CIT remains the focus, bonds softer; TXU debt exchange spurs gyrations; Nortel notes unchanged

By Stephanie N. Rotondo

Portland, Ore., Oct. 5 - CIT Group Inc. remained the focus in distressed trading, traders reported Monday.

The company's bonds continued to see declines, as some in the know advised bondholders to divest their CIT holdings, or else approve a potential pre-packaged bankruptcy filing. Still, sources noted that volume was lighter than on Friday.

Meanwhile, Energy Future Holdings Corp. announced a debt exchange offer for seven series of notes, or a little more than $12 billion principal amount. In reaction, the bonds were seen first moving higher, only to come back to end lower to unchanged on the day.

Also, Nortel Networks Corp.'s bonds saw some interest, as the company announced it was in talks with a buyer for its Ethernet unit.

Overall, the market seemed to be firmer than it was during the last few trading sessions of the previous week, but traders were still seeing some weakness.

CIT remains focus, bonds softer

The "focus is still on CIT [Group]," a trader said Monday.

CIT bonds continued to dominate trading, though the trader added that the debt was not as heavily traded as it was Friday. Still, paper was "a little softer" to about unchanged.

The trader said issues maturing in November fell to around 73, while longer issues - specifically 2014 through 2016 maturities - ended in the 64 bid, 65 offered "ZIP code."

At another desk, a trader said the 6.1% hybrid notes due 2067 remained the name's "most active," trading basically unchanged in a 9 bid, 11 offered context. The 4¾% notes due 2010 ended at 65 bid, 66 offered, compared with 66 bid, 68 offered previously.

"So they look off a little more," the second trader said.

Last week, the struggling New York-based lender said it would conduct a debt exchange for "certain unsecured notes." The company wants to cut its debt by at least $5.7 billion, it said in a press release.

However, in a move that might be a harbinger of things to come, CIT also sent out a pre-packaged bankruptcy plan, soliciting votes in case the debt swap was not successful in reaching the $5 billion goal.

On Monday, other market players started to weigh in. CreditSights Inc., for one, advised bondholders to sell their holdings, as the investment research firm saw "very little hope" for the exchange.

"Currently CIT's interest expense is too high, it cannot borrow economically to fund new business, and its liquidity is stressed," wrote CreditSights analysts Adam Steer, David Hendler and Jesse Rosenthal in an Oct. 4 report. "After digging through the details of the exchange offer and subsequent liquidity plans, we believe CIT's plan has very little hope of succeeding."

However, should bondholders choose to keep their holdings, the analysts advised accepting the prepackage option.

In other CIT news, the company is reportedly looking to amend terms of its $3 billion loan with Goldman Sachs Group Inc. Under the current terms, Goldman will receive $1 billion in the event of a bankruptcy filing.

CIT is also looking to alter a $3 billion loan received from a group of bondholders in July. Reports indicate that CIT is looking for the group to provide additional funding that could also be used as debtor-in-possession funding.

TXU debt swap causes gyrations

Though traders saw investors focusing on CIT Group, they noted that Energy Future - more commonly known as TXU Corp. - was a close second.

One trader said the 10 7/8% notes due 2017 was "the most active bond" overall. The issue opened around 75, only to fall back to around 69. That compares with 72 bid, 73 offered on Friday, he said.

Another trader also saw the 10 7/8% notes opening at higher levels and then coming back to end 2 to 3 points lower around 70. The 10¼% notes due 2015, however, ended unchanged around 68, though it had gotten as good at 71.5.

The gyrations in the bonds came as the debt-laden company announced a tender offer for its outstanding bonds. The company intends to exchange the debt at a discount.

Under the terms of the deal, TXU will exchange seven series of notes, including the 5.55% notes due 2014, the 6½% notes due 2024, the 6.55% notes due 2034, the 11¼%/12% toggle notes due 2017, the 10 7/8% notes and the 10¼% notes.

All told, that is more than $12 billion in notes.

To fund the offer, TXU is planning to issue up to $4 billion in new secured notes.

But the news did little to give the name a credit boost. Fitch Ratings, for example, said that its rating on TXU was likely to stay the same, as the offer applied to only about 5% of the company's total debt. Moody's Investors Service meanwhile dropped the company to Ca from Caa1.

TXU was acquired by KKR & Co. and TPG Inc. in a leveraged buyout - during the time when leveraged buyouts were still fashionable. The company was then forced to languish under the debt burden assumed in the buyout and declining energy prices further created financial challenges.

Some estimates have TXU's total debt around $45 billion, including $22.4 billion of debt - loans and bonds - that mature in 2014.

Energy Future Holdings is a Texas-based power producer.

Nortel unchanged

Nortel Networks "seemed to be a little better," a trader said, with "a lot of activity - but there's always activity in that."

He quoted the company's 10¾% notes due 2016 around 59 to 60, adding that "they've been there the last few days - but there was a lot of volume. Nortel had a lot of activity.

"Usually, if that one is active, the others [in Nortel's capital structure] will probably be active too," he said.

On Monday, Ciena Corp. confirmed that it was in talks with Nortel to buy its Ethernet business.

Nortel is a Toronto-based technology company.

Broad market mixed

Elsewhere in the distressed marketplace, General Growth Properties Inc.'s 7.2% notes due 2012 inched up a tad to 87.25, compared with 86.5 on Friday. A trader added that there was "not much trading."

Blockbuster Inc.'s 9% notes due 2012 "continued to get softer," a trader said. He pegged the notes at 58 bid, 59 offered.

Paul Deckelman contributed to this article.

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