Revlon bonds continue to gain; Reliant bank debt trades after numbers

By Paul Deckelman and Sara Rosenberg

New York, Feb. 18 - Revlon Inc. bonds continued to firm smartly on Wednesday, traders said, with investors apparently hoping for a fat payout under the New York-based cosmetics maker's planned debt-for-equity exchange announced last week.

Among bank debt investors, Reliant Resources Inc. loans were heard to be "floating around" a little bit, with quotes remaining at their slightly firmer levels from Tuesday after the company released its earnings numbers.

Revlon "has been going nuts," a distressed-debt trader said of the cosmetics maker's bonds slated to be taken out in the debt-for-equity exchange. "People have been buying 'em so they can sell the stock."

Under terms of the debt-for-equity plan Revlon announced last week, which seeks to take out some $780 million of mostly bond debt and some bank debt by the end of next month, as well as an additional $150 million of debt by March 2006, thus essentially halving the company's nearly $1.9 billion debt load.

Holders who tender their 8 1/8% senior notes due 2006, 9% senior notes due 2006 and 8 5/8% senior subordinated notes due 2008 stand to get Revlon class A common stock in exchange - 400 shares per $1,000 principal amount of the senior notes tendered and accepted for purchase and 300 shares per $1,000 principal amount of the senior subordinated notes purchased.

The exchange offer, as outlined by Revlon last week, will also have a cash-for-debt option, but nobody seriously expects anybody to take advantage of it, since the value of the cash option is far less than that of the stock option.

"If you tender the bonds and take the stock," a trader said, noting that the shares closed Wednesday at $3.41. "Do the math: at 400 shares [for a $1,000 principal amount senior note], that comes out to 136 cents on the dollar," a stellar return for any kind of bond.

He saw the Revlon 8 1/8% and 9% notes having pushed up to as high as 108 bid, 110 offered from opening levels at 103 bid, 104 offered.

"Three days ago [i.e. before the Revlon debt-for-stock plan had been unveiled], these bonds were selling at 70-71," he quipped.

Revlon's 8 5/8% subordinated notes also shared in the gains, advancing to 93 bid, 94 offered from prior levels at 89 bid, 91 offered.

Another trader declared that "Revlon traded higher and higher and Calpine [Corp.] lower and lower, and in between - not much.

He saw the Revlon 8 1/8% notes push as high as 110.75 bid, 111.75 offered from 103 previously - a level he called "unbelievable."

As for Calpine, he saw the San Jose, Calif.-based independent power producer's 8 ½% notes due 2011 dipping to 79 bid, 81 offered from 81 bid, 82 offered previously.

El Paso gyrates

The distressed-debt trader noted that El Paso Corp. bonds "were on a bit of a roller coaster," after the Houston-based energy operator revealed details of its previously warned-about revisions in its gas reserves - a 41% cut from previous levels.

"They opened down about three or four points," he said," and tried to rally but didn't succeed. "

Both Moody's Investors Service and Standard & Poor's cut El Paso's rating and those of several subsidiaries.

Moody's cut El Paso Production Holding senior unsecured rating to B3 from B2. The ratings agency also said it may cut El Paso Corp.'s ratings, including its senior unsecured rating of Caa1, and its B3 senior implied rating.

S&P meantime cut El Paso's Corp.'s corporate credit rating to B- from B. The long-term outlook for the company's ratings remains negative, S&P said. S&P also cut El Paso Production Holding Co. to B- from B.

The distressed-debt trader noted that his shop wasn't that familiar with El Paso, since it most recently traded above par.

However, he said that while the bonds had fallen early in the trading day, "there was no change after the downgrade."

At another desk, El Paso's 6.95% notes due 2007 dropped to 92.25 bid, 92.75 offered from prior levels at 95 bid, 97 offered. Its 7¾% notes due 2032 were five points lower, at 80.5 bid, 82.5 offered.

Reliant revolver a little stronger

Also on the energy front, a trader said that Reliant Resources' revolving bank debt was quoted at 95 bid, 95.5 offered, while the term loan was quoted at 98.5 bid, 99 offered.

"It's a little bit stronger from last week, about a quarter of a point, but unchanged from [Tuesday]," the trader said, noting that Reliant was one of the very few names to stand out in an incredibly quiet trading day.

On Tuesday, Reliant announced a fourth-quarter loss from continuing operations of $29 million (10 cents per share), versus a loss from continuing operations of $176 million (60 cents per share) for the same period of 2002. The improved fourth-quarter results were attributed to higher profits from retail operations and reduced losses from wholesale operations, partially offset by higher interest expense.

Furthermore, the Houston-based energy company said that it has set a goal of reducing its net debt-to-adjusted EBITDA to 3 times or lower by the end of 2006 from 5.6 times currently.

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