DIP objections lower Fedders; Calpine better; Retailers firm; Homebuilders ride the high

By Stephanie N. Rotondo

Portland, Ore., Sept. 19 - Positive sentiment in the market drove the distressed bond market higher Wednesday, with investors buoyed by the previous day's interest rate cut from the Federal Reserve.

Still, traders noted that while most names were better on the session, the gains were tempered in afternoon trading.

"In the morning, we saw follow through from yesterday," a trader said. "However, the afternoon has put the brakes on the runaway bull market, and we are seeing things softer."

The trader said that overall, junk bonds were "mostly down 1 point from the highs, and only up 1 point from yesterday."

Fedders Corp. was one name that did not follow that trend. The Liberty Corner, N.J.-based company's debt slipped slightly as the unsecured creditors committee objected to the current debtor-in-possession proposal. A hearing was scheduled for Thursday but has been postponed.

Meanwhile, Calpine Corp. filed a second amended reorganization plan, which was aimed at addressing valuation concerns. One trader said the bonds initially rallied, but as investors digested the news, the bonds settled back down.

But investors apparently remained hopeful about the retail sector. Traders said retailers such as Claire's Stores Inc., Bon-Ton Stores Inc. and Linens n'Things were better on the day, attributed to "euphoric" feelings in the marketplace.

"It's just general positive market sentiment," a trader said of gains in the sector.

Also continuing to feel the high were homebuilders. Technical Olympic USA Inc. and Beazer Homes USA Inc. both saw their bonds better on the day. Still, at least one trader is skeptical that the feeling will last.

DIP objections lower Fedders

Fedders' bonds moved lower after its unsecured creditors committee filed objections on the DIP proposal.

A trader quoted the 9 7/8% notes due 2014 at 15.5 bid, 16.5 offered, down from the previous day's levels of 16 bid, 17 offered. Another trader saw the bonds at 15 bid, 16 offered.

The first trader said the hearing on the DIP proposal, originally scheduled for Thursday, is being put off until Oct. 1.

"Maybe that means the company is talking to some other folks about a DIP," the trader said. "That would be nice."

That is a sentiment that would likely be echoed by the unsecured creditors' group. In a court filing Tuesday, the committee objected to the Goldman Sachs-led deal, alleging, among other things, that the terms of the proposal already put the company in default. The objection also states that the interest rate on the DIP facility is higher than similar facilities and the company did not look into other potential lenders.

Amended plan boosts Calpine

A second amended reorganization plan prompted Calpine's bonds to rally, but once investors soaked in the news, the bonds settled back down.

A trader said the San Jose, Calif.-based company's bonds were up 1 to 2 points across the board, placing the 8½% notes due 2011 at 105.5 bid, 106.5 offered.

"They were leading the way," he said of that issue.

Another trader said the bonds gained as much as 2 points during the day before settling back down to just 1 point better on the session. He pegged the 8½% notes due 2008 at 105.5 bid, 106.5 offered, adding that the 2011 paper was about a point lower at 104.5 bid, 105.5 offered.

At another desk, a traders saw the bonds "up a couple of points," its 2008 issue at 105 bid, 107 offered, up from 103 bid, 105 offered. The 7¾% convertible notes were also up 2 points at 85 bid, 87 offered.

According to a press release issued by Calpine, the new plan maintains its key features but makes slight changes to the valuations.

Still, the first trader said, the changes were not that significant.

The problem remains, he said, that the figures are based on projections for the year 2012.

"We're supposed to buy on good faith," he said. "That's four-and-a-half years away, we've got no freaking idea [what will happen]."

Furthermore, he said, "I don't think the discount rate they used is enough."

Retailer names on a high

"Euphoric" feelings in the market seemed to help retailers, traders reported.

Retail names were seen gaining in the previous session, boosted by the announcement of the Federal Reserve's rate cut. Even Claire's Stores, which posted its second-quarter numbers Tuesday, moved higher despite a decrease in its same-store sales.

"It seems like there is some euphoria after the rate adjustment," a trader said, though he called the cut "expected." As for Claire's gains, he said it "defied logic."

The trader saw Claire's 1½% notes up at 81 bid, 80 offered. He also said Bon-Ton's 10¼% notes due 2014 were up at 96.5 bid, 98 offered, as well as Linens n'Things floating-rate notes at 91.

Another trader said he saw Claire's debt "running up," which he heard was due to a short squeeze. He pegged the 10½% notes at 81 bid, 82 offered.

The trader said Bon-Ton's bonds were "97-ish" and called Linens n'Things debt "kind of quiet." He added that Dollar General Corp.'s 8 5/8% notes due 2010 were up at 94 bid, 95 offered.

Homebuilders firmer

Homebuilders continued to be firm one day after the Fed's interest rate cut, traders said.

"Everything is right with the world," one trader quipped. "All their problems are solved."

The trader said Technical Olympic's 9% notes due 2010 moved as high as 73 during the session, before closing near 72, which he called "up a bit." He said the 10 3/8% notes due 2012 were "up a little" at 38.

Another trader called the debt "a little more active," placing the senior paper up 4 to 5 points at 74 bid, 75 offered. He also saw the subordinated issue at 38 bid, 39 offered.

Yet another trader called the homebuilder's bonds better by 2 to 3 points with its 8¼% notes due 2011 at 69 bid, 71 offered and the 9% notes at 72 bid, 74 offered.

The first trader also saw Beazer Homes' 8 5/8% notes due 2011 with an 82 bid. Another trader said the bonds were "quoted up a little," with the 8 5/8% notes at 81 bid, 82 offered and the 8 3/8% notes due 2012 at 79.5 bid, 87.5 offered.

At another desk, a trader said the 8 3/8% notes were up 3 points to 80 bid, 82 offered.

Elsewhere, Beazer's 8 5/8% notes were deemed up 1.75 points at 81.75 bid, 83.25 offered, while its 6½% notes due 2013 were at 78 bid, 80 offered and its 8 1/8% notes due 2016 were at 79.5 bid, 81.5 offered, both up 1.5 to 2 points, a trader said.

Standard Pacific Corp.'s 7¾% notes due 2013 were placed at 78 bid, 80 offered, up 7 points, a trader said. The 6¼% notes due 2014 gained 4 points to 74 bid, 76 offered, and the 7% notes due 2015 were up 5.5 points at 75.5 bid, 77.5 offered.

Autos driving forward

Federal-Mogul Corp.'s bonds continued to rally, a trader said, pegging the bonds up at 83.5 bid, 84.5 offered. He said the gains were due to market follow through.

Another trader said the bonds - which trade in line with each other - were "up another 2 to 3 points" on "no particular news." He quoted the notes at 82 bid, 83 offered.

At another desk, a trader called the bonds 4 points better at 83 bid, 85 offered, while another trader pegged the 7½% notes due 2004 up 3 points at 83 bid, 84 offered.

The second trader also saw Delphi Corp.'s bonds better by about 3 points, its 6½% notes due 2009 and its 6.55% notes due 2006 at 87 bid, 88 offered.

Another trader quoted the 6.55% notes at 87.5 bid, 88.5 offered, up from 83 bid, 85 offered. The 6½% notes were slotted at 88 bid, 89 offered, up 5 points.

Dana Corp.'s 6½% notes due 2008 were up 1.5 points at 82.5 bid, 83.5 offered, while Dura Automotive Systems Inc.'s 8 5/8% notes due 2012 were called unchanged at 44 bid, 46 offered.

Broad market mostly better

Trump Entertainment Resorts Inc.'s 8½% notes due 2015 were up 1.5 points to 84 bid, 84.5 offered.

Swift Transportation Co. Inc.'s 12½% notes due 2010 "popped up," a trader said, to 68 bid, 68.25 offered. Another trader said the bonds were up 1 point at 67.5 bid, 69.5 offered.

The trader also saw Delta Air Lines Inc.'s 8.3% stubs at 5.875 bid, 6 offered.

Blockbuster Inc.'s 9% notes due 2011 saw a high trade of 91.25 on a round lot, the trader said. Another trader said Movie Gallery Inc.'s 11% notes due 2011 came in to 32 bid, 36 offered. Explaining the wide spread, the trader said, "Nobody's really trading that one too much." He also attributed recent gains in the name to a short squeeze.

Another trader, however, said Movie Gallery's debt gained 2 points to 38 bid, 40 offered.

"Everyone is looking for the real bonds" to cover shorts, the trader said, "so it is all buy-ins, I think." He added, "there's been a lot of activity - guys are getting bought in - there's too many people short [of] them."

Sea Containers Ltd.'s bonds "looked down a few [points]," a trader said. He said the 10¾% notes due 2006 were off 7 points at 69 bid, 71 offered, while the 10½% notes due 2012, also at 69 bid, 71 offered, were down 5 points. The 7 7/8% notes due 2008 fell 5 points to 67 bid, 69 offered.

A trader said Solutia Inc.'s corporate debt was up 4 points across the board, its 7 3/8% notes due 2027 at 87 bid, 88 offered and its 6.72% notes due 2037 at 86 bid, 87 offered.

Up 2 points were Spectrum Brands Inc.'s bonds. The 7 3/8% notes due 2015 were pegged at 75 bid, 77 offered, while the 11¼% notes due 2013 were at 87 bid, 89 offered.

Another trader saw the 7 3/8% notes up 1 point at 74.5 bid, 75.5 offered.

Paul Deckelman contributed to this article.

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