The secondary market came in a bit last week with the market responding to Fed Chairman Alan Greenspan's outlook on the economy. Slower activity and narrower spreads in general were seen. Here are a few notable movers.
MCI Drops Off
MCI Inc.'s 7.735% notes of '14 traded down after the company emerged from Chapter 11 protection. The bonds, which traded around 105 previously, fell to as low as 99.5 mid-week. In addition to the back up in Treasuries, the move downward was caused by distressed investors who sold off the bonds after the company came out of bankruptcy, according to one trader. Along with that, a lawsuit concerning unpaid back taxes was filed by the State of Mississippi against the former WorldCom, which changed its name to MCI after the $11 billion accounting scandal.
Strong As Steel
AK Steel saw its 7 3/4% notes of '12 move up roughly a point to 93 last week after the company released better-than-expected earnings. One trader noted that AK Steel is part of an industry that has been very strong in the last few months, with a recovery in steel prices which has been achieved partly by passing costs through to customers. There has been a lot of positive new issue activity in the steel industry lately, he added, including the recent successful $600 million offering of 6.5% notes of '14 by International Steel Group.
Calpine Fades
Calpine Corp.'s 8.5% notes of '10 were down two points trading at around 90 late Wednesday. One trader noted that a couple of dealers have been heard to be turning more negative on the Calpine, which has a lot of debt outstanding, and that could be affecting accounts. He said if some major accounts sell Calpine many others would opt out as well.
Europe: Rhodia Drops
Rhodia's 8% notes of '10 traded up a couple points to 92 after the European specialty chemicals manufacturer announced an increase in the size of a private placement from E600 million to E700 million. The extra cash earned from the offering, which is expected to be priced at 10 1/2%, will allow the company to repay in full its 6.25% '05 bonds. An analyst at a leading sell-side firm said he expected the deal to be placed with U.S. investors, as he said most investors in Europe are very wary of what he called Rhodia's high cash burn rate and weak capital structure. He pointed out that for only a slightly lower yield than the what is being offered on the new issue, investors can buy into a much higher quality deal.