Chemtura slides on Chapter 11; auto-parts makers mostly quiet despite bailout; MGM shrugs off Moody's cut

By Paul Deckelman and Sara Rosenberg

New York, March 19 -- Chemtura Corp. became the latest beleaguered U.S. chemical maker to seek Chapter 11 protection, sending the Middlebury, Conn.-based company's bonds down several points in fairly active trading.

The news that the Treasury Department will step in to help the ailing automotive supplier companies was mostly greeted by yawns as that step had been expected. Traders saw no real lift in most auto parts makers' bonds.

Ford Motor Co.'s term loan was meantime seen better in connection with the expiration of the Dearborn, Mich.-based carmaker' tender offer for some of that loan debt. However, its bonds were largely steady. Little impact on either loans or bonds was seen by the news that Ford had augmented its capital position with a nearly $3 billion asset-backed security sale.

MGM Mirage's term loans were seen former and its recently actively traded bonds at least steady, with investors apparently not much fazed by a Moody's Investors Service downgrade of the Las Vegas-based casino giant's credit ratings.

Chemtura clobbered after bankruptcy filing

A trader declared "another one bites the dust" on the news that Chemtura Corp. had sought protection from its junk bond holders and other creditors via a Chapter 11 filing with the U.S. Bankruptcy Court in Manhattan on Wednesday. Chemtura thus becomes the latest in a string of U.S. chemical companies to seek court protection, Including Lyondell Chemical Corp., now a unit of LyondellBasell SA, and Tronox Inc.

Chemtura said that it had received a commitment for up to $400 million in debtor-in-possession financing from administrative agent Citibank, NA, enabling it to conduct its usual business during its restructuring. The filing only covered Chemtura and 26 U.S.-based affiliates, with the company's non-U.S. operations not included in the filing.

A trader saw Chemtura's 6 7/8% notes due 2026 trading between 16 and 17, with the last bid at 16.25, down from levels around 18 earlier in the week, "so there was some activity in that." Those bonds had originally been issued by one of Chemtura's predecessor companies, Witco.

He saw the 7% notes slated to come due on July 15 which were originally issued by another Chemtura ancestor, Great Lakes Chemical Corp., at 19 bid, which he called "down an awful lot" from its last previous trade earlier in the week, "in the 40s." He said that "these things don't trade every day, but today the 7s traded between 17 and 22" before going home at 19.

But clearly the most active of the company's issues was its own 6 7/8% notes due 2016. The trader quoted them at 26 bid, 26.75 offered going home, after having traded in a 26-27 context for most of the day, "and a lot of transactions."

Before the bankruptcy news, he said the bonds had been about 3 points higher, in the upper 20s to around 30 on Wednesday. "Realistically," he said, "they were about 1½ points lower on the day, because that's where the big trades [Wednesday] had happened, 1½ points higher" than the Thursday close.

Another trader said that Chemtura "backed off" to the 26 area on the 2016 bonds "down a little, but not huge."

He noted that the bonds had already come down to that neck of the woods "in anticipation" that the troubled company would, indeed file for protection; those bonds had begun the month trading around 45 and were as high as 53, or about twice as high as current levels, at the beginning of the year,

"Very often," he said, a Chapter 11 filing leads to a rally in the bonds, on investor relief that the long-awaited other shoe has finally been dropped and the restructuring process is now finally under way, with the bondholders expected to get something, "but that was not the case today."

Auto parts names mostly quiet despite aid promise

The news that the Treasury Department - which has already bailed out ailing Detroit giants General Motors Corp. and Chrysler LLC - is moving to help the battered companies that supply the carmakers with their parts and components, to the tune of $5 billion, was seen by traders providing not much of a jump start to the ailing sector's bonds.

A trader said that he "did not see much activity" in Lear Corp., quoting the company's 5¾% notes due 2014 at 24.5 bid, "only one or two trades." He said that the company's other two issues - its 8½% notes due 2013 and 8¾% notes due 2016 "didn't even trade," at least not in any kind of appreciable size, "so there was not much effect there."

He said of American Axle & Manufacturing Inc.'s 's 7 7/8% notes due 2017 that he "didn't see any trades - just quotes" that pegged those bonds around a theoretical 20 bid, 22 offered level. He saw "one trade" in Axle's 5¼% notes due 2014, at the 22 level, opining that "it seemed to be a non-event in those names."

He said that 'people were sort of expecting" moves by Washington to help out the parts makers, which have been absolutely devastated by the steep downturn in sales and production by Detroit's traditional "Big Three" and even other more financially stable carmakers.

"They were expecting that [the government] wasn't going to let them go. With trillions of dollars changing hands" in all of the government-funded bailouts, "it looks like the government is there to keep these companies from falling apart. So I don't think anybody was too surprised."

Another trader agreed. Asked if there had been any movement in the auto parts names, he answered: "Not that I've seen." He noted that the market used to live by the adage "buy the rumor, sell the fact," but said that now, "even when people say things, there's a general skepticism to believe - people want to wait and see if something really happens." He said that when he looked at a list of the day's busiest names, "I certainly didn't see" any of the partsmakers.

On the other hand, another market source, also seeing American Axle's 5¼% notes at 22, called that a 2 or 3 point gain off recent levels, albeit in small trading, and pegged Visteon Corp.'s badly battered 7% notes due 2014 up nearly ½ point on the day in fairly busy dealings to around 7 bid.

Ford term loan firmer, but bonds stable

Also in the automotive arena, Ford Motor Co.'s term loan gained some ground during the trading session as the company's cash tender offer for some of the debt was set to expire at the end of the day, according to a trader.

The term loan was quoted at 39 bid, 40 offered, up from 38 bid, 38½ offered on Wednesday, the trader said.

Earlier this month, Ford commenced a $500 million cash tender offer for its senior secured term loan debt, of which $6.9 billion is outstanding.

The term loan tender offer is being done as a Dutch auction in which lenders are being invited to submit bids to sell their term debt within a price range of 38 to 47.

If the aggregate purchase price for term loan debt tendered exceeds $500 million, Ford will purchase at the clearing price all loans tendered at a price below the clearing price and purchase loans tendered at the clearing price on a pro-rated basis.

Ford's term loan tender offer is part of a plan to restructure its balance sheet so as to significantly reduce debt and annual interest expense.

As part of this restructuring, the company is doing a $1.3 billion cash tender offer for its unsecured non-convertible debt securities, of which $8.9 billion is outstanding.

In addition, it has commenced a conversion offer relating to its $4.88 billion of 4.25% senior convertible notes due Dec. 15, 2036.

A bond trader meantime saw little activity in Ford, with its 7.45% bonds due 2031 staying "around the 28 range, not very active today," getting not much of a boost from the news that Ford had sold nearly $3 billion of asset-backed debt.

"The long ones didn't really jump up, and the bank debt seems to be around 38-40, pretty much where it's been hanging around." He also noted that Ford stock was up only marginally, "so nobody cared there." Ford's New York Stock Exchange-traded shares, after having been up as much as 12.5% earlier in the session, closed out trading at $2.51, up 4 cents, or 1.62%. Volume of 60 million shares was about one-third more than usual turnover.

He theorized that "it doesn't seem like anybody believes anything of late. We need a little more time for everything to settle in and get some confidence back. Normally, if this [ABS sale] was the only news, you'd see these things jump up in price."

A second trader agreed that the ABS deal "did not really" do anything for the Ford bonds, seeing the '31s unchanged at 28.5 bid, 29.5 offered.

While the Ford corporate bonds were seen pretty much spinning their wheels, the first trader noted that Ford Motor Credit Co.'s "really short" paper like its issue coming due next month, is trading around the 98 area. "Fifty million [dollars] or $100 million of that trades," he said although he added "it doesn't mean a whole lot. People are confident that it will pay off. What does that mean? Everybody breathes a sigh of relief that Ford is able to do something and not get TARP money and not file for bankruptcy."

MGM shrugs off ratings downgrade

MGM Mirage's term loan saw some indications on stronger levels despite a ratings downgrade, although activity in the name was light, according to a trader.

He saw the term loan indicated at 45 bid, 50 offered, versus levels of around 43 bid, 46 offered on Wednesday.

Over on the bond side of the fence, a trader saw the company's 13% notes due 2013 get up to 81 bid, up by about a point or so from Wednesday's levels.

He said that "definitely, there were a lot of MGM quotes today, which tells me it was pretty active, maybe one of the most very active issues."

A market source at another desk saw the company's bonds mixed, with its 7 5/8% notes due 2017 about 4 points better at 39 bid and its 6 5/8% notes due 2015 up more than 2 points at 38, while its 6% notes coming due on Oct. 1 were down around a point on the day at the 59 level.

On Thursday, Moody's cut MGM Mirage's corporate family rating to Caa2 from Caa1 and the outlook is negative.

The downgrade reflects the very short-term waiver of potential covenant defaults that the company received from its bank lenders and the erosion of liquidity due to t a$300 million revolver reduction.

According to Moody's, there is now significant pressure on the company to relatively quickly come up with a plan to obtain additional bank concessions, raise additional liquidity, or pursue a major restructuring of its capital structure.

"Because of these factors, there is a rising probability that as part of a restructuring MGM will have to offer to exchange existing debt for an amount below par as part of any plan to alleviate its liquidity crunch," said Peggy Holloway, Moody's senior analyst, in the rating release.

As was previously reported, MGM Mirage's credit facility waiver allows the company to not comply with financial covenants through May 15.

Also, under the waiver, pricing on the revolver was increased by 100 basis points, the company is prohibited from prepaying or repurchasing any debt or disposing of assets, and the $300 million revolver repayment was made.

Following the expiration of the waiver, the company will be subject to an event of default under the credit facility if it is not in compliance with the financial covenants at March 31, which, if adverse conditions in the economy and gaming industry continue, is a likely outcome.

The company said that it intends to work with its lenders to obtain additional waivers or amendments prior to the expiration of this one so as to address potential future non-compliance with covenants.

Harrah's active, but not much changed

Also in that beleaguered gaming sector, a trader said that Harrah's Entertainment Inc.'s 10¾% notes due 2016 "seemed pretty active," with "a lot of trades, and good-sized trading" seen. But while there was activity in the credit, he said, those bonds stayed mostly around the 17 level, "where they've been bouncing around over the last few days."

He meantime saw Harrah's 10¾% notes due 2018 "a couple of times" around 11 bid, 13 offered, but said there were "no trades really," at least not in any size.

He also noted "pretty active" trading in Harrah's term loan paper, around a 57-58 context.

The bonds were largely unmoved by the announcement by Las Vegas-based Harrah's - the world's largest gaming company, even ahead of arch-rival MGM - that it had extended the withdrawal and early-tender deadlines on its ongoing exchange offer for a portion of its outstanding bonds and on a concurrent cash tender offer for some of its bonds by certain of its investors. Harrah's also announced preliminary results for the former offer - that about $5 billion face amount, or some 57%, of the bonds it is seeking to take out via the exchange had been tendered by their holders by the now extended early tender deadline. It also said that the cash tender offer had meantime been increased in size to $350 million from $250 million. The offers are still slated to expire on April 1.

Sirius seen firmer, despite industry woes

Elsewhere, Sirius XM Radio Inc.'s 9 5/8% notes due 2013 were being quoted just under the 46 mark, up more than 3 points from the closing 42.5 round-lot bid level to which they had moved up on Wednesday, a market source said, although noting that it was only on a couple of smallish trades.

At another desk, though, a trader took a contrary view. "I don't see them up," he said, noting that the company's 13% notes due 2013 had been staying around the same 44-46 level all week, while the 9 5/8s, also in that mid-40s context, "may be up a little from February," when the company teetered on the edge of bankruptcy as it faced a big convertible bond payment, "but there's no real difference in recent levels that I could see."

Market participants saw no fresh news out on the New York-based satellite radio broadcaster, which recently reached an agreement for Liberty Media Interactive to make a $530 million investment in the company, allowing debt-heavy Sirius to avoid either possibly being forced into Chapter 11 or potentially being gobbled up in an unfriendly takeover by EchoStar Corp. and its Dish Network Corp. affiliate -- rivals of Liberty-controlled DirecTV Group Inc.

Although there was some positive news in fourth-quarter numbers which the company released last week, including a 16% year-over-year gain to $644.1 million in pro forma revenue representing last year's merger between onetime arch-rivals Sirius and XM, accompanied by a reduction in the combined company's pro forma net loss to $248.5 million from $405 million a year earlier, not to mention a big (22%) drop in cash operating expenses as the synergies from the merger began to kick in, the company still faced considerable challenges. These include rising rates of churn, or subscriber turnover, which cut its net new subscriber total for the quarter to just under 83,000, less than half of the 200,000 net adds that Sirius had predicted last fall.

A major factor weighing Sirius' growth down, despite its effective monopoly status in satellite radiocasting, has been the continuing steep fall in auto sales, since a major chunk of Sirius' subscribers are car buyers who elect to pay the monthly subscriber fee to hear Sirius personalities like highly-paid shock-jock Howard Stern on their car radios.

As if that weren't daunting enough, Sirius - like its more traditional terrestrial radio rivals, as well as television and print outlets -- is also battling the overall media trend of declining advertising revenues as sponsors tighten their own belts during tough economic times.

And its whole business model may now be obsolete, according to the entrepreneur who originally founded Sirius nearly 20 years ago. Martine Rothblatt said in a recent Fortune interview that while the satellite radio concept made sense back then - only to be delayed in its development by FCC red tape -- the growth since then of internet-based radio services and increasingly sophisticated terrestrial cellular networks and devices that can deliver such internet content to mobile subscribers have combined to further shrink satellite's potential share of the new-media pie.

Nortel noses higher

A trader said that he had seen Nortel Networks Ltd.'s bonds "improving all week," with the bankrupt Toronto-based telecommunications equipment maker's 10¾% notes pushing as high as 19 bid, up a point on the session.

"There were other bids during the day that were a little higher than [Wednesday], but this was the high trade."

He acknowledged that there "wasn't real size" in the trading but said he had seen "the quotes all day moving up."

He said that while there are other bonds in the company's capital structure, like its 10 1/8% notes due 2013 and its floating-rate notes due 2011, "the 103/4s always trade the best," citing the issue's high coupon, "then it goes down from there."

On Thursday, Canada's National Post newspaper reported that Nortel - which sought protection from its junk bond holders and other creditors on Jan. 14 with bankruptcy filings in the United States, Canada and the United Kingdom - "could still emerge from bankruptcy protection as a small but competitive company" rather than be liquidated, citing the opinions of "experts and insiders."

The paper said that the company is still working on a strategy that will see it emerge from bankruptcy protection, "even as the beleaguered telecom-equipment maker mulls which of its assets to sell to narrow its focus."

Nortel meantime was preparing to go to court on Friday, to ask a bankruptcy judge in Toronto to greenlight a controversial $23-million bonus plan for its top executives, although the list of those getting the "retention bonuses" will not include the company's chief executive officer, Mike Zafirovski.

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