MGM bonds mixed, Wynn notes slip; Rite Aid debt weakens; Clear Channel loan dips post-downgrade

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., March 9 - MGM Mirage remained topical on Monday, as distressed bond traders saw the company's structure ending the day mixed.

Also, Wynn Las Vegas LLC's paper ended the session a tad weaker, as both it and MGM had its stock price targets cut.

In other consumer-related names, Rite Aid Corp.'s notes dropped anywhere from 2 to 6 points, according to traders. There was no real reason for the losses, though a trader did note that the pharmacy chain had delayed a previously planned reverse stock split.

Several rating downgrades were blamed for weakness in Clear Channel Communications Inc.'s term loan. The downgrade came on the back of covenant breach fears.

Overall, traders seemed unenthused about the day's goings on.

"It was a weird day," said one trader, who added that volumes were about $4 million to $5 million below what is considered normal for a Monday session.

MGM mixed, Wynn slips

MGM Mirage's debt, which had been gyrating wildly the previous week, closed Monday's session mixed, traders reported.

One trader called the 6% notes due 2009 2.5 points better at 51.5, while its 8 3/8% notes due 2011 gained more than 3 points to close at 13. But the 6 5/8% notes due 2015 fell nearly 3 points to 34.5.

At another desk, the 6 5/8% notes were also placed at that level.

MGM's bonds began to fall after the company announced it had drawn down the remaining balance of its revolving credit facility. Investors, already concerned about the company's liquidity position, became even more worried when talks with Deutsche Bank - whom MGM had entered into negotiations with to secure financing to complete its CityCenter project - failed and the company also warned that a covenant breach loomed.

Meanwhile, Wynn Las Vegas' bonds fell 1.5 points, a trader said, its 6 5/8% notes due 2014 at 64.5.

On Monday, both MGM and Wynn saw their stock price targets cut by Goldman Sachs. That followed contradictory news from the weekend in which Barron's called Wynn one of the top stocks to own for the long haul.

Rite Aid bonds weaker

A trader called Rite Aid's bonds 5 to 6 points weaker on the day, but he was unsure what had caused the move.

The trader quoted the 10 3/8% notes due 2016 at 49 bid, 50 offered, the 9½% notes due 2017 at 18 bid, 19 offered and the 7½% notes due 2017 at 39 bid, 40 offered.

Another source placed the 8 5/8 notes due 2015 at 20 bid, nearly 2 points cheaper.

The first source said he was not sure why the bonds lost so much ground and doubted that it could be a delayed reaction to the company's same-store sales figures released last week. He also noted that the company announced it would delay a reverse stock split.

"It must be somebody that's just blowing out of them," he said of the Camp Hill, Pa.-based company's debt.

Elsewhere in the world of retailers, Dillard's Inc.'s 7 1/8% notes due 2018 advanced 2 points to 32.5 bid, despite posting a fourth-quarter net loss of $149.3 million, or $2.03 per diluted share, on Friday. That compared with a profit of $47.3 million the year before.

Neiman Marcus Group Inc.'s 10 3/8% notes due 2015 dropped more than a point to close at 32.5 bid.

Clear Channel softens

Clear Channel Communications' term loan softened up during market hours as Moody's announced that it cut several of the company's ratings, according to a trader.

The term loan was quoted at 35 bid, 37 offered, down from Friday's levels of 37 bid, 39 offered, the trader said.

On Monday, Moody's downgraded Clear Channel's corporate family rating to Caa3 from B2, senior secured credit facilities to Caa2 from B1 and all senior unsecured notes to Ca from Caa1. The outlook was revised to negative.

Moody's explained that the downgrade reflects the belief that there is a high probability that the company will violate its secured 9.5 times leverage covenant this year, and that when this occurs, a debt restructuring will be likely.

"With a capital structure that was highly speculative from its inception, the company's ability to continue as a going concern is completely dependant upon remaining in compliance with its covenants," Neil Begley, senior vice president of Moody's, stated in the ratings release.

"But in the current economic environment, compliance will be very challenging, and as a result, such a capital structure will not likely be sustainable," Begley added.

According to Moody's, there are three possible scenarios for Clear Channel, with the highest probability associated with the first two that reflect a covenant breach, and both leading to certain debt restructuring.

The first consists of the senior secured bank debt holders forcing an immediate restructuring to eliminate additional capital leakage to fund more than $320 million of annual junior debt holder cash interest repayments as well as about $384 million of junior debt maturities in 2010.

The second scenario consists of the company successfully receiving a waiver of its covenant breach or covenant relief via an amendment. Moody's expects that in this situation, the company would likely be given only limited relief of the covenant and could require a second request within a few quarters. Also, there would be a significant cash fee paid to the banks, and an upward adjustment in pricing on the first amendment request, as well as on subsequent requests.

The third scenario, which Moody's believes has a low probability of occurring, assumes that the company does not violate its bank agreement covenant. In this case, even though the company still faces nearly $3 billion of debt maturities through 2013, it should have sufficient cash to meet these maturities. However, 2014 maturities are very significant and would likely require the company to possess materially lower leverage in order to be able to refinance them.

Clear Channel is a San Antonio-based media and entertainment company.

Broad market mostly lower

Uniform provider Aramark Corp.'s 8½% notes due 2015 fell another point, two traders said, dipping to the 84 level. Traders have seen the bonds moving around in decent size for some time - at one point, the bonds had lost a good 10 points in a day - but there seems to be no explanation for the movement.

One trader speculated that investors might not be optimistic about the company's performance, given its somewhat consumer-related business.

Motorola Inc.'s debt got as good as 6 points better in the day, a trader said, though, again, there was no reason for the move. The trader saw the 6 5/8% notes due 2037 at 65, up 6 points, while the 7½% notes due 2025 closed at 62.5.

Capmark Financial Group Inc.'s 6.3% notes due 2017 ended "a little bit lower," according to a trader, at 14 bid, 15 offered.

Freescale Semiconductor Inc.'s term loan gave up some ground on Monday with increased selling named as the culprit behind the move being that there was no credit specific news seen, according to traders.

The term loan was quoted at 35 bid, 40 offered, down about a point on the day, traders remarked.

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