United Rentals hurt by new debt; Good numbers help Trump; Homebuilders slip on downgrades

By Stephanie N. Rotondo

Portland, Ore., June 10 - United Rentals Inc. was the name of the day Tuesday after the company announced a stock repurchase plan.

The company also announced it had bought back all of its preferred shares, giving shareholders new debt in exchange for their equity. But bondholders did not react too well to the addition of more debt to the capital structure, and the company's bonds fell as much as 3 points.

Atlantic City casinos had a "decent" month in May, according to the state gaming commission's monthly report. Trump Entertainment Resorts Inc.'s bonds were boosted as a result. Among other names in the sector, the results were somewhat mixed.

Downgrades across the sector put pressure on struggling homebuilders. Among them, Standard Pacific Corp. fell a point during the session. Overall, the sector was mostly lower, falling a quarter-point to a point.

New debt hurts United Rentals bonds

A stock repurchase plan sent United Rentals' bonds downward as bondholders turned squeamish at the idea of adding new debt to the structure.

A trader called the equipment rental company's bonds down 1.5 points on the day, the 7% notes due 2014 at 79 bid, 80 offered, the 6½% notes due 2012 at 91 bid, 92 offered and the 7¾% notes due 2013 at 82.5 bid, 83.5 offered.

At another desk, a trader pegged the 6½% notes at 91 bid, 91.5 offered, while another saw the 7% paper around 80, down 3 points.

Yet another source called the debt down a trey, the 7¾% notes at 82.5 bid, 84.5 offered.

The Greenwich, Conn.-based company announced Tuesday that it plans to buy back just over 27 million shares of its common stock through a modified Dutch auction. It also said it is has repurchased all of its preferred stock, in exchange for new 14% notes due 2014.

But while stockholders boosted the equity on the news, bondholders did not react as favorably.

"It's good for the stockholders, but not the bondholders," said one trader. "They are buying back something below the bonds."

The trader added that the plan could also hurt the company's liquidity position.

"[Bondholders] would prefer them to use liquidity to delever or buy back some senior bonds," he said.

On the news, Standard & Poor's placed the company on CreditWatch with negative implications. Moody's Investors Service affirmed its corporate ratings on the company but lowered its speculative-grade liquidity rating. Moody's also lowered the outlook to negative from stable.

Analysts at Gimme Credit LLC also downgraded the outlook to stable from improving. In a morning report, analyst Shelly Lombard warned of such "shareholder-friendly" plans, such as the repurchase, as it would put further weight on the bonds - a move viewed as unwise given conditions in the construction arena.

Meanwhile, Neff Corp.'s bonds fell during trading, though activity was light. A trader quoted the 10% notes due 2015 at 44.5 bid, 45.5 offered, down 1.5 points. Another saw the bonds at 43 bid, 45 offered.

Trump boosted by 'decent' numbers

Trump Entertainment's bonds got a boost on the back of what one trader called "decent numbers" from the New Jersey Casino Control Commission.

A trader quoted the 8½% notes due 2015 at 68.25 bid, 68.75 offered versus previous levels of 67 bid, 68 offered. Another placed the bonds at 68.25 bid, 68.5 offered.

"They have quietly moved up over the last three or four days," the second trader said. "This time last week, they were 66.5 [bid], 67 [offered]."

Elsewhere, a trader called the paper "a little better, up about a point" at 68.5 bid, 69 offered. Yet another source said "good numbers" earned the bonds a point, to close at 68.5 bid, 69.5 offered.

Unlucky casino patrons lost $415.3 million in Atlantic City during May, a 1.6% increase from the month prior. A bulk of that was lost at the slots, though slot revenue declined 9.5%.

In the rest of the gaming arena, casinos ended the session mixed. Harrah's Operating's 10¾% notes due 2016 closed at 86 bid, 86.25 offered, essentially unchanged. Tropicana Entertainment LLC's 9 5/8% notes due 2014 were also holding steady around 55, despite news that the company's top executive was being forced out by disappointed creditors.

MGM Mirage's 6 5/8% notes due 2015 moved up slightly to 85.25 bid, while Isle of Capri Casinos' 7% notes due 2014 fell a point to 75.5 bid. Station Casinos bonds were likewise lower, though just by a quarter point at 84 bid.

Downgrades hurt homebuilders

A trader said the homebuilding sector had a "knee-jerk reaction" to a series of ratings cuts from Moody's and Fitch Ratings.

The trader said the sector by and large fell about a quarter of a point, adding that the ratings agencies did affirm some ratings, but mostly downgraded.

Distressed names lower included Standard Pacific's 9¼% notes due 2012, which a trader saw fall a point to 77 bid, 79 offered. Bucking the trend, Hovnanian Enterprises Inc.'s 6½% notes due 2014 managed to gain a point to close at 69 bid, 70.5 offered.

On Monday Moody's downgraded Pulte Homes, Inc., Centex Corp., KB Home, D.R. Horton, Inc., Lennar Corp. and Ryland Group, Inc. Fitch followed on Tuesday with cuts to D.R. Horton, Inc., Centex Corp., Ryland Group, Inc., Pulte Homes, Inc., Beazer Homes USA, Inc., Meritage Homes Corp., M/I Homes, Inc. and Lennar Corp. plus affirmations for Hovnanian Enterprises, Inc., KB Home, MDC Holdings, Inc. and Toll Brothers, Inc.

"The downgrade reflects the current difficult housing environment and Fitch's expectations that housing activity will be even more challenging than previously anticipated during the balance of calendar 2008 and that new home activity will still be on the decline well into 2009," Fitch said in a statement.

For April, the National Association of Realtors' index of future home sales increased 6.3% as prospective buyers took advantage of decreasing home prices.

Autos, retailers lower

In the autosphere, Delphi Corp.'s bonds slipped back to the high-30s, a trader said, pegging the debt at 39 bid, 40 offered. Another source called the bonds down anywhere from 1.5 to 2.5 points during the session to around 39.

Metaldyne Corp.'s paper was also weaker, its 11% notes due 2012 at 30 bid, 32 offered, down a deuce.

Retailers also did not fare too well. Claire's Store Inc.'s 9¼% notes due 2014 lost as much as 2 points to 66 bid, 68 offered, while Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2014 were 1.5 points lighter at 83.5 bid, 85 offered.

Linens n'Things Inc.'s floating-rate notes due 2014 ended softer at around 40.

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