CIT amends tender offer again; Capmark all over the place; FairPoint stronger despite filing

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Oct. 26 - Monday's distressed debt market started the week off with a bang, as CIT Group Inc. and Capmark Financial Group Inc. dominated headlines.

CIT was in the news yet again, as the company amended its tender offer for a second time. The new terms increase the yield and extend the deadline for CIT's Canada-linked issues and that paper reacted positively. But not all of the issues were so favorable.

Also, Capmark announced it had filed for bankruptcy, ending months of speculation. Traders deemed the company's debt - corporate and bank - mostly better on the day.

FairPoint Communications Inc. was also among the day's bankruptcy filers. Like Capmark, the company's structure headed for higher ground following the news.

Bust despite the onslaught of news, some traders were surprised by the amount of activity in the overall marketplace.

"This was an unbelievably nothing day," said a trader, who noted that overall volume in the high-yield market "just got over $1 billion." He said that, on average, that was about $1 billion less than usual.

CIT amends offer...again

CIT Group once again revised its tender offer for "certain unsecured notes," as the original offer deadline loomed.

The news caused some gyrations in the new York-based lender's debt, however. One trader said the short paper, such as the 4.65% notes due 2010, gained 2 to 3 points, ending around 93.5. But longer issues, like the 5.20% notes due 2015, were "down a hunk" around the 83 mark.

The trader was also amazed at the volume in the name, which was lower than he expected.

"I would have thought there would have been more trading in CIT," he said, adding that there were "a lot of onesies and twosies."

At another desk, a trader said it was the Canadian paper that was up big, as much as 5 points on the day. He pegged the 4.65% notes at 93.5 bid, 94 offered.

The trader noted that CIT was "not doing much outside of those Canadians."

Another trader called CIT Group "the big player today," seeing the company's 7 5/8% notes due 2012 having "moved up a few points." He quoted them 3 points higher at 64 to 65, on "a lot of volume."

Among the shorter issues, he saw them "right around" a 69 to 70 context, which he called "pretty much unchanged, but also on good volume."

Among the CIT Group Funding Corp. of Canada bonds, the trader saw the 4.65% "active," and up about 3 points, around 93 bid, 94 offered. He said there was "a lot of volume."

CIT, he summarized, had pretty good volume across the capital structure, but it was the somewhat longer issues, rather than the short-date paper maturing the remainder of this year, which went up.

In a move likely aimed at increasing bondholder participation, CIT sweetened its tender offer aimed at eliminating at least $5.7 billion in debt.

Under the amended terms of the deal, CIT raised the interest rate on unsecured Canadian issues to 10¼% from 9%. Holders of those issues also have more time to tender their holdings. The new expiration is Nov. 5, moved from the original deadline of Oct. 29.

The deadline for all other non-Canadian-linked issues will remain Oct. 29.

CIT is also reported to be looking to increase its secured credit facility, according to a regulatory filing.

In other CIT news, the hits kept coming as it was learned that Susan Lyne, a member of the board of directors, was resigning, effective Oct. 31. Lyne said increased time demands were the reason behind her departure.

Lyne is not the first to jump ship since the company entered this restructuring process. Jeffrey M. Peek, chief executive officer, will leave his post by Dec. 31.

Capmark debt all over the place

Elsewhere in the financial realm, Capmark Financial Group announced it had filed for Chapter 11, sending its debt on a ride.

Traders seemed surprised at the movement in Capmark's bonds, which were quoted higher post-bankruptcy news. One trader said about $30 million of the 5 7/8% notes due 2012 traded "up fractionally" around 22.

But another trader placed the debt generically at 21.5 bid, 22.25 offered, up 2 to 4 points, depending on the issue.

Another trader said that besides CIT, "there also was a lot of activity" in Capmark paper. He quoted its bonds "right around" 21.5 to 22.25, and declared that they were "quoted actively all day - probably hundreds of millions [of dollars] of it traded."

He said that all three issues - the 5 7/8% notes, the floating-rate notes coming due next May, and the 6.30% notes due 2017 were "right in that 21.5 to 22.25 range, on decent-sized trading. They converged" following the lender's Chapter 11 filing.

Meanwhile, Capmark's roll-up loan was stronger and its unsecured term loan was quoted all over the place.

The roll-up loan was quoted by one trader at 70 bid, 71 offered, up from 68.5 bid, 69.5 offered. And, this trader was quoting the unsecured term loan at 26 bid, 27 offered, up from 25.5 bid, 26.5 offered.

However, a different trader was quoting the unsecured term loan lower on the day at 25 5/8 bid, 26.625 offered, versus 25.75 bid, 26.75 offered on Friday.

Capmark said that it intends to use the reorganization process to implement a restructuring that reduces its corporate debt and maximizes value for its stakeholders.

"We view this reorganization process as an unfortunate but necessary response to recent unprecedented conditions in financial and commercial real estate markets, which presented a significant challenge for Capmark and similarly situated finance companies. By constraining the availability of capital, these difficult market conditions had a negative effect on all our core businesses," said Jay Levine, president and chief executive officer, in a news release.

As of Oct. 23, Capmark and its filing subsidiaries had in excess of $500 million of cash and cash equivalents available to fund its operations. As a result, the company believes that it has sufficient current liquidity to continue to satisfy customary obligations associated with ongoing operations of its business.

On the news, Standard & poor's lowered its rating on the company to D from CC.

"The rating action follows the firm's announcement yesterday that it had filed for Chapter 11 bankruptcy protection," said credit analyst Jeffrey Zaun in a statement. "The bankruptcy filing will entail a default on substantially all of the firm's rated debt."

Not included in the filing are Capmark Bank and certain of its affiliates, mostly related to its foreign business units.

Capmark is a Horsham, Pa.-based commercial real estate finance company.

FairPoint strong despite filing

Among other new Chapter 11 filers, FairPoint Communications' entered those ranks as well Monday, and its debt also reacted by moving higher.

A trader said the 13 1/8% notes due 2018 opened the day around 11.5 bid, 12 offered, but by the end of business - and post-news - they had moved up to around 15.

Another market source quoted the paper at 14.5 bid, 15.5 offered.

At another desk, a trader said that Fairpoint "was another name quoted all day long," following its Chapter 11 filing. He saw its 13 1/8% notes due 2018 "quoted a lot" around 14 to 15, with "decent trading."

Still, he added, there were "more quotes than trades."

FairPoint Communications' term loans also gained some ground in trading as the company announced that it has reached a financial restructuring plan with lenders holding more than 50% of the outstanding debt under its secured credit facility and therefore filed for bankruptcy, according to traders.

The term loan B was quoted by one trader at 83.5 bid, 85.5 offered, up from 80.5 bid, 82.5 offered on Friday, and by a second trader at 82.25 bid, 83.25 offered, up from 81 bid, 83 offered.

And, the term loan A was quoted by the first trader at 83.5 bid, 85.5 offered, up from 82.5 bid, 83.5 offered.

Under the plan, approximately $1.1 billion of debt under the credit facility would be converted into equity, transferring 98%, and in certain circumstances, 100% of the equity ownership of the company to the secured lenders.

Other terms of the plan are still being negotiated, but the company's approximately $570 million senior notes due 2018 as well as other unsecured creditors will be converted into equity ownership of the company equal to approximately 2% and will be issued warrants to purchase up to 5% of the ownership interest.

FairPoint's restructuring plan also provides for a new $1 billion five-year secured term loan that is priced at Libor plus 450 bps with a 2% Libor floor.

Amortization is $10 million in each of the first two years and $50 million in the third year following emergence from Chapter 11, with increasing annual amortization amounts thereafter through maturity.

In addition, the company has received commitments for a $75 million debtor-in-possession revolving credit facility to ensure sufficient liquidity during the Chapter 11 process.

Upon emergence from bankruptcy, the DIP revolver will convert into a $75 million five-year revolver.

The restructuring plan is expected to reduce the company's debt to approximately $1 billion from its current level of nearly $2.7 billion, which includes accrued interest and amounts owed under its interest rate swap agreements.

"The day-to-day operations of our business will not be impacted by today's actions," said David Hauser, chairman and CEO of FairPoint, in a press release announcing the action.

"We want to assure our customers, employees and vendors that we remain committed to continuing to provide reliable, uninterrupted service to all of our customers. Today's actions represent a critical and positive step in our efforts to reduce our indebtedness, strengthen our financial condition and position FairPoint to compete more effectively in a dynamic marketplace."

FairPoint is a Charlotte, N.C.-based provider of communications services.

Paul Deckelman contributed to this article.

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