Nortel slide continues on bankruptcy buzz; retail rout continues; Las Vegas Sands bank paper off

By Paul Deckelman and Sara Rosenberg

New York, Nov. 13 - Nortel Networks Inc.'s bonds continued to fall Thursday, pushed lower by bankruptcy fears that swirled around the Toronto-based telecommunications equipment provider after an analyst warned in the research note that the embattled company could run out of money by, or even before, 2011.

Retailing names were seen lower, among them Bon Ton Department Stores Inc., Claire's Stores Inc., Michaels Stores Inc. and Toys 'R' Us Inc., in line with generally sagging sentiment about the sector.

Las Vegas Sands Corp.'s bank debt was seen several points lower as investors looked at the downside of the Nevada-based gaming operator being able to wiggle out of covenant trouble with a big capital-raising. Its bonds, on the other hand, which had risen smartly on Wednesday on the news, were seen pretty much steady.

Among the troubled financial names, a trader saw nominally high-grade credit Genworth International Inc.'s bonds languishing in the 30s, not given much of a lift by news that the insurance provider will pay off a big chunk of its bond debt.

A trader in distressed issues said that he thought the market "felt very weak for most of the day" until the late turnaround in equities, which was seen also lifting some of the junk bond names that had been getting klopped around earlier in the session. "There was a big reversal.

"All of a sudden, the market runs like that, and people think they've got gold and nobody wants to sell anything anymore."

Nortel knock-around continues

A trader saw Nortel's floating-rate notes due 2011 having fallen to 30 bid from prior levels around 37, while its 10¾% notes due 2016 had dropped to 27.75 bid from 33 on Wednesday.

A market source saw Nortel's floaters fall to around the 30.5 level from the 36-37 neighborhood in which they were trading on Wednesday, with most of the movement coming on large-block trades.

The company's 103/4s, which on had fallen some 10 points on Monday to around the 40 bid level after the company released poor third-quarter numbers, and which then fell another 6 points Wednesday to around 33-34, opened around 29 on Thursday, and later came part of the way back up to around 32. But the bonds couldn't hold that level and slid back down to 27. Nortel's 10 1/8% notes due 2013, which had retreated some 8 points on Wednesday to 34, remained at that level on Thursday, with no trading activity seen.

While those bonds were unchanged to considerably lower, however, Nortel's New York Stock Exchange-traded shares, which had fallen more than 31% on Wednesday, were rebounding Thursday despite the company's problems, surging 19 cents, or 32.20%, to end at 78 cents, on volume of 7.8 million shares, about the usual turnover.

With Nortel's junk market momentum already negative as a result of the numbers put out on Monday - the company posted a third-quarter loss of $3.41 billion versus a year-ago $27 million profit, while revenue fell 14% to $2.32 billion - things got worse on Thursday after RBC Capital Markets warned that Nortel could go bankrupt unless it gets a cash injection from the Canadian government or from financial backers.

Given overall economic difficulties that have led to the large telecom companies which buy Nortel's equipment cutting back on their technology purchases, as well as concerns related to liquidity and debt "while the capital markets are basically closed, we think bankruptcy is a distinct possibility down the road," RBC Capital Markets analyst Mark Sue said in a research note. Nortel, he cautioned, is "overwhelmed with debt and burning cash."

Sue warned that the Toronto-based company could run out of money before 2011, when the $1 billion floater issue - Nortel's shortest bond - is scheduled to mature. He said Nortel will have to rely on asset sales to fund its battered operations.

Back in September, Nortel announced that it would explore the possible sale of its Metro Ethernet Networks business, which includes its optical and carrier ethernet technology - but those efforts have so far not yielded a buyer.

Sue wrote in his note that "(a)sset sales couldn't have come at a worse time, and due to Nortel's distressed situation, potential bidders for the company's Metro Ethernet assets may offer subsequently distressed prices."

Sprint gets support

A trader said that Sprint Nextel Corp.'s bonds did okay as "some positive research" came out on the troubled Overland Park, Kan.-based wireless carrier. He saw its 6% notes due 2016 - which earlier in the session had fallen over 5 points to a low around 61 - come back from that nadir to end unchanged at 66.

Sprint's bonds - and its NYSE-traded shares, which jumped as much as 28% intraday before ending up 29 cents, or 14.78%, at $2.24, on nearly three times normal volume of 93.7 million - got a boost when Oppenheimer & Co. analyst Timothy Horan wrote in a research note Thursday that market speculation that Sprint may be driven into bankruptcy was "overblown."

Sprint on Thursday also moved to improve its financial situation via cost-cutting, offering a number of its employees buyouts to reduce overhead.

Faltering financials are active

A trader saw Washington Mutual Inc.'s bonds "somewhat active," saying that the failed Seattle-based thrift operator's paper "got a little boost at the end of the day." He saw its senior holding company notes at 62.5 bid, up a point from its lows, while its subordinated holdco paper was in a 22-22.5 context, also up a point from the lows.

Another trader said that WaMu's bonds were "probably the most active," quoting its 4.625% notes due 2014 at 22.5 bid, up from 20.75 on Wednesday, with a busy $29 million of the paper changing hands.

And he saw WaMu's 5.55% notes due 2010 dip ¼ point to 28.75 bid on volume of $10 million.

Also in the financial sphere, a trader said that Genworth Financial's nominally investment-grade rated bonds (Baa1/A/BBB-) "have been drifting into our market and has been getting hammered." He saw its 5.65% notes due 2012, which had previously been trading in the low-mid 40s, move down to the lower 30s, "so that stuff was on a spiral downward."

He said that the bonds did not get any kind of a lift after the Richmond, Va.-based insurance provider "came out with news late in the day and the stock popped" after having traded at 90 cents most of the session, off a dime from Wednesday's close. After the announcement - that Genworth plans to borrow $930 million through an existing $1.7 billion credit line and use those proceeds to pay off all of its outstanding senior debt slated to come due next year - the NYSE-traded shares pushed upward to finally end at $1.53, up 53 cents, or 53%, on volume of 37.2 million, around four times the usual volume.

He said that new news came out around 3:30 p.m. ET, "so there wasn't a tremendous amount of trading in the bonds after that. There was a lot of trading before the news - and it was heading south. We'll see how it [i.e. the longer-dated bonds not being immediately paid off, like the '12s] reacts" on Friday.

A market source at another desk saw the 5.65s around 38 bid pre-news, while the company's Genworth Global Funding Trust floating-rate notes coming due on Feb. 10 were at 82.5.

Retailer retreat continues

A trader said that retailing names "continued to get hit." He saw Bon Ton Department Stores' 10¼% notes due 2014 "pretty weak," with the York, Pa.-based retailer's paper touching a low of 10.

The trader said that while he had seen some trades between 12 and 13, it was his belief that "those trades were flat," or without the accrued interest. In that case, the print about 10 "actually might have been with [interest], because there's 1¾ worth of accrued [interest] in it, so I'm thinking that somebody bought them at 10.75 with [interest], which is the same as buying them closer to 12 flat."

That having been said, he opined that the Bon Ton bonds "keep drifting in - they had been trading closer to 15. They probably traded between 12 and 13 [on Thursday], and people are trading them flat now."

BonTon, which announced plans to release its third-quarter results and hold a conference call next Thursday, recently advised investors that based on fall sales trends and continued expectations for a soft holiday season, it believes its full-year fiscal 2008 financial results will come in at the low end of the previously stated guidance range of a 45 to 90 cents per share loss, excluding a write off of good will, and $1.17 to $1.67 per share of red ink including that write off. It had also previously predicted that guidance for EBITDA would be in a range of $200 to $213 million.

Bon Ton also recently said that its comparable-store sales for the four weeks ended Nov. 1 decreased by 11.1% from year-earlier levels, while total sales for the period fell 10.7% to $218.4 million, versus $244.7 million a year earlier.

A trader saw Claire's Stores paper "continuing to trade down - that paper was off a good bit." He saw the Pembroke Pines, Fla.-based specialty retailer's 9¼% notes due 2015 trade as low as 24 bid, "off a couple more points" from Wednesday's levels around 28.

He saw Toys 'R' Us' 7 7/8% notes due 2013 trading down a little at 58.5, while a market source at another desk pegged them at 57.5, well down from the 60-61 level at which the Wayne, N.J.-based toy and children's product retailer had traded earlier in the session, as well as last week.

He said that there was no news out on Toys 'R' Us - it was just that "everything in retail is better for sale. It's a combination of what was going on with Best Buy [Co. Inc.'s projection of slowing sales next year], Macy's [Inc.'s third-quarter loss], and WalMart [Stores Inc.'s lowered forecasts]; Kohl's came out with stuff as well, cutting their profit forecast. Every retailer is just setting everybody up for more and more bad news. There's no reason for anyone to be buying these bonds in the near-term, so they continue to drift lower. How much is real selling versus short-sellers just knocking it down, or guys that are short trying to just lean on it? Nobody's going to step in to support the market - there's no reason to. So retailers are continuing to get squashed given all the bad news, and the bad outlooks for the sector from these big companies."

Michaels gets mauled

Also in the retailing sphere, Michaels Stores' term loan headed lower in trading, as there was some selling pressure seen in the name, according to a trader.

The Irving, Tex.-based art-supply store chain's term loan was quoted at 57 bid, 60 offered, down 3½ points.

The trader called Michaels "a retail name that hung in pretty well the past few days. People are noticing this thing hasn't moved down with the rest of the market, and are thinking it will, so they're selling out now.

The trader added that Michaels may have also retreated on Thursday on some profit taking-by investors.

Las Vegas Sands loan lower, bonds steady

Also in the bank-loan market, Las Vegas Sands' strip of institutional bank debt gave up some of its previous day's gains - possibly because investors started to realize that the company's avoidance of non-compliance with covenants by means of a big capital raise may not necessarily be in their best interest, according to a trader.

The strip of delayed-draw term loan and term loan B debt was quoted at 59¾ bid, 61¼ offered, down from Wednesday's levels of 61½ bid, 64 offered. On Monday, the debt was quoted at 58 bid, 60½ offered.

"It shouldn't have run up [Wednesday] as much as it did," the trader said. "Before, you were going to get a covenant breach, a coupon bump and fees. Now, you get nothing."

While Sands' bank debt lost a little of its luster, its 6 3/8% notes due 2015 - which shot up around 11 points on Wednesday on the news of the refinancing plan, to around the 60-61 area from around 49 previously - were seen pretty much holding steady Thursday in that same 60-61 context. "It's probably about where they were" before, a trader said, although he held out the possibility that the bonds could have gone home "a little bit better, given the tone at the end of the day."

As previously reported, Las Vegas Sands avoided potential non-compliance with its credit facility leverage ratio for the quarter ended Dec. 31 by raising approximately $2 billion in net proceeds from a public offering of common stock and offerings of series A preferred stock and warrants.

When the transactions close Friday, it is estimated that the common stock offering will have raised $959 million in net proceeds and the sale of series A preferred stock and warrants $503 million in net proceeds, while the sale of series A preferred stock and warrants to the family of Sheldon G. Adelson, the company's chairman and chief executive officer and principal stockholder, will have raised $524.5 million in net proceeds.

Proceeds from the offerings will be used for general corporate purposes, which may include repayment of debt under the company's revolver and the financing of construction and development projects in Las Vegas, Macao, Singapore and Pennsylvania.

Autos stay parked

In the automotive sphere, a trader saw General Motors Corp.'s benchmark 8 3/8% bonds due 2013 "pretty much unchanged" at 22 bid, 23 offered, while seeing its GMAC LLC 8% bonds due 2031 at 36 bid, 38 offered, which he said was unchanged to perhaps up a point, with "not a lot of trading going on in that one."

Another trader saw the GM benchmarks at that same 22 bid, 24 offered context but called them down 1½ points on the day, while Ford Motor Co.'s 7.45% bonds due 2031 were unchanged at 25.5 bid, 27.5 offered.

Unisys, Aleris fall

Elsewhere, a trader saw Unisys Corp.'s 6 7/8% notes due 2010 plunge to 45.5 bid, down nearly 20 points from its last previous round-lot trade several days ago at 74 bid, calling it "quite a move in a week."

Another market source also saw those bonds nosedive, estimating them at 48 bid, calling that a 16-point fall.

Nobody saw any fresh negative news out on the Blue Bell, Pa.-based high-tech solutions provider that might explain the slide.

And a trader saw Aleris International Inc.'s 10% notes due 2016 down 2 points on the day at 30 bid, 31 offered; he noted that the Beachwood, Ohio-based aluminum producer had "bad numbers out" for the third quarter, and said the company was electing to "toggle" its 9% notes due 2014, which have an interest payment due on Monday, and will make that payment in additional notes rather than cash.

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