Caesars debt drops; Bon-Ton paper drifts lower; Fannie, Freddie preferreds see 'crazy trades'

By Stephanie N. Rotondo

Portland, Ore., May 2 - Distressed debt continued to have a "firm tone to it," generally speaking, according to a trader on Wednesday.

However, volume in the distressed space was muted, given that investors were focusing the bulk of their attention on Chesapeake Energy Corp.

"They got smacked," a trader said after the company put out disappointing earnings. Still, the name is considered high-yield and trades mostly in the mid- to upper-90s.

But among distressed dealings, Caesars Entertainment Corp.'s bonds were coming off a little as investors reacted to the casino operator's earnings, which came out late Tuesday. Despite posting a sizable increase in revenues, the company reported a much wider quarterly loss.

Also, Bon-Ton Stores Inc.'s paper was "drifting lower again," a trader said.

Among distressed preferred stocks, Fannie Mae and Freddie Mac saw hefty trading volume during the midweek session. A preferred stock trader said there were "crazy trades" in the names that left many market players scratching their heads.

Caesars falls post-earnings

Caesars Entertainment's debt was coming off a bit Wednesday as investors reacted to the company's late Tuesday earnings release.

Paper had run up - albeit modestly - ahead of the report on Tuesday.

One trader saw the 12¾% notes due 2018 falling a point to 86, while another market source pegged the 10% notes due 2018 down 1¾ points at 75 bid.

At another shop, a trader said bonds were unchanged to just slightly weaker, seeing the 10% notes trading around "76-ish."

For the first quarter of 2012, Caesars reported a 4.3% increase in revenues, which came to $2.27 billion. However, net loss widened to $280.6 million from $147.5 million the year before.

"We saw strong performance in our core business in the first quarter, driven primarily by gains in Las Vegas and in our online businesses," said Gary Loveman, chairman, president and chief executive office, in the earnings statement.

"We continued to make progress on expanding our distribution network both on land and online, on leveraging our scale to drive efficiency and growth and on further strengthening our financial position."

The wider net loss was attributed to a decrease in income from operations and higher interest expense.

Caesars is a Las Vegas-based casino and hotel operator.

Bon-Ton bonds slip

A trader said Bon-Ton Stores' 10¼% notes due 2014 "started drifting lower again."

He pegged the paper at 81 1/8, down nearly a point.

Another trader called the bonds "a tick lower" at 81½ bid, 82 offered, though he added that there was "not a lot of trading" in the name.

Bon-Ton is a York, Pa.-based retailer.

Fannie, Freddie preferreds come in

Fannie Mae and Freddie Mac preferreds saw the most trading in the preferred stock market, at least in terms of the number of shares sold, a market source said.

Another trader said, "Everybody was talking about" the action, given that there were some "crazy trades."

"Nobody knows where they came from or who they went to," he said.

The market source opined that the trades were probably made by "some quirky high yield guy."

Both the 8¼% fixed-to-floating rate series S noncumulative preferreds (OTCBB: FNMAS) and 8 3/8% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) traded as low as 75 cents on the day. However, Fannie's preferreds ended the day at $1.12, down 7 cents or 5.88%, while the Freddie issue closed at $1.14, down 4 cents, or 3.39%.

Over 30 million of the Fannie shares changed hands, while 27 million of the Freddie issue turned over.

Broad market mostly firm

In other distressed dealings, a trader said NewPage Corp.'s 11 3/8% first-lien notes due 2014 were "up dramatically" after the papermaker reported a narrower monthly net loss and an increase in sales on Tuesday.

He pegged the paper around the 72 mark.

MF Global Holdings Ltd.'s 6 ¼%/7¼% notes due 2016 meantime inched up to 43.

And, AMR Corp.'s benchmark 6¼% convertible notes due 2014 were coming in a tad, ending at 55, the trader said.

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