Nortel notes dive on bankruptcy concerns; GMAC short paper slides on banking worries; Neiman bonds up

By Stephanie N. Rotondo

Portland, Ore., Dec. 10 - Nortel Networks Corp. was the nom du jour Wednesday, as bankruptcy concerns sent the company's bonds down as much as 10 points.

The concerns popped up late Tuesday night after a Wall Street Journal article indicated that the company was considering a Chapter 11 filing as a way to restructure. Traders saw the bonds trading quite actively - one source said nearly $100 million changed hands - on the news.

Meanwhile, GMAC LLC's short paper also lost as much as 10 points on the day. The hefty slide came after the company said it had not yet received enough tenders in its exchange offer to make its dream of becoming a bank a reality. In an 8-K filing with the Securities and Exchange Commission, the company said that unless it received at least 75% participation in the debt swap, its near-term viability could be damaged.

Neiman Marcus Group Inc. posted an 84% decline in profit for its first quarter. But instead of causing the bonds to fall, market players said the bonds moved up about 2 points by the end of the trading day.

In the autosphere, General Motors Corp. and Ford Motor Co.'s bank debt gyrated throughout the day as investors continued to wonder if a government bailout would occur - or, if it did happen, if it would help.

MGM Mirage and Harrah's Entertainment Inc. saw their bonds unchanged to better, traders reported. The gains came after both Nevada and New Jersey casinos reported yet another month of declines in revenue.

Nortel dives on bankruptcy concerns

Nortel's bonds dropped 7 to 10 points on the day after a Wall Street Journal article that said bankruptcy was a possibility.

One trader said the company's debt was the most active of the day, with "close to $100 million" changing hands. He saw the floating-rate notes due 2011 in the 19.5 area, while the 10¾% notes due 2016 ended around 25.

"That is definitely down from where they had been," he said. "It was a pretty good drop."

Another trader said the bonds "cracked 20" late in the day, quoting the debt at 19 bid, 20 offered "pretty much across the board." Another trader echoed that market, calling Nortel the "most notable today."

Nortel said Wednesday that it had retained Lazard Ltd., as well as law firm Cleary Gottlieb Steen & Hamilton, to look at the company's options, including a possible bankruptcy filing. Nortel has posted nearly $7 billion in losses since 2005.

Nortel had $6.3 billion in debt as of Sept. 30, with $2.3 billion in cash. About $1 billion of its debt matures in 2011.

GMAC short paper falls

GMAC's 5.85% notes coming due in January were seen falling as much as 10 points during the mid-week session as the company's attempts to become a bank seemed to hit a wall.

A trader saw the bonds fall to 84 bid, 85 offered, down from around 94 on Tuesday. However, he saw the benchmark 8% notes due 2031 slip only a point to 28 bid, 29 offered.

"It's weird," he said. "Those seem to be down only a point, while the paper in the short end is down a lot more. I don't get it."

Another trader said about $30 million of the short notes traded, "up and down" around 85. He also did not understand the move.

"To me, that short dated paper is the biggest sucker play," he said, noting that it could be good if it gets paid at par, which is unlikely as most of the company's other issues are considerably lower.

A market source called the 6 7/8% notes due 2013 at 37 bid, 4 points softer.

GMAC said in a statement that it had not received enough tenders in its $38 billion debt exchange offer, which was an effort not only to reduce debt, but also to raise capital to become a bank. GMAC and Residential Capital LLC bondholders holding about $8 billion have so far participated in the offer. However, that leaves the company about $30 billion short of the Federal Reserve's regulatory capital requirement.

GMAC needs about 75% participation in the offer for the reorganization plan to be successful. If it does not receive enough tenders, the company plans to withdraw its application to become a bank holding company. That in turn could make GMAC's future cloudy.

Since the exchange offer was announced, some bondholders have objected. A group of the noteholders has hired an attorney, Andrew Rosenberg of Paul Weiss Wharton & Garrison LP, to represent them. The group was reportedly holding a bondholder conference call Wednesday to discuss their next move.

Elsewhere in the financial sector, Washington Mutual Inc.'s senior holding company paper, like the 4% notes due 2009, weakened some, closing at 64 bid, 65 offered. A trader called that "maybe down half a point."

Neiman paper gains

Market sources said Neiman Marcus' bonds actually gained some despite reporting an 84% decline in net income.

A trader pegged the 9% notes due 2015 around 45.5 and the 10 3/8% notes due 2015 around 40. Another source called the 9% notes over 2 points better at 45 bid.

For the first quarter of fiscal 2009, Dallas-based Neiman posted net income of $12.9 million, down from $78.8 million a year ago. Revenue fell 13% to $985.8 million from $1.13 billion.

Among other retailers, a trader said Claire's Stores Inc.'s 10½% notes due 2017 were quoted better, though few trades took place. He saw the debt quoted at 17.5 bid, 18.5 offered, up 1 to 2 points.

GM, Ford loans gyrate

General Motors and Ford Motor were quoted all over the place on Wednesday as rumors continued to flood the market about the government rescue plan, according to a trader.

"Up in the beginning of the day and then down," the trader said about the companies' bank debt levels.

General Motors, a Detroit-based automaker, saw its term loan quoted at 44 bid, 48 offered, wider from Tuesday's levels of 44 bid, 46 offered, the trader remarked.

And, Ford, a Dearborn, Mich.-based automaker, saw its term loan quoted at 41 bid, 43 offered, down from 41½ bid, 44 offered, the trader continued.

As was reported earlier in the week, Congress is currently working on a rescue plan for the auto companies that would provide around $15 billion in short-term financing, with most of that going to General Motors and Chrysler LLC to keep them out of bankruptcy.

This proposal isn't quite what the automakers asked for last week when they approached Congress.

General Motors had requested access to $18 billion in funds, comprising a $12 billion bridge loan - of which it wants $4 billion this month - and a $6 billion revolving line of credit; Chrysler asked for $7 billion in loans from the government, and, Ford, requested access to an up to $9 billion bridge loan in case the current economic crisis worsens or there is a bankruptcy of a major competitor.

In addition, there is some question about whether the government will be the number claim, and if that's the case, whether the bank debt will have to be taken out or if they are going to find a way around covenants.

MGM, Harrah's up despite revenue

Casinos were unchanged to higher as November revenue numbers came out.

"The numbers came out and guess what?" a trader said. "They were down."

One trader called MGM Mirage and Harrah's Entertainment 1 to 1.5 points better on the day. Of MGM's issues, he saw the 6% notes due 2009 at 88 bid, 89 offered, the 7 5/8% notes due 2017 at 54 bid, 55 offered and the 8½% notes due 2010 - which he called the most active - at 68.

He said Harrah's 5 3/8% notes due 2013 were the most active of that company's issues, finishing around 24.5.

The trader also deemed Trump Entertainment Resorts Inc.'s 8½% notes due 2015 unchanged to "maybe down half a point" at 13 bid, 14 offered.

At another desk, a trader said Harrah's 10¾% notes due 2016 were "right where they were yesterday" around 28.

Casinos in Nevada earned $905 million during the month, a 22% decline from the year before. The Las Vegas Strip alone won just $475 million from gamblers, a 26% decline year over year. November marked the tenth straight monthly drop in revenues.

On the other side of the country, Atlantic City casinos reported a mere 7.8% decline in revenues year over year, winning $345.5 million.

Of the Jersey Shores' many casinos, only two - Caesars Atlantic City and Harrah's Resort Atlantic City - reported an increase in revenue. Trump's revenue fell over 27% for the month.

Broad market mixed

A trader said Advanced Micro Devices Inc.'s 7¾% notes due 2012 were trading around 50 before Moody's Investors Service downgraded the company. However, he was unsure where the bonds were trading post-downgrade.

Tribune Co.'s bonds, like the 5¼% notes due 2015, remained on the active side, traders said. Several sources saw the bonds trading between 5 and 7.

Freeport-McMoRan Copper and Gold Inc.'s debt, such as the 8¼% notes due 2015, was "definitely higher," a trader said, around 68.5. He added that the debt remained on the active side, with about $30 million trading.

Sara Rosenberg contributed to this article.

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