R.H. Donnelley paper boosted; MGM bonds dip; Neiman Marcus, Dollar General firm; Ford loan gains

By Stephanie N. Rotondo

Portland, Ore., March 24 - As trading volume was deemed "much better" on Tuesday, R.H. Donnelley Corp.'s paper took advantage, gaining as much as 4 points on the day.

The gains came on the back of news reports that a company shareholder had sent a letter to the board of directors. In the letter, the shareholder called for debt and stock repurchases, as well as a rekindled dividend program.

Meanwhile, MGM Mirage's debt dropped some despite the company's claim that the recently filed Dubai World lawsuit was "without merit." The company is asserting that it has not breached any agreements and that it has enough funds to make the necessary payments on the CityCenter project.

In the world of distressed retailers, Neiman Marcus Group Inc.'s bonds inched higher, while Dollar General Corp.'s bonds traded around par on the back of its fourth-quarter results.

Ford Motor Co.'s term loan continued to react positively to the news released Monday regarding the company's tender offer. Traders saw the piece of debt continue to post gains.

RHD paper boosted

R.H. Donnelley's debt got somewhat of a boost during trading, as one of the company's shareholders called for an increase in stock value.

A trader said that $20 million of the 8 7/8% notes due 2017 traded at 7 bid, 8 offered. Another trader pegged that issue at 7.75, calling that "a smidge better."

The second trader also saw the 8% and 9% notes due 2013 at 17.5 bid, 18.5 offered, compared with 16 bid, 17 offered previously.

Another source deemed the 8% notes at 18 bid, a gain of 4 points.

The News & Observer reported Tuesday that Thomas Ryan, chief executive officer of Doddsville Investments, wrote a letter to the Cary, N.C.-based phonebook publisher demanding that the company use cash flow to buy back stock and debt and to renew its dividend program. Ryan and his employer are part of a hedge fund that purchased about 11% of Donnelley's stock this month, according to the report.

Donnelley, struggling from advertising revenue declines and the emergence of the internet, recently hired Lazard to aid in its restructuring efforts. Many market players believe that will mean a bankruptcy filing in the near term, though the company has denied it.

"The perception created by this catastrophic drop in market value is that the company is going bankrupt," Ryan's letter said. "Nothing could be further from the truth."

In fact, it is Ryan's belief that, at current prices, Donnelley could easily repurchase debt and stock, which would then lead to a better valuation for the equity.

MGM bonds dip

MGM Mirage's bonds reacted negatively to the company's assertion that a recent lawsuit was "without merit."

A trader called the debt "a little bit softer," with about $30 million of the 8½% notes due 2010 trading at 38.5 bid, 39 offered. A second trader quoted that issue at 37 bid, 38 offered, versus levels in the low-40s on Monday.

Another market source called the 6 5/8% notes due 2015 3 points weaker at 32.5 bid.

On Monday, Dubai World - MGM's joint venture partner on its CityCenter project on the Las Vegas Strip - filed a lawsuit against the casino operator, alleging breach of contract. In the suit filed with the Delaware Chancery Court, Dubai's Infinity World Development Corp. unit is asking the court to free it of making any future contributions or obligations to the project.

But, according to a Wall Street Journal report, MGM is calling the lawsuit baseless.

"The lawsuit filed yesterday by a subsidiary of Dubai World is completely without merit. Dubai World is well aware of our written commitment to meet our funding obligations and that MGM Mirage has available cash to satisfy those obligations," MGM spokesman Alan Feldman said in a statement. "MGM Mirage is ready, willing and able to fund its share of the costs to complete CityCenter, including a required payment this week."

The suit is just one more hiccup along the CityCenter project's timeline. Construction began in 2005 and remains uncompleted. But MGM has struggled to find the additional funding it needs to complete the project as the economy took a nosedive.

Furthermore, MGM's auditors raised concerns about the company's future in a regulatory filing last week.

"MGM has yet another headache in addition to efforts to remain afloat in the face of bank covenant violations and big upcoming debt maturities," Gimme Credit analyst Kim Noland wrote in an afternoon comment. "Dubai World filed suit alleging that the going concern language in the 10-K constitutes a breach of the joint venture agreement for City Center. While this may a tough lawsuit to win (MGM says it is without merit), MGM needs Dubai's support and its cash given its trouble raising the financing needed to complete the project."

Neiman, Dollar firm

Distressed retailers were seen clawing their way up on Tuesday, according to a trader.

The trader called Neiman Marcus' 9% notes due 2015 a point better at 31.5, while Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2014 moved up to 27 bid, 28 offered. The trader noted that some trades in Burlington got even closer to the 30 mark.

Bon-Ton Stores Inc.'s 10¼% notes due 2015 also moved up to 20 bid, 21 offered, he said.

Meanwhile, Dollar General's bonds - the 10 5/8% notes due 2015 and the 11 7/8% notes due 2017 - were trading around par after the company posted a larger profit for the fourth quarter.

The discount retailer posted a net income of $81.85 million for the 13 weeks ending Jan. 30. That compared with a net income of $55.39 million the year before. Sales for the quarter increased 11.2% to $2.85 billion.

"The economy is giving us a lot of trial with a lot of people who haven't experienced Dollar General in a year or two or maybe never, and they're coming in and seeing the improvements that we're making," Rick Dreiling, chief executive officer, said during a conference call. "Even though the economy is going to turn around eventually I think it's safe to say that there's going to be a new consumerism and that saving money is going to be fashionable for a very long period of time."

"We expect to continue to face a difficult economic environment in 2009, which will restrict our customers' ability to spend and therefore will challenge our efforts to increase sales and gross profits," he continued. "We also believe that competitive pricing and advertising will continue and are likely to increase if overall retail sales continue to decline."

Ford continues to climb

Ford Motor's term loan continued to trade higher on Tuesday as the market was still reacting to the company's recent announcement that it increased the amount of debt it will buy back in its term loan tender offer, according to a trader.

The Dearborn, Mich.-based automaker's term loan was quoted at 46 bid, 47 offered, up from previous levels of 45 bid, 46 offered, the trader said.

On Monday morning, Ford said that its $500 million Dutch auction cash tender offer for senior secured term loan debt was oversubscribed, and that it is increasing the cash for the tender to $1 billion, which would result in the repurchase of $2.2 billion of the $6.9 billion term debt outstanding.

The price at which the company is buying back the debt is 47. When the tender had been launched, the company was seeking responses from lenders in a price range of 38 to 47.

Conseco loan slips

Conseco Inc.'s term loan lost some ground during market hours after news emerged that the company is looking to amend its credit facility, according to a fund manager.

The term loan was quoted at 20 bid, 30 offered, down from Monday's levels of 25 bid, 35 offered, the fund manager said.

Under the amendment proposal, the company is looking to revise and/or waive financial covenants, and in return, pricing on the deal will be increased.

Bank of America is leading the amendment.

Conseco is a Carmel, Ind.-based insurance company.

Sara Rosenberg contributed to this article.

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