Caesars gets default notice, bonds end mostly weaker; coal, mining sectors finish week strong

By Stephanie N. Rotondo

Phoenix, June 6 – The typical “go-to” names and sectors were busy in Friday’s distressed debt arena, but some of that movement was news driven.

Caesars Entertainment Corp. announced that it had received a notice of default on its 10% notes due 2018 from a group claiming to hold about 30% of the outstanding issue. The group alleges that a sale of properties to a subsidiary constituted a fraudulent transfer, thus triggering a default of the operating company debt.

Meanwhile, the coal and mining sectors remained active, and most were pushing higher by day’s end.

Though the overall tone of the day was strong, not all names were sharing in the gains.

NII Holdings Inc.’s 10% notes due 2016 fell half a point to 33, according to a trader. The bonds had firmed up in the previous session.

Caesars gets default notice

A trader said that people in the market "were talking about the Caesars second-lien bonds – it looks like some people want to put them into default" over the Las Vegas-based gaming giant’s controversial transaction earlier this year transferring ownership of four of its hotel properties to a newly formed “growth” entity – a move that some bondholders have called a fraudulent conveyence aimed at stripping those assets from the company so their value can't be included in any restructuring.

“They’re down a couple of points,” he declared of the bonds.

A second trader said that the Caesars operating company’s 8½% notes due 2020 were down half a point, last trading at 84 bid, on volume of over $21 million at mid-afternoon.

He saw its 11¼% notes due 2017 up half a point, last trading around 91 bid, on volume of over $6 million, while its 9% notes due 2020 were seen off 1½ points at 83 bid, with over $6 million changing hands.

He said the rest of the company's bonds “were just small-size trading.”

Another trader called the 8½% notes and the 9% notes down half a point, both closing around 84.

As for the 10% notes, he said they were unchanged at 42½.

Yet another trader pegged the 8½% notes “around 84 and change.

“Looked like it was pretty active today,” he said.

Caesars said Friday that it had received a notice of default and a reservation of rights from a group of bondholders holding about 30% of the 10% notes. The group claims that the operating company is in fact in default due to the property transfers that occurred earlier this year to Caesars Growth Partners. The notice alleged that the sale did not provide fair market value of the assets sold to the operating company and that therefore the deal was not made in good faith.

Caesars is denying that a default has occurred and plans to defend itself “vigorously,”

“We will not allow our company, our employees and the communities in which we operate to be held hostage by a minority of holders whose interests are contrary to the long-term health of the company,” said Gary Loveman, chairman and chief executive officer, in a prepared statement released Friday.

Coal, mining gain

Coal and mining names closed out the week with a positive tone, according to traders.

One trader said that Walter Energy Inc.’s 11% PIK notes due 2020 – which priced several months ago at par and then were subsequently beaten down on investor angst over the outlook for the Birmingham, Ala.-based metallurgical coal producer’s business – were trading Friday at 79½ bid, which he called up 2 or 3 points from mid-week levels around 76.

Another trader also deemed that issue “up a couple points” at 79, which compared to a 76 to 77 context previously.

At another shop, a trader said Alpha Natural Resources Inc.’s 6 ¼% notes due 2021 were “rebounding,” gaining over 2 points to close around 72 ½.

He said the issue was also the day’s biggest gainer.

As for Arch Coal Inc., its 7% notes due 2019 ended up nearly a point at 75.

Among mining names, MolyCorp Inc.’s 10% notes due 2020 inched up a touch to 91, according to a trader. That trader also saw Endeavor International’s 12% notes due 2018 putting a quarter-point, closing at 56.

Paul Deckelman contributed to this article.

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