Freeport boosted by Fed decision; Charter bonds active, moving higher; MGM debt better to unchanged

By Stephanie N. Rotondo

Portland, Ore., Dec. 16 - Distressed bond traders said Tuesday that market players were holding back ahead of the Federal Reserve meeting, and subsequent rate cut, before putting their money to work.

"This morning was pretty quiet," a trader said. "Actually, it was quiet all day up until the Fed announcement."

The trader noted that the inactivity of the market could also be due to the upcoming Christmas holiday but added that the market was "still seeing some cleanups."

The Fed's decision to cut a key interest rate to the lowest level on record might have been what gave Freeport-McMoRan Copper & Gold Inc.'s bonds yet another surge. The bonds have been called one of the most active names nearly every session for more than a week, ever since the company cut its dividend and said it planned to cut production.

Meanwhile, Charter Communications Inc.'s bonds were also on the active side and continued to gain some ground following the losses they incurred last week. The company said late last week that it was starting talks with bondholders about a potential restructuring.

MGM Mirage's debt ended the day better to unchanged, just one day after the company announced that it would sell its Treasure Island property for $775 million, including $500 million in cash. The sale would enhance the company's liquidity position, but market players remain concerned about the company's fate near term.

Freeport boosted by Fed decision

Freeport-McMoRan's bonds remained on the most active list, traders reported, where they have been for more than a week.

"Freeport continues to be the No. 1 most active," a trader said, noting that it was the 8¼% notes due 2015 that made up the bulk of the activity on Tuesday, versus Monday when it was the 8 3/8% notes due 2017.

The trader quoted the 8 3/8% notes at 71.5 bid, 72 offered and saw the 8¼% notes trading all around 73.5.

Another trader agreed that the bonds were "still active," calling the debt "maybe a touch better to unchanged." He saw the 8¼% notes at "74-ish" and the 8 3/8% notes around 72.

Freeport announced in early December that it would halt its dividend program and suspend capital projects as the declining price of metals had hurt the company's bottom line. But Tuesday's federal rate cut from the Federal Reserve might have been the catalyst for the day's activity.

The Fed's cut of the federal funds rate to 0% to 0.25% is the lowest level on record. As banks work to match the rate, borrowers will see costs decline and hopefully boost growth. Meaning, Freeport might now be able to find financing for its projects at much less than they had originally thought.

Freeport is a Phoenix, Ariz.-based copper and gold mining company.

Charter active, moving higher

Trading in Charter Communications was also considered relatively active, traders said, giving the cable provider's bonds a little bit of a boost.

A trader said $16 million of the 8¾% notes due 2013 changed hands, gaining a "teeny bit" to close around 45. Another trader also saw the bonds at that level, calling it 1 to 2 points better on the day. The second trader also saw the 10¼% notes due 2010 "a little better" at 31.

Another source deemed the 8% notes due 2012 more than 5 points better at 66 bid.

Late last week, Charter said it had retained financial advisor Lazard LLC to begin talks with bondholders in an effort to restructure its highly leveraged balance sheet. Following that news, both Moody's Investors Service and Standard & Poor's cut their ratings on the St. Louis-based company.

"Charter's ratings have long reflected a high probability of default and a fundamental mismatch between the company's liability structure and its business model," said Moody's senior vice president, Russell Solomon, in a statement.

MGM bonds better to unchanged

MGM Mirage's bonds were "a little more active," a trader said, just one day after the casino operator announced it would sell its Treasure Island property.

Traders called the 8½% notes due 2010 a couple points better at 74.5 bid, 75 offered, with about $16 million of the issue trading. The 7 5/8% notes due 2017 were pegged at 57 bid, 58 offered, which one source deemed unchanged.

MGM said Monday that it had agreed to sell the Las Vegas Strip property to billionaire Phil Ruffin for $775 million, including a $500 million cash payout. The remaining $275 million will come in the form of 10% secured notes paid in two installments after the deal closes, expected in the second quarter of 2009.

Still, not everyone was altogether excited about the deal.

In a statement released Tuesday, Fitch Ratings said that the outlook remains negative for the casino and hotel operator, although the sale would "mitigate Fitch's concerns regarding near-term CityCenter funding requirements and the $1.3 billion of 2009 debt maturities, provided the company focuses on credit improvement when deploying the capital."

Others were cautiously optimistic about MGM's future, at least near term.

"Given the recent bond issuance and Treasure Island sale, we think MGM will be able to meet its 2009 and 2010 maturities, perhaps with an assist from another asset sale and/or equity issuance," Gimme Credit analyst Kim Noland wrote in a morning report.

Broad market mixed

Among retailers, Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2015 firmed to 29.5 from 27.5 previously. Bon-Ton Stores Inc.'s 10¼% notes due 2014 were softer at 13.

A trader said Ford Motor Co.'s long bonds - the 7.45% notes due 2031 - "moved up but in tiny size, less than $5 million." He said the bonds opened the day at 22 and finished at 24 bid, 25 offered. The trader also saw about $7 million of the 7.80% notes due 2012 trade at 51.5, "right where they were."

Nortel Networks Corp.'s floating rate notes due 2011 closed unchanged to lower around 15.

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