boost during trading on some encouraging words from the company's chief executive, traders reported.

A trader called the 8% notes due 2016 1 to 2 points better around 20, while another saw the bonds end at 19.25 bid, 19.75, up from 18.5.

"And a fair amount traded," the second trader added.

Both sources cited news reports in which Scott W. Klein, the phonebook publisher's top executive, said that the company has enough cash for the foreseeable future.

According to one trader, Klein was quoted as saying, "I am not losing any sleep over it and I don't think anybody else should be either."

"That woke up a few people," the trader said.

Meanwhile, sector peer R.H. Donnelley's bonds "got flushed," the trader said. He said the debt has been "pounded" of late, with no relief. "It could be CDS related," he noted.

The trader quoted the 8% notes due 2013 linked to the company's Dex Media Inc. subsidiary at 20.5, down from 22 bid, 27 offered previously. He also saw the 8½% notes due 2010 at 65 bid, 70 offered, the 9 7/8% notes due 2013 at 29 bid, 30 offered and the 8 7/8% notes due 2017 at "22 and change." The latter he called "maybe up a little."

Another source placed the Dex 8% notes due 2013 fell 5.5 points to 20.5 bid.

Donnelley is scheduled to release its third-quarter earnings on Thursday and a conference call is scheduled for 10 a.m. ET.

A trader opined that the results could be interesting, if only to see if "they have gotten pounded enough that there is no more downside."

Pilgrim's Pride hurt

Pilgrim's Pride's corporate debt "started to fade," a trader said, after chatter of a potential bankruptcy began circulating.

The trader pegged the 8 3/8% notes due 2017 at 22 bid, 24 offered, noting that the debt had traded in small size at 30 on Thursday.

Another trader placed that issue around 23 from 29 previously, and the 7 5/8% notes due 2015 at 43 bid, 45 offered from 50. He called both issues down 5 to 6 points on the day.

Yet another trader saw the 8 3/8% notes at 20 bid, 28 offered and the 7 5/8% notes at 45 bid, 50 offered.

Early in the session, traders saw the bonds beginning to decline after a Wall Street Journal article came out, saying that the company could potentially be facing bankruptcy.

The bonds were not helped when the company refuted the comments, stating that it was working to develop a plan to meet the current challenges facing the sector.

The Journal article pointed to Pilgrim's efforts to secure enough funds - or failing that, amendments from its lenders - to avoid breaching a covenant by Oct. 28. The company also has an upcoming interest payment, to the tune of $25.7 million, next month.

The Journal also reported that the company might be looking to sell, as rival Tyson Foods, as well as Industrias Bachoco SA de CV, had apparently expressed interest.

Masonite gets ugly

After two downgrades during the session, Masonite International's bonds "got a little uglier," a trader said.

The trader said that the 11% notes due 2015 were 22 bid, 23 offered pre-downgrade. Afterward, the bonds fell to 10 bid and were trading flat. He added that, realistically, 10 bid, 15 offered "covers it."

Both Standard & Poor's and Moody's Investors Service cut their ratings on the building products company. S&P dropped its rating to D from CC, blaming the drop to the company's missed coupon payment on Wednesday. Moody's cut its rating to Caa3 from Caa1, also citing the missed payment, among other things.

S&P said that it believed Masonite had enough liquidity to make the payment but was blocked from doing so by its secured lenders. A forbearance agreement prevents its lenders from accelerating the $1.5 billion senior secured credit facilities until Nov. 13, also the date of the end of the 30-day grace period for the missed interest payment.

Masonite, a Canadian door maker, has struggled as home construction and remodeling declined, beginning last summer with the subprime mortgage meltdown. Construction continues to remain on the ropes, as home construction fell 6.3% in September.

GM, Ford gain ground

General Motors Corp. and Ford Motor Co.'s term loans posted some gains during the trading session in line with the rest of the cash market, according to a trader.

General Motors, a Detroit-based automotive company, saw its term loan quoted at 43 bid, 46 offered, up from 41 bid, 45 offered on Thursday, the trader said.

And Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 45 bid, 47 offered, up from previous levels of 42 bid, 46 offered, the trader continued.

"Whole auto space is feeling better. Whole loan market feeling better," the trader remarked in explanation of General Motors' and Ford's bank debt performance.

On Friday, the overall distressed cash market was described as being up about one to two points on the day.

Recently, there has been some buzz that General Motors and Chrysler LLC could end up merging, and chatter on Friday was that the talks regarding this matter might be speeding up.

When asked whether the new rumors might have also helped spur General Motors' term loan higher, the trader said that it wasn't likely.

"Don't think that has anything to do with it. Not sure if people put a lot of faith in that," the trader added.

Broad market mixed

Bon-Ton Stores Inc.'s 10¼% notes due 2014 fell to 17 bid from 18 after S&P downgraded the retailer on Thursday.

A trader said that "bids were filling in" in energy sector bonds, which had previously been on the decline. He saw Reliant Energy Inc.'s 6¾% notes due 2014 at 82, up from 78 over the last few days. NRG Energy Inc.'s 7 3/8% notes due 2017 gained 1 to 1.5 points to 77.5 bid, 78 offered. Earlier in the week, the bonds had been around 74.25, the trader said.

"That's a nice rebound," he added.

Dynergy Energy's 7¾% notes due 2019 meanwhile headed back up to 60 bid from 58 previously.

Harrah's Entertainment LLC's 10¾% notes due 2016 finished "up a little" at 35 bid, 36 offered, versus opening levels of 34.5 bid, 35.5 offered. However, the gaming operator's debt structure was largely mixed on the day, a trader said.

The 8 1/8% notes due 2011 slipped 1.5 points to 39.5, while the 5.5% notes due 2010 were unchanged at 54.75 bid, 55.25 offered. The 5¾% notes due 2017 were weaker at 16.75.

"It seems like they are bottoming out a little bit," he said.

When asked his thoughts on recent comments about a bankruptcy in the company's future, he said it was "quite possible, I wouldn't be surprised.

"They have a large capital structure and a lot of bank debt," he said. "They would have to restructure."

Washington Mutual Inc.'s "bank level paper," as one trader put it, dropped to 25 bid, 26 offered from 31 bid, 32 offered previously. He said he thought the declines might have something to do with a $2 billion tax refund that it is believed JP Morgan Chase acquired instead of the defunct bank.

But traders over the last few sessions have seen action in the financials decrease significantly.

"It was every other one," a trader said. "Now it's more like one out of 20.

"It's a good sign," he added. "It means we're going back to our old dysfunctional stuff."

Sara Rosenberg contributed to this article.

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