CCS prices add-on issue; Newport talk heard; Countrywide crushed on B of A warning, but ResCap rolls

By Paul Deckelman and Paul A. Harris

New York, May 2 - CCS Inc. was heard by junk bond players Friday to have come back to the high yield market with a $300 million issue of seven-year bonds - just over a week after the company had successfully done a similar-sized offering of those same kind of bonds.

Elsewhere in the primary market sphere, syndicate sources said that price talk had emerged on Newport Television LLC's upcoming $200 million bond issue. And Employers Holdings Inc. was seen planning a $150 million issue of 10-year notes.

Traders saw the new bonds priced Thursday by Range Resources Inc. holding onto the gains those bonds notched in initial aftermarket activity.

Among established issues, Countrywide Financial Corp.'s paper - which has been trading around the junk bond market for literally months despite its nominally investment-grade rating - can now also be considered a split-rated issue, dumped rudely and officially into junk bond land by Standard & Poor's after prospective buyer Bank of America warned in a regulatory filing that it might not guarantee as much as one-third of the company's nearly $100 billion of debt obligations.

While Countrywide was falling, sector peer Residential Capital LLC's bonds were soaring, as the troubled mortgage lender acted to push out the maturities on its bond debt by mounting a debt-exchange offer for nearly $14 billion of its bonds. That caused Standard & Poor's, Moody's Investors Service and Fitch Ratings to downgrade the company's bonds, and those of corporate parent GMAC LLC, but investors shrugged it off. GMAC's bonds were also higher despite the downgrade and despite the fact that ResCap is seeking additional new credit from its parent.

GMAC's 49% owner, General Motors Corp., and GM's domestic arch-rival, Ford Motor Co., were both seen higher continuing the momentum that both names have seen in the most recent week.

Apart from the automotive realm, Freescale Semiconducer Inc.'s bonds continued to climb, in line with a generally firmer tone seen over the week in the high-yield tech sector.

CCS brings $300 million

During Friday's primary market session, Calgary, Alta.-based oilfield waste management company CCS Inc. priced a $300 million issue of 11% senior subordinated notes due Nov. 15, 2015 (Caa1/B-) at 80 to yield 15.614%.

There was no price talk, according to an informed source, who added that the deal saw plenty of demand, likely indicating that an appetite for risk may be re-emerging in the high yield.

Goldman Sachs & Co. and Deutsche Bank Securities were joint bookrunners for the quick-to-market Rule 144A for life issue which generated approximately $240 million of proceeds. Funds raised will be used to repay the senior subordinated bridge loan related to the LBO of the company.

On April 24 CCS priced a $312 million issue of 11% senior unsecured notes due Nov. 15, 2015 (Caa1/B-) at 89.484 to yield 13¼%.

Newport Television talks toggles

Newport Television Holdings LLC and NTV Holdings Finance Corp. set price talk on Friday for a $200 million tranche of 13% nine-year senior PIK toggle notes.

The notes are talked in a price range of 87.05 yielding 15¾% to 85.99 yielding 16%.

The toggle notes are part of an overall $394.5 million face amount two-part offering of high yield notes (Caa1/CCC+).

The deal also includes a $194.5 million face amount of 13¾% 10-year senior discount notes.

No price talk was heard on the discount notes on Friday, according to an informed source.

Wachovia Securities, Goldman Sachs & Co. and UBS Investment Bank are joint bookrunners for the bridge refinancing deal.

New Range Resources steady

The new CCS seven-year bonds priced too late in the session for any meaningful aftermarket activity, junk participants said.

There was, however, some activity in the issue which priced Thursday.

A trader saw Range Resources' new 7 ¼% senior subordinated notes due 2018, which had priced at par late Thursday, at 101.25 bid, 102 offered, up perhaps ¼ point on the bid side from the 101 bid, 102 offered to which the bonds had risen in initial aftermarket dealings following their pricing.

Market indicators seen better

Back among the established issues, a trader saw the widely followed CDX junk bond performance index up perhaps 1/8 point on the day at 98 3/8 bid, 98 5/8 offered. The KDP High Yield Daily Index rose by 31 bps to 76.40, while its spread tightened by 8 bps to 9.04%.

In the broader market, advancing issued led decliners by nearly two to one. Activity, represented by dollar volume levels, was up about 5% from Tuesday's pace.

"It was a weird day," a trader said. "There was definitely more inquiry going on, and that's nice - it was not just dead all day."

However, he noted that "the last three afternoons have all been pretty quiet."

Another trader agreed that after a fairly busy morning, particularly in the big news names of the day, ResCap and Countrywide, "everybody just took off around 1 p.m. (ET) - even though the weather [in New York] was not so great."

A portfolio manager whose shop specializes in trading existing junk and distressed issues, rather than new deals, characterized Friday's markets as having "a pretty good tone to it." He projected that the coming week's data from the Institute for Supply Management - a purchasing managers' group whose index of monthly purchasing activity is seen as a reliable economic barometer - "will be strong, the non-manufacturing ISM, so we're expecting a pretty good tone to the high yield and bank loan markets."

Countrywide crushed on B of A warning

Countrywide Financial's widely traded 6¼% notes due 2016 were seen down at least 5 or 6 points - and at some desks, even more - following a double dose of bad news - prospective buyer Bank of America said in a regulatory filing that it may not support some of Countrywide's debt once it buys the troubled Calabasas, Calif.-based mortgage company, which in turn caused Standard &Poor's to dump Countrywide's ratings to junk status.

A trader said the 61/4s were the most active Countrywide issue that he saw. "That was the one that really got clobbered" on the B of A news and the resulting S&P move. He saw the '16s down 5 points on the session in heavy trading at 83 bid, 86 offered.

At another desk, a market source saw the bonds end at 85 - but called that a 7 point loss versus Thursday's levels. And another source had the bonds 10 points down at 82.

Even Countrywide's bonds coming due in less than three weeks, on May 21 - widely considered to be money-good, despite whatever longer-term problems the company may have - were seen easing, down ½ point at 99 bid, 99.75 offered, a trader said.

Countrywide, another intoned, "definitely took a hit on the news."

In a regulatory filing Wednesday, the banking giant - which emerged as the troubled mortgage originator's rescuer some months ago and which has maintained several times since then that its acquisition of Countrywide is still on track, despite large losses and other problems Countrywide has shown in the interim months - said it was evaluating possible courses of action to deal with Countrywide's debt, among them "the possibility of redeeming, assuming, or guaranteeing some or all of this debt," However, the bank warned that "there is no assurance that any such debt would be redeemed, assumed or guaranteed," adding that no decision has yet been reached.

That could leave the status of as much as $38.1 billion of Countrwide's approximately $97 billion of obligations in doubt, including approximately $17 billion of medium-term notes, $4 billion of convertible debt, $2.2 billion of junior subordinated debt and $1 billion of subordinated debt currently outstanding.

ResCap rises robustly

But while Countrywide's bonds were staggering, sector peer ResCap's were streaking.

ResCap was solidly higher on the news that the Minneapolis-based mortgage provider will tender for $1.2 billion of its outstanding notes and is offering new secured debt to the holders of another $12.8 billion of the bonds in an exchange process. The company also said it was trying to line up a new multi-billion-dollar credit facility with its corporate parent, GMAC.

Investors shrugged off ratings downgrades by all of the major agencies, some of which routinely regard any company's effort to get bondholders to accept less than the full par value of a security in a tender or exchange offer - ResCap envisions paying off some of the existing notes for as little as 77 cents on the dollar - to be tantamount to a default.

GMAC's bonds were also seen up, even though that credit too was downgraded and despite the large loss with the automotive and residential lender reported this week.

A trader called ResCap "the big name of the day," with its bonds seen up several points across the board.

He saw its 6 1/8% notes slated to come due in November at 88 bid, 90 offered, up a full 6 points on the session. A little further out on the curve, he saw its 6 7/8% notes due 2015 at 54 bid, 56 offered, up 3 points on the day.

A market source saw its 8 7/8% notes due 2015 zoom out 4 points, to the 55 bid area.

At another desk, a source said ResCap paper was among the most busily traded issues on the day, with several series of bonds having each racked up more than $40 million of transactions by late afternoon.

ResCap's 6 3/8% notes due 2010 had risen to had risen to above 58 from prior levels at 56.5, while its 6½% notes due 2013 had firmed to 54.5 bid from 51 on Thursday. The 6 1/8s were the big gainers on the day, jumping to 90 from prior levels around 84, while its variable-rate notes coming due on June 9 moved up to 97.5 bid from prior levels at 94.

ResCap said that it plans to make a cash tender offer for the roughly $1.199 billion of the latter bonds that are currently outstanding. The notes will be redeemable for $1,000 per $1,000 of principal amount plus an early delivery payment of $30 per $1,000 in principal amount.

Under the exchange offers it will make for the other $12.8 billion of outstanding bonds, ResCap will offer to issue new 8½% senior secured guaranteed notes due 2010 in exchange for existing 2008 and 2009 notes. The new senior secured guaranteed notes will be secured on a second-lien basis by the collateral for the credit facility.

The company will also offer to issue new 9 5/8% junior secured guaranteed notes due 2015 in exchange for existing 2010 through 2015 notes. The new junior secured guaranteed notes will be secured on a third-lien basis by the collateral for the credit facility.

Noteholders participating in the exchange offers will be allowed to elect to receive cash instead of the new notes that they would otherwise receive under a modified Dutch auction process - but ResCap plans to spend no more than $1.2 billion of cash in that regard. The amounts of cash that ResCap expects to have available to pay participating holders in lieu of new notes will be $700 million total for the approximately $3.32 billion of outstanding old 2008 to 2009 notes and $500 million total for the roughly $9.48 billion of outstanding old 2010 to 2015 notes.

In conjunction with the offers, the company will solicit consents to amend the note indentures. The amendments would release the subsidiary guarantees of ResCap's obligations under the old notes and would eliminate some restrictive covenants and events of default.

However, the amendments are not necessary for the issuance of the new notes or for the pledge of collateral for the new notes.

The exchange offers for the various series of notes are conditioned, upon - among other things - the successful completion of the new $3.5 billion first-lien senior secured credit facility that ResCap is trying to line up. It said that it is in talks with parent GMAC on the proposed new credit line. ResCap is asking for the new credit line less than a month after GMAC said it would extend $750 million in new credit to its problem child, which has been hit very hard by the credit crunch that has shook the U.S. mortgage industry for much of the past year. GMAC - which has already pumped an estimated $2 billion of new capital into the formerly profitable ResCap to help it keep going - held out the possibility of further assistance when it reported a $589 million quarterly loss earlier this week, largely due to the $859 million of red ink that ResCap recorded, which grossly outweighed GMAC's profits from its automotive financing activites.

The idea that ResCap might get still more fresh capital proved to be intriguing to bank debt investors on Friday; its term loan rallied by a couple of points; a trader remarked that investors are hoping for some sort of paydown in connection with all the new debt financing. He saw the existing term loan at 94 bid, 96 offered, up from Thursday's levels of 90 bid, 92 offered.

Ratings agencies razz ResCap

The major ratings agencies were nowhere near as enthused as the bondholders and term loan investors; S&P lowered selected ratings on ResCap, including the company's long-term corporate credit rating, to CC from CCC+. The ratings remain on CreditWatch with negative implications.

"The downgrade reflects the probability that, with the successful execution of the exchange offer, which will pay less than face value to certain Residential Capital LLC bondholders, Standard & Poor's, in accordance with our criteria, will lower our corporate credit rating on the company to 'SD' (selective default)," S&P credit analyst John K. Bartko wrote in the downgrade announcement.

S&P also said that the ratings on the affected debt issues would be lowered to D, although the exchange would not constitute a legal default.

"A successful exchange would extend debt maturities, providing needed relief," S&P admitted - but warned that "the action illustrates the gravity of the company's financial position."

"Furthermore, the exchange indicates that ultimate parents General Motors Corp. and Cerberus Capital Management LP" - GM owns 49% of ResCap parent GMAC and a Cerberus-led investment group has the other 51% - "are pursuing these actions rather than directly providing GMAC LLC with additional capital to downstream to Residential Capital LLC. We believe that if the exchange fails, Residential Capital LLC might file for bankruptcy protection," S&P added.

Moody's also downgraded ResCap as well on Friday, cutting the senior debt rating to Ca from Caa1. All ratings remain under review for downgrade.

"Despite the benefits this exchange could have on ResCap's ability to service its debt, the ratings remain under review for downgrade. This is because ResCap has not proven it has a business model that can produce the required operating cash flow to service and ultimately repay these reduced obligations," the Moody's announcement said.

And Fitch Ratings came out with a downgrade for ResCap following the debt exchange news as well, cutting the company's issuer default rating to C from BB- and its senior debt to C from B+. Ratings remain on Watch Negative.

Upon completion of the exchange, ResCap's issuer default rating will be downgraded to D, Fitch warned, indicating a default has occurred in accordance with the agency's criteria on distressed-debt exchanges.

At the completion of the exchange, Fitch would assign a post-default issuer default rating and new issue level ratings solely reflecting a prospective view of ResCap and its new capital structure. Fitch said that it envisions that ResCap's issuer default rating would be in the single B category, with issue level and recovery ratings reflecting relative seniority and recovery within the capital structure.

Despite all of that ominous-sounding language from the ratings agencies, traders said, investors still took the bonds higher - apparently more enthused at the possibility that ResCap will thus avoid possible bankruptcy by pushing off its 2008 and 2009 maturities to 2010 and by likewise pushing its other maturities off to 2015 than they are upset by what the ratings agencies think.

GMAC gains along with unit

GMAC's bonds meantime were seen higher, despite the possibility that it will have to extend further credit to its struggling mortgage subsidiary. A trader called its 8% bonds due 2031 2¾ point gainers Friday to 78.75 bid, 79.75 offered, while another saw those notes up 3 points at 79 bid, 80 offered, "despite ResCap's problems, the downgrade - and losing a truckload of money" in the most recent quarter.

Another source saw its 6% notes due 2011 up more than 3 points in brisk trading to around the 83 level, while its 6 7/8% notes due 2012 were also at 83, up some 4 points on the session.

GMAC rose even as Fitch cut its ratings to BB- from BB, saying the move reflects "the potential for reduced recovery in a default scenario should the company encumber assets." Fitch also noted ResCap's deteriorating situation as a negative factor. The Fitch downgrade follows similar GMAC downgrades in the past week by S&P and Moody's.

GM, Ford bonds cruise higher

Traders saw the bonds of GMAC's 49% owner General Motors Corp. continuing to push higher, riding on the momentum it established earlier in the week when investors shrugged off news of another big quarterly loss - more than $3 billion - as well as a nearly 23% fall in April domestic new vehicle sales - to instead accentuate the positive.

They focused on the fact that on a basis excluding special items, the $350 million loss was less than had been feared. They were also comforted by CEO Rick Wagoner's assertions that GM'a cash and liquidity position is "very strong."

A trader saw the GM benchmark 8 3/8% bonds due 2033 up a point at 77 bid, 78 offered. Another trader saw them at 77.25 bid, 77.75 offered - also up a point.

Ford's 7.45% bonds due 2031 were seen by a trader at 75.25 bid, 77.25 offered, again up a point, while another trader pegged them at 76.75 bid, 77,25 offered, up 1¼ points on the day.

Freescale continues to flourish

Apart from the automotive and mortgage names, trader saw continued strength in Freescale Semiconductor.

The Austin, Tex.-based computer chip maker's bonds have recently been riding a wave of strength in the tech sector that's included such names as Amkor Technology Inc., Unisys Corp. and Advanced Micro Devices Inc.

A trader saw Freescale's 8 7/8% notes due 2014 up nearly 3 points at 91.5 bid.

Another market source saw those bonds at 90 bid, up 2 points on the day, while its 9 1/8% notes due 2014 rose 2½ points to 85.5 bid.

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