MGM loans, bonds fall on revolver draw; Freescale action light amid exchange updates; Financials mixed

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Feb. 27 - As the month drew to a close, MGM Mirage's debt was once again on the weaker side, traders reported Friday.

The gaming company's term loan dropped about 3 points, while the bonds fell anywhere from 5 to 10 points. The declines came on the back of news that the company had drawn down its revolving credit facility, thereby creating concern about the company's liquidity position.

Elsewhere, Freescale Semiconductor Inc. issued yet another update on its exchange offer. But market players did not see the announcement making all that much difference in the company's debt structure.

Still, distressed bond traders said it was not the "usual suspects" that were dominating trading, but the higher financials such as SLM Corp. - better known as Sallie Mae - and Capmark Financial Group Inc. Citigroup Inc. was also on the day's active list.

MGM loans, bonds fall

MGM Mirage's term loan was seen as being down during market hours following news of a revolver draw, a trader told Prospect News, stressing, however, that since the paper was not really trading, the lower levels were just quotes.

The term loan was quoted at 44 bid, 46 offered by the trader who said that he even saw levels as wide as 42 bid, 46 offered. On Thursday, the loan went out around 47 bid, 51 offered.

In the bonds, a trader called the casino operator's debt "well off its highs," the 6% notes due 2009 trading around 70.

Another trader quoted the 8½% notes due 2010 at 45 bid, 46 offered, down from around 55.

"So those are down pretty good," he said.

Yet another source deemed the 6 5/8% notes due 2015 6 points weaker at 40 bid.

In an 8-K filed with the Securities and Exchange Commission on Friday, MGM Mirage said that it borrowed the remaining $842 million under its $4.5 billion senior revolving credit facility on Feb. 26.

Proceeds from the draw will be used for general corporate purposes.

Also on Friday, both Moody's Investors Service and Standard & Poor's cut MGM's ratings.

Moody's downgraded MGM Mirage's corporate family rating to B3 from B1 and left the rating on review for further possible downgrade to reflect the difficulty the company faces in shoring up its liquidity profile.

Moody's said that it estimates that internally generated cash, net proceeds from the pending sale of Treasure Island together with the revolver draw and cash on hand will be barely sufficient to fund the MGM Mirage's operations - including its CityCenter obligations - and required bond maturities through year-end 2009.

Meanwhile, S&P downgraded lowered its corporate credit rating on MGM Mirage to B- from B+ and left the rating on CreditWatch with negative implications.

"The downgrade reflects heightened concerns around MGM Mirage's liquidity position and our expectation for meaningful deterioration of credit measures over the next several quarters, given our projection for substantial declines in EBITDA during 2009," S&P analyst Ben Bubeck said in the rating release.

In its ratings announcement on Friday, S&P remarked that it anticipates the company's newly announced revolver draw to drive a covenant violation in the current quarter.

"Based on our projection for EBITDA declines of 25% in 2009, and assuming that proceeds from the revolver draw will be sufficient to meet 2009 bond maturities, we project leverage to exceed 10x by the end of 2009 and EBITDA interest coverage to be less than 1.5x on a run rate basis. We are also projecting only a modest rebound in cash flow generation in 2010," S&P explained.

Furthermore, the agency said that MGM Mirage continues to face funding needs for its CityCenter project.

"Given its current liquidity position, MGM Mirage's ability to meet its 2010 bond maturities and continue to fund the development of CityCenter is in doubt, absent a meaningful equity infusion or additional asset sales. Moreover, it is unclear at this point how the bank group will respond to a covenant violation," S&P added.

MGM is a Las Vegas-based owner and operator of casino resorts.

Freescale action light

Freescale Semiconductor's term loan saw its bid weaken but its offer firm after the company came out with a new update on its exchange offer, according to a trader.

The term loan was quoted wide at 40 bid, 45 offered, compared with Thursday's closing levels of 42 bid, 44 offered, the trader said, adding that there wasn't a whole lot of activity in the name.

"These updates don't really matter. Everyone knows what's going on," the trader concluded.

Over in the corporate debt, a trader said about $3 million of the floating-rate notes due 2014 traded at 17.

"And that was it in the bonds," he said.

On Friday morning, Freescale announced that as of the close of business Thursday, it had received commitments with respect to approximately $2.95 billion aggregate principal amount of the existing notes.

Based on the amount of commitments delivered, the company would get an approximately $703 million new incremental term loan.

After the initial expiration of the early commitment deadline earlier in the week, the company had received commitments with respect to approximately $2.89 billion of notes, which translated into a roughly $694 million incremental term loan.

This early commitment deadline had been extended to Thursday and now it has been extended again, this time to March 10, the previously announced termination date.

As was previously reported, Freescale has invited holders of its senior floating-rate notes due 2014, 9 1/8%/9 7/8% senior pay-in-kind notes due 2014, 8 7/8% senior fixed-rate notes due 2014 and 10 1/8% senior subordinated notes due 2016 to exchange their bonds for an up to $1 billion incremental term loan.

The incremental term loan due Dec. 15, 2014 will carry pricing of 12.5%, and will be guaranteed by the same guarantors under the company's senior secured credit facility.

Up to $250 million of the senior PIK-election notes, which are priority one, and up to roughly $746 million of the senior subordinated notes, which are priority two, can be swapped for the new term loan debt.

The senior floating-rate notes are acceptance priority three, and the senior fixed-rate notes are acceptance priority four. Maximum amounts for swaps of these notes are not available.

The company's existing credit facility lenders were invited to participate in the new loan as well, but declined, which is not surprising given that the incremental term loan is dilutive to bank holders.

Freescale is an Austin, Texas-based designer and manufacturer of embedded semiconductors for the automotive, consumer, industrial, networking and wireless markets.

Financials dominate, mixed

Though technically considered investment-grade, financials such as Sallie Mae, Capmark Financial and Citigroup were making the rounds on distressed desks, traders reported.

Sellers had put considerable pressure on Sallie Mae's bonds on Thursday, after President Barack Obama said he wanted to end government subsidies to private student loan lenders. Come Friday, traders saw buyers coming in. As such, the debt ended the session a tad better.

A trader quoted the 4% notes due 2010 and the 4½% notes due 2010 at 84 bid, 85 offered and 81 bid, 82 offered, respectively.

"That's a little bit better, but still well of from Monday levels," he noted.

Also on Friday, Moody's said it might cut the company's rating, given that Obama's remarks create uncertainty about the company's future.

Meanwhile, Capmark's 5 7/8% notes due 2012 dropped further following the company's fourth-quarter results forecast on Thursday. A trader pegged the issue at 22 bid, 23 offered, down from 23 bid, 24 offered.

Capmark's debt had fallen as much as 6 points during Thursday trading after the company said it might post a pretax loss of $800 million for the quarter. Capmark also warned that its debt-to-earnings ratio might not be met, which could lead to a default under its loan agreement.

Over at Citigroup, word that the company's recent government bailout plan did not do away with dividends on its preferreds helped the company's 8.3% trust preferreds gain some ground. A trader placed the issue in the 46 range, with about $100 million or more trading.

Under the terms of the bailout, the U.S. government will purchase $52 million of the company's regular preferreds. A portion of those can be converted to the trust preferreds.

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