GMAC jumps on amended offer; Station slides as exchange offer extinguished; Kansas City Southern bringing deal

By Paul Deckelman and Paul A. Harris

New York, Dec. 15 - GMAC LLC's bonds were seen solidly higher on Monday, pushed upward by investor optimism that the troubled financing arm of General Motors Corp. might still be able to complete its struggling debt-exchange offer now that a large group of bondholders have endorsed its amended terms; completion of that offer is a necessary prerequisite if it is to be allowed to convert to a bank holding company, a strategy seen as GMAC's only way to avoid a slide into bankruptcy.

But Station Casinos Inc. had no such luck, and has had to terminate its own debt-exchange offer, which has been rejected by most of its target bondholders, who roundly criticized it as "inadequate." The Las Vegas-based casino operator will now likely be forced to beg its bankers for a break.

Sector peer MGM Mirage's bonds were seen up solidly after the gaming company announced plans to sell the Treasure Island, one of its several Las Vegas Strip casino-hotel complexes, for $500 million in cash plus another $275 million in debt it will hold.

Reliant Energy Inc.'s bonds were seen lower, along with its shares, after giant utility operator Exelon Corp. flatly denied market rumors that had it supposedly making a takeover offer for the Houston-based power producer.

Meanwhile the primary showed more life after the pricing last week of a big deal for El Paso Corp., the first pricing in about a month.

In a widely expected quick-to-market debt refinancing deal, Kansas City Southern Railway Co. launched $175 million of five-year senior unsecured notes (expected ratings B2/BB-) on Monday morning.

Subsequently price talk emerged setting a 13% coupon with an original discount expected to result in a yield of between 16½% to 16¾%, according to an informed source.

Books were set to close at 2:45 p.m. ET Monday, with pricing afterwards.

The deal was priced, an informed source told Prospect News late Monday evening, however no terms were available at press time.

Morgan Stanley is left bookrunner for the notes which are registered with the Securities and Exchange Commission. Banc of America Securities is the joint bookrunner.

GMAC extends, Station folds

On the restructuring front GMAC LLC announced that it has extended the early delivery date for its $38 billion bond exchange date to 5 p.m. Tuesday and the expiration date of the offers to 11:59 p.m. ET Dec. 26.

The ad hoc committee of GMAC Noteholders unanimously reached an agreement in principle with GMAC LLC on the material terms of a consensual exchange offer for $28.8 billion of outstanding GMAC notes on Friday, according to David D.R. Bullock, managing director of Advent Capital Management.

Revisions to the exchange included covenants as well as an increase in the dividend of the preferred shares (see related story elsewhere in this issue).

Also on the restructuring front, MxEnergy Holdings Inc. announced a cash tender for its outstanding floating-rate senior notes due 2011, at $0.50 on the dollar, via Morgan Stanley.

On Aug. 1, 2006 MxEnergy priced the $190 million five-year issue of six-month Libor plus 750 bps senior secured floating-rate notes (CCC+) at 97.50.

Finally, Station Casinos, Inc. withdrew its exchange offer for five series of notes which it commenced on Nov. 25.

The company was offering to issue new 10% senior secured term loans due 2016 and new 10% junior secured term loans due 2016 in exchange for its 6% senior notes due 2012, 7¾% senior notes due 2016, 6½% senior subordinated notes due 2014, 6 7/8% senior subordinated notes due 2016 and 6 5/8% senior subordinated notes due 2018.

Existing Kansas City Southern bonds mostly head north.

A trader saw Kansas City Southern's established 8% notes due 2015 trading at 71 bid, up 5.5 points on the session, on volume of $5 million, while the 7½% notes due June 15 slated to be taken out with the new-deal proceeds were trading on an odd-lot basis at around 98 bid.

At another desk, a market source also pegged the bonds around 98, up from recent levels around 96.

However, the company's 9 3/8% notes due 2012 declined to 80.5 bid from 82 last week, on volume of just $2 million.

New El Pasos hover above 93

The first trader saw El Paso Corp.'s new 12% notes due 2013, which had priced a week ago at 88.909 to yield 15¼% and which then firmed smartly over the next few sessions to above the 93 level, continuing to hold that high ground on Monday.

He quoted the bonds at 93.875 bid, up from 93.625 on Friday.

Another trader meantime saw them "still" in a 93-94 context.

Market indicators mixed

The widely followed CDX High Yield 11 index of junk bond performance, which lost ¼ point on Friday, was seen to have declined by 1/8 point on Monday, with a trader quoting it at 72½ bid, 72¾ offered. The KDP High Yield Daily Index meantime rose by 21 basis points to 47.13, while its yield tightened by 11 bps to 17.59%.

In the broader market, advancing issues took a lead over decliners by a margin of not quite five-to-four. Overall market activity, reflected in dollar volumes, was down 4% from the pace seen in Friday's session.

A trader agreed that he "didn't see a lot of volume" in Monday's dealings, adding that "there was just a lack of any kind of excitement in the market, which rolled into the opening day of the last full trading week of 2008, since the debt markets will be operating on truncated holiday schedules in the last two weeks of December.

A second trader said that while there was "a little flurry" of activity in the morning, as market participants digested late-Friday and over-the-weekend news about GMAC, Station Casinos, MGM Mirage and the demise of Huntsman Corp.'s deal to be taken over by Hexion Specialty Chemicals Inc. - which caused the former's bonds to swoon badly - by the afternoon, "it got boring."

Also throwing a pall over things, yet another trader said, is the expanding scandal involving once-respected investment manager Bernard Madoff, who was arrested last week by federal authorities and charged with having run what amounted to a gigantic "Ponzi" scheme which allegedly bilked investors out of as much as $50 billion, including several hedge funds, divisions of some major European banks like UBS, HSBC, BNP Paribas, Grupo Santander and RBS, and many wealthy individuals.

"Wow, what a mess," he exclaimed. While Madoff "didn't seem like he was involved per se in either [credit default swaps] or cash high yield specifically, however participants like hedge funds have now lost a significant amount of money, and they're either going to have to come up with more or sell what they got," which could lead to possible liquidations among junk positions they may have.

Looking to Tuesday's session, "we'll get the Goldman [Sachs] numbers that everyone is yapping about" - the big New York-based investment bank-turned commercial bank is expected to report a loss of about $3.50 per share, its first-ever quarterly deficit since it went public a decade ago, and just another sobering sign that even relatively well-managed financial companies that did not make wild, risky investments in subprime mortgages as many Goldman peers did, are still not immune to the fallout from that market's crack-up.

He said that the numbers per se would not have much high-yield impact, since Goldman is a solidly investment-grade credit, but added that "people [in the financial markets generally] would focus on it," and focus as well on the results of the two-day Federal Reserve meeting, which is scheduled to end Tuesday afternoon. The markets are generally expecting a cut of at least 50 bps in its key federal funds rate target, currently 1%, down to 0.5% - the lowest on Fed records dating back to 1954 - and some analysts are even talking up the idea of a 75 bps cut, to just 0.25%, although that is generally not expected to happen.

The central bank will also release the customary communiqué at 2:15 p.m. ET, which will be carefully dissected and analyzed for clues as to what the Fed plans to do in the coming weeks and months to steady the economy and stabilize the credit markets - especially now that the interest rates that it can directly control by FOMC fiat will already be about as low as they can go.

GMAC up on amended offer news

The news that embattled automotive and residential lender GMAC had managed to keep its $38 billion debt-exchange offer alive by offering sweetened terms to a sizable chunk of its bondholders, and seeing them accept those terms, pushed the Detroit-based company's bonds up smartly, traders said - since that brings the financially struggling company a little closer to its goal of becoming a commercial bank able to turn to the Treasury's TARP bailout fund for help.

A trader saw GMAC's 8% bonds due 2031 up 4 points at 32 bid.

Another trader called those bonds up 6 points on the day at that same 32 bid, 34 offered level, and saw GMAC's 5.85% notes slated to come due on Jan. 14 up 9 points on the day at 89 bid, 90 offered.

GMAC "moved up nicely," a trader said, pegging the 8s at 31 bid, up 3 or 4 points on the day.

At another desk, a trader saw the GMAC long bonds up 5 points on the day at 33 bid, remarking there are "still some believers" in GMAC's changes of survival, and noting the amended exchange offer. However, he noted that only $5 million of the bonds traded.

He saw more activity in the GMAC 5 5/8% notes due next May, with $14 million of them trading on the day. The bonds ended on a round-lot basis at 73 bid, well up from 61.5 on Friday. Another active issue he saw was the 5.85s, exclaiming "Wow" upon seeing those bonds move as high as 90.5 bid during the day and end at 90, up from 81 on Friday, with $12 million traded.

He further saw the GMAC 7% notes due 2012 jump to a round-lot level of 42.5 bid from 36 on Friday, on $7 million traded.

"Needless to say, there was euphoria in GMAC land," he said.

Despite the rise in GMAC's bonds, a trader said that he saw wholly-owned GMAC subsidiary Residential Capital LLC's bonds "unchanged, around where they have been," quoting its 8½% notes due 2010 at 29 bid, 32 offered.

GMAC has been trying to get holders of some $26 billion of its own debt and $12 billion of ResCap's bonds to agree to exchange their existing bonds for a combination of cash, new debt and preferred shares, but as of last week, only about a quarter of those bonds - about $9.2 billion total - had been tendered under its offer, which was running against a deadline of last Friday.

However, GMAC kept dickering with a committee representing holders of another $10.5 billion of the bonds, who had previously rejected the offer, but who now have endorsed the sweetened terms.

Auto names take a back seat

While GMAC bonds seemed to be in the driver's seat Monday, a trader also saw General Motors' benchmark 8 3/8% bonds due 2033 at 14 bid, down from 15 previously, on just $4 million of volume, while its 7.20% notes due 2011 traded at 16.5 bid versus 19 on Friday, with just $5 million traded. He saw no round-lot trading in Ford Motor Co.'s 7.45% bonds due 2031, with odd-lot dealings around 20.

"The biggest joke," he said, was "the upward movement in Ford and GM stock" seen on Monday. "With all of the debt in front of them [in a restructuring scenario], who would be buying these shares, except for [doing] a short-term flip?"

The automotive bonds stayed in idle on Monday, as investors awaited definitive word from Washington on the auto industry bailout from the TARP funds, suggested by the White House on Friday after congressional moves to draft a bailout skidded into a ditch. President Bush sought to reassure the carmakers, their employees and investors that help was on the way, saying that the final bailout plan was still being worked upon - but was coming. GM is expected to get $8 billion in loans from Uncle Sam and Chrysler LLC $7 billion, since those two companies are in the most precarious condition. Ford has said that it does not need a loan at this time, but would like to have a $9 billion standby line of credit ready for use should its fortunes continue to deteriorate as the industry struggles.

Another trader saw GM's 8 3/8s up 2 points at 14.5 bid, 15.5 offered, and saw Ford's 7.45% bonds up 2 points at 23.5 bid, 24.5 offered. "That," he said, "was all that was up in autoland. The parts companies did nothing."

He quoted Lear Corp.'s 8 3/8% notes due 2016 unchanged at 24 bid, 25 offered.

However, another trader did see Visteon Corp.'s 7% notes due 2014 up 2 points at the 14 bid level.

Station Casinos tumbles as exchange offer tanks

Outside of the autosphere, a trader said of Station Casinos "yeah, they got whacked," as the company terminated its previously announced debt-exchange offer. He saw the 6% notes due 2012 fall to 21.5 bid, 22.5 offered from prior levels at 29 bid, 30 offered, while the 6 7/8% notes due 2016 fell down to 6 bid, 7 bid from 8 bid, 9 offered on Friday.

Station was 'a big mover, and active," another trader said, pegging the 6s at 23.125 bid on a round-lot basis, well down from 30.5 previously, on $14 million of the bonds having traded.

Station had been trying to lower its debt by offering new debt for several series of its existing bonds, at a steep discount to their face value, but a majority of the bondholders balked and issued a letter calling the offer "deficient." The company's having extended the offer did not result in significantly more bonds being tendered than the relatively small amount which were tendered before, so Station pulled the plug on the offer.

However, some analysts said that with the failure of the debt take-out, the company - burdened with too much debt for its size and with its once-healthy revenues now hard-hit by the downturn in gaming, even in its Nevada home base - may be in danger of breaching terms in its bank debt by the end of the year, and will need to negotiate with bank lenders to avoid a default.

MGM rise no Mirage

But while Station was struggling, larger Las Vegas-based rival MGM Mirage's bonds were looking good after the company announced plans to sell its pirate-themed Treasure Island Hotel and Casino Resort on the famed Vegas Strip to billionaire gaming tycoon Phil Ruffin for $775 million, $500 million of it in cash and the other $275 million in secured notes.

A trader saw MGM's 13% notes due 2013 jump 3 points on the session to 91 bid, 92 offered.

At another desk, a trader saw those bonds 2 points better at 90 bid, 93 offered.

He also saw MGM's 7½% notes due 2016 up more than a point at 57 bid, as were its 7 5/8% notes due 2017. Its 8 3/8% notes due 2011 pushed up to 52 bid from 49.5, while its 8½% notes due 2010 were 3 points better at 72.5.

Reliant takeover talk not reliable

A trader saw Reliant Energy's 6¾% notes due 2014 drop a point on the day to 84.25 bid, 85.25 offered.

A market source at another desk saw its 7 7/8% notes due 2017 fall 1½ points to the 77 level.

There had been some speculation in the financial markets on Friday that Chicago-based Exelon was formulating an offer for Reliant.

However, the bonds retreated Monday, after Exelon threw cold water all over the idea, flatly declaring that "Exelon has not made an offer to acquire Reliant or any part of Reliant, and we do not plan to make an offer,"

Huntsman hurting heavily as Hexion deal dies

Easily the biggest loser of the day was Huntsman Corp., whose 7 7/8% notes due 2014 nosedived to 40.5 bid, a trader said, down from its opening level above 50 - which in turn was well down from levels in the lower 70s when the bonds had last traded.

He saw its 7 3/8% notes due 2015 likewise plummet to below 40 from the 66 bid level which they had held back in late November; those bonds "also haven't traded in weeks."

The Huntsman bonds, and its New York Stock Exchange-traded shares - which lost fully half their value in 15-times the average dealing, ending at $2.98 - were in freefall after the Salt Lake City, Utah, based chemical manufacturer and would-be buyer Hexion Specialty Chemicals terminated the $6.5 billion acquisition agreement they had signed last year, before the bottom dropped out of the credit markets. Huntsman and Hexion sparred for months in court over whether Huntsman could force Hexion to live up to the terms of the deal and buy it, and then, after a Delaware court ruled that Hexion had to go through with it, the two companies then spent additional months of court battles with the big banks which had committed to funding the deal before the credit crunch, but which then sought to back away from that financing commitment.

Hexion owner Apollo Management agreed to a $1 billion legal settlement with Huntsman, allowing Apollo and Hexion to walk away from the deal.

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