No New Optimism Yet For HY Secondary

Whatever optimism American citizens shared in welcoming a new president into office did not take root on the high yield secondary market last week, which saw no kinetic energy from equity gains and quickly lost what few gains it made.

The markets continued to cope with the effects of more bad economic news. Initial jobless claims rose to 589,000 for the week ended Jan. 17, according to the U.S. Labor Department. This was above analysts' expectation of 540,000 new claims. New home construction dropped 15.5% to a new record low for December of 2008, according to a report by the Commerce Department. New home construction fell to an annual rate of 550,000 for last December, below an expected 610,000 annual rate.

Yield on the 10-year Treasury note was on an upward trend last week after its Tuesday opening. After opening under 2.5% Tuesday, the yield broke above 2.5% Wednesday and settled at 2.6% by midday Thursday.

The Merrill Lynch U.S. High Yield Master II Index, however, remained on a downward trend. Coming from the previous week's close of 457.213, the index slipped down to 455.378 at Thursday's opening.

Charter Communications was the biggest loser in secondary trading last week, according to Advantage Data. The company used its PIK toggle option and began paying interest on its 11% notes due 2016 with 11.75% notes. Charter hired law firm Kirkland & Ellis and investment bank Lazard as advisors for a possible bankruptcy. The St. Louis-based cable television service provider missed a $73.7 million interest paymentdue January 15 on outstanding senior notes and has cut more than 1,800 jobs, or 9% of its work force. Charter's 10% notes due this year lost 65.875 points for the week ending early Thursday to trade at 3.375.

Bonds of Iansa Overseas, a subsidiary of Chilean agricultural conglomerate Empresas Iansa, took losses as well. Agricultural companies have suffered the effects of lower commodity prices and higher costs of fuel and supplies. The company's stock has been on a downtrend. The Iansa 7.25% bonds due 2012 dropped 49.75 to reach 34.875 by early Thursday.

Chemical companies were in a dark cloud after the bankruptcy filing of LyondellBasell. Chemical and plastics producer Nova Chemicals lost ground in trading. Standard & Poor's put the company's ratings on CreditWatch with negative implications, citing tightening liquidity with upcoming debt maturities and the increased risk of covenant violations later this year. The company is in talks with creditors to amend its covenants. Nova's 7.4% notes due 2009 fell 24.125 points by Thursday's opening to trade at 66.375.

Austin, Texas semiconductor manufacturer Freescale Semiconductor had multiple tranches of bonds among the top 20 biggest losers. Last week it announced it received approximately $184 million in a drawing from its $750 million revolver. Earlier in the month, S&P lowered its corporate credit rating to B- from B+. The outlook is negative. By Thursday's opening, Freescale's 9.125% bonds due 2014 lost 14 points to trade at 8.625. Its 8.875% notes due 2014 lost 13.125 points to reach 27.5.

Bonds of AFC Capital, which is now known as the Hanover Insurance Group, made the biggest gains in trading for the week ending last Thursday. The Worcester, Mass.-based holding company sold off its remaining life insurance business, which makes more capital available to strengthen its other insurance businesses, such as property and casualty insurance. The AFC 8.207% notes due 2027 gained 17.875 points to trade at 62.625 at Thursday's opening.

Bonds of Terra Capital, a subsidiary of Terra Industries, also made sizeable gains in trading. Terra Industries received an acquisition offer from CF Industries Holdings for an all-stock transaction. The company is a fertilizer provider which supplies anhydrous ammonia, urea, ammonium nitrate and other products to agricultural companies. Terra's 7% bonds due 2017 climbed 17.25 points to 91.625 by early Thursday.

Delta Air Lines was on the gainers list, as it negotiated its contract with Hartsfield-Jackson Atlanta International Airport, its hub airport. The airline is at a distinct advantage in the wake of its acquisition of rival Northwest Airlines last year, as it now has the option of switching flights to other hubs. The airline also expects approximately 2,000 employees to accept its latest round of severance offers in its effort to reduce its system-wide capacity by up to 8%. Delta's 8% notes due 2015 soared 17.25 points by Thursday's opening to trade at 61.875.

And fertilizer proved fertile ground for bond gains again. Legacy bonds of IMC Global, which is now part of Mosaic, gained from Mosaic's profits. Mosaic earned $958.8 million in its second fiscal quarter, the company said earlier this month. Mosaic was created by the merger of fertilizer supplier IMC Global and Cargill's fertilizer business. IMC's 7.375% bonds due 2018 climbed 16 points to 89.625 by early Thursday's trading.

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