Neff tender boosts bonds; Harrah's structure mixed on exchange news; Realogy weaker on debt swap

By Stephanie N. Rotondo

Portland, Ore., Nov. 17 - In the world of distressed, market players were focusing on the many debt exchange deals that entered the arena Monday.

"Swap is the term today," one trader said.

Neff Corp. announced it would swap its bonds for new term loan debt. The news gave the equipment rental company's bonds a 6- to 8-point boost on the day.

But Neff was just about the only debt-swapper to see gains during the first session of the week. Apollo Management LP-owned Harrah's Entertainment LLC and Realogy Corp. also announced debt swaps. The news resulted in both gains and losses in Harrah's bonds, while Realogy's notes fell at least 2 points.

As the Thanksgiving holiday approaches traders are beginning to notice a decline in trading activity.

"It's the end of the year for some banks," one trader said, adding that some are choosing to keep a hold on capital instead of investing.

"You can't fix anything that went wrong this year by the end of the year," he pointed out.

Neff tender boosts bonds

Bucking the broad market trend, Neff's paper popped after the company announced a debt-for-debt swap on its 10% notes due 2015.

One trader quoted the bonds at 23.5 bid, 24.5 offered. Another saw the bonds at 24 bid, 25 offered, versus early morning levels around 15 bid, 16 offered.

"Good God, that's up a lot," the trader said, adding that the issue was "by far the most active" of the day.

Yet another source saw the bonds at 23.5 bid, 24.5 offered, which he called up 6 points "from the lows."

In a regulatory filing Monday, Neff said it is offering holders of the 10% notes a chance to exchange their debt for new senior secured first-lien term loan debt due May 2013. The term loan is equal to the amount pain in the tender offer and consent solicitation. The loan is priced at Libor plus 350 basis points, with a step down to Libor plus 325 points if the leverage ratio falls under 3.5 times.

The exchange is set to expire on Dec. 15.

The Miami-based equipment rental company also held a conference call to discuss its quarterly results Monday. However, the numbers were not released to the public.

Harrah's notes mixed

In other debt swapping news, Harrah's debt structure finished the day mixed after the company announced an exchange offer on its bonds maturing from 2010 to 2018.

A trader said the news boosted the casino operator's paper while pressuring the secured notes. He pegged the 10¾% notes due 2016 at 23 bid, 24 offered and the 5 5/8% notes due 2015 and the 6½% notes due 2016 at 14 bid, 17 offered.

Another trader saw the 5½% notes due 2010 open around 59 bid, 60 offered and come down a bit to close at 53 bid, 55 offered. Still, that was better than Friday's closing levels around 50.

"That one was on a wild ride," he said.

The trader also saw the 10¾% notes at 23, down "5 points, maybe more."

"There just might be some shorts there and they are smaller issues so they are harder to cover," the trader speculated as the reason the structure was mixed.

In a filing with the Securities and Exchange Commission on Friday, the Apollo Management LP-owned company said that the swap was aimed at reducing debt and extending maturities. Terms of the deal were not disclosed.

Holders of 2010 and 2011 maturities will also be able to participate in a Dutch auction, choosing cash instead of new debt. The company will pay up to $325 million in cash to those investors.

Elsewhere in the world of casinos, Las Vegas Sands Corp.'s 6 3/8% notes due 2015 were "off their highs," a trader said, at 59.5 bid, 61 offered.

"They went up to their highs at 61 and died there," he said, adding that there were few, if any trades in the name.

The slight decline came after the company's auditor, PricewaterhouseCoopers LLC, took back its prior statement that there was "substantial doubt" about the company's viability. Pricewaterhouse said the retraction was due to the company's recent capital-raising efforts.

Meanwhile, the 30-day grace period on its 9½% notes due 2010 and its 9¾% notes due 2011 expired for Majestic Star Casinos LLC. Thus, the company is now in default.

But a trader said that the bonds did not move much during the session. According to the Nasd Trace system, the 9½% notes traded down 7 points to 34 bid, 35 offered, while the 9¾% notes have not traded in the last two weeks.

Realogy slips on swap

Another Apollo Management-owned business also saw its bonds falling, traders reported.

Realogy's debt crept lower after the company announced a debt swap on Friday. The tumble continued into Monday's session.

One trader deemed the 11% notes due 2014 off 2 points at 16 bid, 18 offered. Another saw that issue at 14 bid, 16 offered, while the 10½% notes due 2014 ended at 25 bid, 27 offered and the 12 3/8% notes due 2015 closed at 18 bid, 20 offered.

However, "they never seemed to get off the ground," the trader said. Another agreed that trading in the name was "pretty quiet."

Realogy, which owns Century 21 and Coldwell Banker, is looking to exchange $1.1 billion in bonds at a discount for new debt. The exchange is an attempt to avoid a default.

Holders of the bonds can exchange their holdings for as much as $500 million in new second-lien loans due 2014. Holders of the 12 3/8% notes can expect about 36 cents on the dollar for their debt, while holders of the 10½% notes can expect 50 cents on the dollar. The pay-in-kind toggle notes will receive about 47 cents on the dollar.

But the news resulted in a downgrade for the company, as Standard & Poor's cut the company's rating to CC from CCC.

"Given our previously stated view that Realogy's ability to service its current capital structure over the intermediate term will be challenged, we view the exchanges as being tantamount to default," wrote Emile Courtney, an analyst at S&P.

Broad market under pressure

The cash market fell on Monday, which resulted in names like General Motors Corp. and Ford Motor Co. getting pushed lower, according to a trader.

Cash in general was down about one to two points on the day, the trader said, remarking that there was extremely light volume during the session.

As a result of the overall softness, General Motors, a Detroit-based automaker, saw its term loan fall three quarters of a point to 43 bid, 46 offered, and Ford, a Dearborn, Mich.-based automaker, saw its term loan fall three points to 41 bid, 44 offered, the trader continued.

"At this point, it's just whether they're going to file or whether the government will bail them out. That's the only news that would make [them] move. Just down with the rest of the market," the trader added.

Elsewhere, a trader saw the retail sector "continue to get pounded."

The trader saw Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2015 trade around 27, while Rite Aid Corp.'s 7½% notes due 2017 "drifting lower" to 62.

Another trader quoted Bon-Ton Stores Inc.'s 10¼% notes due 2014 at 10.5 bid, 11.5 offered and Neiman Marcus Group Inc.'s 9% notes due 2015 weaker at 52 bid, 53 offered.

Spectrum Brands Inc.'s paper was deemed cheaper during the day, its 7 3/8% notes due 2015 offered at 26 and its 11 1/8% toggle notes due 2013 offered at 35.

Washington Mutual Inc.'s bank paper, like the 5.55% notes due 2010, fell a little more than a point to 26 bid, 27 offered, a trader said.

Level 3 Communications Inc. joined the debt swapping bandwagon, announcing an exchange for its convertible notes due 2009 and 2010. The news gave the company's bonds a small boost.

A trader saw the 8¾% notes due 2017 at 53, while another saw the 12¼% notes due 2013 up nearly 2 points at 63.

Sara Rosenberg and Paul Deckelman contributed to this article.

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