MGM active on new issue chatter; GMAC spikes on Fed access news; Charter debt firms on earnings

By Stephanie N. Rotondo

Portland, Ore., Oct. 29 - Depending on whom you asked Wednesday, either MGM Mirage or GMAC LLC dominated activity in the distressed bond market.

It was likely safe to say that both names were the focus of the day as both had news out that helped their bonds move higher.

MGM released earnings during the session and the numbers were not good. But the gaming operator is also reportedly marketing five-year secured benchmark notes, which investors reacted to favorably, traders said. MGM's bonds were seen at least a couple points better on the day.

Elsewhere in the world of casinos, Trump Entertainment Resorts Inc.'s debt gained slightly after the company announced it had amended its agreement to sell its Marina property.

Meanwhile, GMAC was granted access to the Federal Reserve's commercial paper plan, as was Ford Motor Credit, Ford Motor Co.'s financing arm. The news gave GMAC a 10 to 15 point boost, traders said, and Ford's bonds also rallied.

Charter Communications Inc.'s paper was also deemed a little better on the day, though trading was on the lighter side. The move came as rival Comcast Corp. posted better quarterly figures.

In other earnings news, United Rentals Inc. reported Wednesday. But as the company revised its outlook going forward, the bonds fell 1 to 2 points by the end of trading.

Traders said that the market was trying to come back after several days of losses and the Federal Reserve's decision to cut a key interest rate to 1% did not hurt.

MGM active

It was "mostly MGM today," a trader said, as the company announced its quarterly results and talk of a new issue began to circulate.

The trader said at that MGM took the top five spots in Nasd Trace's most active issues list at one point, though by the end of the day that number had decreased to four. He added that the company's bonds began the day "down a lot" - presumably on numbers - but finished up some.

The trader quoted the 6% notes due 2009 at 87.5 bid, 88.5 offered, the 8½% notes due 2010 at 69 bid, 70 offered and the 7½% notes due 2016 and the 7 5/8% notes due 2017 at 60.5 bid, 61 offered. He also saw the 8 3/8% notes due 2011 at 57.25 bid, 58.25 offered.

"They were definitely better on the day," he said.

At another desk, a trader said the 6% notes were better around 88.

MGM's third-quarter profit dropped 67%, the company said, as would-be gamblers elected to stay home amid the economic turmoil facing the market. Net income fell to $61.3 million, or 22 cents per share, from $283.9 million, or 62 cents per share, the year before. Net revenue slipped 5.9% to $1.79 billion. EBITDA declined 29% to $502 million.

Standard & Poor's cut MGM's rating to BB- from BB, citing the weaker-than-expected results.

But as market players analyzed the numbers to determine if the company would have enough cash flow to cover loans and complete its CityCenter project on the Las Vegas Strip, the market began to buzz that the company was planning on issuing new debt.

According to a Bloomberg article, persons associated with the potential deal said that MGM is marketing five-year secured benchmark notes. A benchmark offering typically is at least $500 million. An investor call was also reportedly held Wednesday to discuss the proposal.

Meanwhile, Wynn Las Vegas LLC, which is slated to report Thursday, saw its bonds gyrate some. A trader said the 6 5/8% notes due 2014 opened lower at 69.5 bid, 71 offered but rebounded to close at 71 bid, 72 offered.

Trump gains

In other gaming news, Trump Entertainment amended its purchase agreement with Coastal marina LLC, which had made an offer on Trump's Marina in May. The new agreement gave the Atlantic City casino's debt a modest boost.

A trader said the 8½% notes due 2015 were "pretty active," ending the session at 25 bid, 26 offered, up half a point. Another trader said the issue traded as high as 29 before settling back in to around 26.

Under the amended agreement, the parties agreed to a purchase price of $270 million, with no reduction based on performance. Trump also has the option to cancel the deal if it has not closed by May 28, 2009. The financing deadline was also waived.

Furthermore, the deposit paid by Coastal to Trump was increased to $17 million from $15 million. The original $15 million, which has been held in escrow, was immediately released to Trump.

The parties are still discussing a plan that would allow Coastal to begin construction in the marina property to turn it into a Margaritaville location.

GMAC spikes

GMAC's corporate debt gained 10 to 15 points across the board, traders reported, as the financing unit of General Motors Corp. was granted access to the Fed's commercial paper plan.

A trader quoted the benchmark 8% notes due 2031 around 53, up from 43 previously. However, he noted that investors were not as interested in the longer-dated paper so much as the shorter paper. He said the 5.85% notes due 2009 ended at 95 bid, up from 86 on Tuesday.

"That was really the big thing of the day," he said. "It's been a big, big rally."

At another desk, a trader said GMAC was "up pretty good," the 8% notes at 51 bid, 52 offered.

Another source saw the 6 7/8% notes due 2012 up nearly 10 points at 58.5 bid, Ford's financing unit, Ford Motor Credit, saw its 7% notes due 2013 up almost 8 points to 57.5 bid, as that company was also granted access to the Fed's funds.

Even GMAC's Residential Capital LLC business got a boost, its 8 7/8% notes due 2015 finishing the day 4.5 points better at 21.5 bid.

Under the plan, the Fed began buying commercial paper from companies in an effort to help reduce interest rates, as well as to bring investors back into the market. GMAC, as well as Ford Credit, was approved to participate in the program and is thus looking to become a bank holding company. In doing so, GMAC could also be eligible to get direct loans from the Fed, as well as temporary debt guarantees.

The news also helped GM and Ford paper strengthen.

A trader said GM's benchmark 8 3/8% notes due 2033 moved up to the mid-30s from the mid-20s. However, he added that trading was "not that active."

Another source called GM's 7 1/8% notes due 2013 up 5 points at 38.5 bid.

Both GM and Ford also saw their term loans improve strongly, according to traders.

Detroit-based GM saw its term loan quoted by one trader at 51.5 bid, 54.5 offered, up 3.5 points on the day, and by a second trader at 52 bid, 55 offered, up four points on the day.

Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted by one trader at 53.5 bid, 56.5 offered, up 3.5 points on the day, and by a second trader at 53.5 bid, 55.5 offered, up four points on the day.

According to one of the traders, the bank debt of General Motors and Ford were up for a number of reasons, including that the loan market overall was better by about half a point to 1.5 points on Wednesday, as well as some more sector specific buzz.

"There's talk about the GM, Chrysler combination. There's talk that the companies might be getting funding from the government. And, there's talk that GMAC might be getting money from the Fed and becoming a bank essentially," the trader said.

During the session, news reports surfaced that General Motors and Cerberus Capital, the owner of Chrysler Corp. LLC, have resolved some major issues in the possible combination of the two companies, moving them one step closer to announcing a merger agreement.

Charter firms

Charter Communications bonds gained some during trading, though traders said the usually somewhat active name was less so Wednesday.

The modest gains came as rival Comcast posted a 38% increase in profit during the third quarter. But one trader opined that the numbers had little to do with Charter's movement.

"They are probably better on the tone of the market," he said. "These are trading in the 20s. Does it really matter if Comcast got a few more subscribers?"

The trader pegged the 10% notes due 2014 and the 9.92% notes due 2014 around 25. Another trader saw the 11¾% notes due 2014 at 29 bid, 30 offered, while another called the 8% notes due 2012 up nearly 2 points at 77.5 bid.

United Rentals slips

Greenwich, Conn.-based United Rentals reported its third-quarter results and the numbers put pressure on the company's debt.

A trader said the 7¾% notes due 2013 fell to around 58 from 59 bid, 60 offered previously. Another source saw the 7% notes due 2014 fall almost 2 points to 52.5 bid.

Rental and total revenue fell to $677 million and $873 million, respectively, in the third quarter, according to a press release. Income from continuing operations declined to $74 million from $111 million in 2007. The company attributed the losses to continued softness in the industry, as well as a $26 million pre-tax charge following the company's preferred and common share repurchase earlier in the year.

United Rentals also revised its full year outlook, expecting pro-forma earnings per share to be between $2.55 to $2.65, from a previous range of $3.15 to $3.25.

"We are continuing to manage the business through the current environment with a steadfast strategy that drove our EBITDA margin higher for the third straight quarter, brought down our SG&A costs by $17 million, and improved our fleet management practices. At the same time we are taking the right actions to set the stage for long-term, profitable growth, such as our recent acquisition of a Texas-based rental company, which expanded our presence in the under- penetrated industrial sector," said Michael Kneeland, chief executive officer of United Rentals, in the release. "We are prepared for our operating environment to become steadily more challenging as economic pressures and the credit crisis combine to suppress construction spending. Our 2008 outlook reflects both the reality of the current construction cycle and our ability to navigate through it by adjusting our operations and fleet."

Northwest, Delta higher

Northwest Airlines Corp. and Delta Air Lines Inc. saw positive momentum in their bank debt as news emerged that the Department of Justice approved the pending merger of the two companies, according to a trader.

Northwest's term loan was quoted at 80.5 bid, 84.5 offered, up from 79 bid, 83 offered, the trader said.

Meanwhile, Delta's first-lien term loan was quoted at 65 bid, 70 offered, up from 63 bid, 66 offered, and its second-lien term loan was quoted at 52.5 bid, 55.5 offered, up from 51.5 bid, 53.5 offered, the trader continued.

Northwest is an Eagan, Minn.-based airline company. Delta is an Atlanta-based airline company.

In April, the two companies announced plans to merge in an all-stock transaction with a combined enterprise value of $17.7 billion. The transaction is expected to close by year-end.

Sara Rosenberg contributed to this article.

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