Six Flags bonds decline as bankruptcy chatter grows; Harrah's debt structure mixed following numbers

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., March 13 - Friday the 13th served to be somewhat unlucky for distressed bond traders, as many reported that trading volumes overall were down significantly.

One trader said that total volume was barely at $800 million, down from volumes around $1 billion typically.

Bankruptcy chatter gained momentum for Six Flags Inc., market sources said. The company's annual report indicated that a filing loomed as it expected to be unable to pay an upcoming maturity. As such, investors put pressure on the debt, which fell as much as 6.5 points on the day.

Meanwhile, Harrah's Entertainment Inc. reported fourth-quarter results on Friday. But despite the weak figures, the company's term loan gained strength. Its bonds, however, remained unchanged.

Six Flags slides

Amusement park operator Six Flags saw its bonds fall as much as 6.5 points on the day as bankruptcy fears grew.

One trader called the 9 5/8% notes due 2014 "down another couple points" at 11.375. Another placed the bonds around 11, down from 14 previously and from 16 just last week.

At another desk, a source deemed the bonds 6.5 points weaker at 10.5 bid.

Earlier in the week, Six Flags put out its 10-K, which stated that if the company was unable to reach a restructuring deal soon, a bankruptcy filing could be imminent.

The issue causing the commotion is the company's upcoming Preferred Income Equity Redeemable Shares maturity. The Piers mature on Aug. 15. Currently, there is $287.5 million of the shares outstanding. Six Flags must redeem the notes by the maturity date - including accrued and unpaid interest, which is expected to be about $31.3 million - or else face a default. That in turn could allow lenders of other outstanding debt to demand repayment.

Should a filing occur, Six Flags said it would be "well in advance" of the August due date.

Furthermore, Moody's Investors Service cut Six Flags' rating further into distressed territory - the probability-of-default rating dropped to Ca from Caa2 - citing the likelihood that the company will not be able to fund the Piers maturity and the New York-based company would therefore be in default.

Harrah's structure mixed

Harrah's Entertainment's term loan B debt posted some gains during market hours as it was buoyed by the positive momentum in cash in general - which was better by around a half a point to a point - and unfazed by weak quarterly results, according to a trader.

The company's term loan B debt was quoted at 55 bid, 59 offered, up a point from 54 bid, 58 offered on Thursday, the trader said.

In the bonds, traders reported that the debt closed the week unchanged.

One trader placed the 10¾% notes due 2016 at 18, calling that "right where it has been." Another quoted the same issue at 17 bid, 18 offered, which he said was "about the same."

For the fourth quarter, Harrah's reported a loss from operations of $5.348 billion, down from income from operations of $145.8 million in the fourth quarter of 2007.

Loss from continuing operations for the quarter was $4.784 billion, down from a loss of $56.1 million in the previous year.

The fourth quarter loss reflects a $5.49 billion charge for impairment of goodwill and other intangible assets that are not subject to amortization.

Other factors affecting fourth quarter results, according to Harrah's, included increased interest expense and turbulent economic conditions in the United States that have led to reduced customer visitation and spend at the company's casinos.

Total revenues for the quarter were $2.278 billion, down 13.3% from $2.628 billion in 2007.

The Las Vegas-based casino company also revealed in its earnings release that adjusted EBITDA for the quarter was $453.6 million, down 26.6% from $618.1 million in the previous fourth-quarter period.

"While the faltering economy that's affecting virtually every business in America was the primary factor in the impairment charge and continued to impact our operating results during the fourth quarter, we ended the year with some significant accomplishments," Gary Loveman, chairman, president and chief executive officer, said in a news release.

"During the year, we reduced labor and marketing costs substantially and completed two of the largest capital projects in the company's history, putting the bulk of our planned capital-spending activities behind us.

"In December 2008, we completed an exchange offer that enabled us to reduce our overall principal debt from the 2008 third-quarter levels by approximately $1.16 billion, and we subsequently launched a second exchange offer this month in an effort to reduce the outstanding debt of Harrah's Operating Co. and extend the maturity of that debt," Loveman continued.

"As we move into a year likely to present continuing economic challenges, we are focused on the need to remain flexible in our staffing and marketing requirements and to be nimble in responding to changes in customer and competitor behavior," Loveman added in the release.

Also, news reports have indicated that Harrah's owners, Apollo Management LP and TPG Inc., have been buying up pieces of the company's debt. Speculation is that the private equity owners want to be able to control what happens in a potential bankruptcy filing.

Elsewhere in the sector, Wynn Las Vegas LLC's 6 5/8% notes due 2014 continued to climb, ending the day at 71, with about $20 million trading, a trader said.

Isle of Capri Casinos Inc.'s 7% notes due 2014 gained 2.25 points to close at 48 bid, while MGM Mirage's 6 5/8% notes due 2015 gained 1.25 points to 40 bid.

Broad market ends better

A trader said Sprint Nextel Corp.'s bonds were 4 to 5 points better over the week. He saw the 6% notes due 2016 a 65, versus 63 the day before. The 8 3/8% notes due 2012 closed at 81 bid, 82 offered, up from 79.

TXU Corp.'s 10¼% notes due 2015 gained a couple points, a trader said, though he added he did not know why. He pegged the bonds at 51 bid, 52 offered.

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