Realogy debt structure drops; First Data bonds slide on grim forecast; Nortel paper racks up losses

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Nov. 14 - The distressed bond market took another downward turn during the final trading day of the week.

Realogy Corp.'s debt structure took a hit during the session. The company had announced a debt-for-debt swap on Thursday, and then warned of a possible covenant breach on Friday. Still, some market players speculated that the declines might have been due to the general market tone.

Meanwhile, First Data Corp. released its third-quarter financials and the numbers were somewhat positive. However, it was a warning about the coming quarters and an expected drop in revenues that pressured the company's bonds, a trader said. The paper ended the day down at least 5 points.

Nortel Networks Corp.'s bonds continued to be haunted by an analyst report that came out Thursday. The report indicated that a bankruptcy was more than likely and had pushed the bonds down on Thursday, as well. Overall, the week has been rough going, as the company also put out weak third-quarter results.

As the stock market gyrated, the bond market was largely heavy, traders reported. Still, it being Friday and all, one trader called the day "sleepy."

Realogy drops on news

Realogy's term loan headed down during market hours, but it was hard to tell whether the overall market tone was more of a culprit than the company's newly announced bond for a second-lien loan exchange offer and a warning of possible covenant non-compliance, a trader said.

The term loan was quoted at 63.5 bid, 65.5 offered, down from previous levels of 64 bid, 66 offered, the trader said.

"News probably a non-event for the bank loans. Probably just half a point lower with the rest of the market," the trader remarked.

At another desk, a trader called the company's bonds down 10 points over the week, the 11% notes due 2014 trading around 20.

Another trader saw the 10½% notes due 2014 begin the day around 30 bid, 35 offered before falling down to 26 bid, 28 offered. Another trader pegged that issue around 26.5, down at least 5 points on the day, while the 12 3/8% notes due 2015 fell from opening levels of 22 bid to 21.

Late Thursday night, Realogy announced it was inviting existing noteholders to exchange some of their debt at a discount for up to $500 million in a new second-lien incremental term loan debt that is being obtained under the credit facility's accordion feature. The second-lien loans will mature on April 15, 2014.

Noteholders have until Dec. 11 to participate in the exchange offer, but if they participate by Nov. 26, they get a more advantageous rate, and each commitment must be for at least $250,000 of loans.

The company will accept notes in priority order - first, the $850 million 12 3/8% senior subordinated notes due 2015, then the $1.7 billion of 10½% senior cash pay notes due 2014, and lastly, the $582.2 million of 11% - interest currently 11¾% - senior toggle notes due 2014.

No more than $125 million can come from the senior subordinated notes and no more than $175 million can come from the toggle notes.

Realogy's proposed second-lien term loan debt will consist of a term loan C that will be used to refinance the senior cash notes and senior subordinated notes, and a term loan D that will be used to refinance the senior toggle notes.

Pricing on the term loan C will be Libor plus 1,400 basis points and pricing on the term loan D will be Libor plus 1,500 bps, with both tranches carrying a 2.5% Libor floor. However, the term loan C has a pricing cap of 18.5% and the term loan D has a pricing cap of 19.5%.

The company may elect to pay either 100% or 50% of the pay-in-kind component under the term loan D by capitalizing such interest to the unpaid principal amount of the loan. The aggregate amount of such capitalized interest payments, together with the aggregate unpaid principal amount of the second-lien loans can't exceed $650 million unless the existing credit facility is amended to increase the maximum amount of permitted incremental term loans.

After giving effect to the new second-lien term loans and assuming the company only accepts commitments from holders of senior subordinated notes and senior cash notes, interest expense for the nine months ended Sept. 30 would have decreased by $19 million and for the year ended Dec. 31, 2007 would have decreased by $14 million.

Also, on Friday, Realogy said in an 8-K filing with the Securities and Exchange Commission that it could violate the senior secured leverage ratio or other covenants under its credit facility.

The company went on to say that potential covenant non-compliance would be a result of decreases in home sale sides and home prices.

In addition, the company warned that it "cannot predict how long the current volatility in the financial marketplace, decline in consumer confidence and current recessionary conditions will continue to affect home sales and prices."

Realogy is a Parsippany, N.J.-based provider of real estate and relocation services.

First Data bonds slide

First Data's bonds got knocked down 5 to 6 points, a trader said, after the company warned of potential financial declines in the coming quarters.

The trader said the 9 7/8% notes due 2015 traded mostly around 61 during the session.

The credit card transaction processor released its third-quarter results Friday and the numbers were somewhat positive. Revenues came in at $2.2 billion, a 4% gain year-over-year. Adjusted EBITDA was also up at $694 million, a 7% increase. Loss from continuing operations was $164 million.

But according to the trader, it was the company's warnings about the coming quarters that spooked investors.

"Bank consolidation will mean lower revenues for them in the next quarter or next couple of quarters," he said.

In other financial names, Washington Mutual Inc.'s senior holding company bonds were deemed unchanged around 63.

Nortel increases losses

Nortel's debt continued to mount up losses after an analyst report released Thursday pointed to a potential bankruptcy.

A trader quoted the 10¾% notes due 2016 at 26.75 bid, 27.75 offered, down from 28 bid, 29 offered at midday. Another trader pegged that issue at 27 bid, 28 offered and the floating-rate notes due 2011 at 29.5 bid, 30.5 offered.

Yet another source placed the 10¾% notes at 26 bid, 28 offered, calling the bonds down at least 10 points over the week.

An RBC Dominion Securities Inc. analyst cut his share-price target to $0 on Thursday, warning that a Chapter 11 filing was a "distinct possibility." The analyst, Mark Sue, said in his note to clients that Nortel's restructuring efforts left it lagging behind the pack and its inflexible balance sheet made viability a concern.

Nortel, in response to Sue's report, issued a statement trying to soothe ruffled investors.

"Cost reduction and cash preservation are priorities - both to stabilize our financial footing as well as to provide funds for growth investments. We are moving forward in a determined fashion, and have carved a clear plan forward to strengthen our financial footing," the company said in the statement.

In the past week, Nortel posted a disappointing $3.5 billion loss for the third quarter. In an effort to cut costs, the company said it would slash another 1,300 jobs, on top of the 1,200 jobs it had already cut during the year. Nortel also elected to put its metro Ethernet network up for sale.

However, Sue did not think the asset sale was necessarily the right move.

"With metro Ethernet fetching only a small fraction of its intended price, Nortel may in turn decide to sell its CDMA [wireless standard] assets as well," Sue wrote. "We're not sure Nortel can sell more than half of the company without triggering its asset-sale debt covenants."

Broad market declines

The cash market in general was softer by about 1 to 2 points on the day as retail sales numbers were "horrible", a trader said.

The U.S. Census Bureau announced on Friday that retail and food services sales for October were $363.7 billion, a decrease of 2.8% from the previous month and 4.1% below October 2007.

Total sales for the August through October period were down 1.3% from the same period a year ago.

Among retail bonds, Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2015 hit a new low, a trader said, around 30. He called that level 3 to 4 points weaker from the previous session.

Mattress maker Simmons Bedding Co. received a downgrade from Standard & Poor's Friday. The trader saw the 0% notes due 2014 offered at 26.

Dillard's Inc.'s 7 1/8% notes due 2018 closed 8 points softer at 41 bid.

However, despite the retail sales numbers, paper was "getting evenly crushed," a trader said, explaining that the weakness was not specific to retail names.

For example, autos were down on Friday, with Detroit-based General Motors Corp. and Dearborn, Mich.-based Ford Motor Co. both seeing their term loans drop 1.5 points on the day to 45 bid, 47 offered, the trader added. GM's 9 3/8% notes due 2038 gyrated throughout the day in a 6-point range, ending the day around 24, up 2 points.

Meanwhile, Constar International Inc. put out numbers during the session and a trader said the results "did not look pretty." However, though the company's 11% notes due 2012 had "traded down in anticipation" to 17.5 bid, 18.5 offered, the trader said he did not see much activity in the name.

Pliant Corp.'s 11 1/8% notes due 2009 were seen offered at 30 by one trader, who thought that level "might have been aggressive." He called the debt 20 bid, 30 offered going out.

Paul Deckelman contributed to this article.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.