MGM debt structure gyrates on CityCenter news; Charter files, debt gains ground; GM bonds mixed

By Stephanie N. Rotondo

Portland, Ore., March 27 - MGM Mirage continued to be a topical name in the distressed bond market Friday.

Traders saw the company's bonds opening lower, as news circulated that a bankruptcy filing at the CityCenter project was looming. That chatter arose as MGM, along with its partner Dubai World, had a $220 million payment on the project coming due.

But the bonds regained some ground after MGM said it had received the go-ahead from lenders to make the payment - without involvement from Dubai.

Meanwhile, Charter Communications Inc. filed a pre-packaged bankruptcy restructuring on Friday, making good on its promise from just a month ago. The news sent the cable operator's bonds up by about 4 points on the day.

General Motors Corp.'s bonds finished the week mixed, sources said. Details regarding the company's restructuring offer to bondholders came out, which bondholders have thus far objected to.

With the distressed market extending its rally - albeit hesitantly - traders are no longer complaining that the lack of cash is the problem. It is now the lack of supply.

"There is more cash than bonds around," a trader said, noting that it made it hard to get things done. "Cash is dominating supply and there is no calendar."

MGM gyrates on CityCenter news

MGM Mirage's bonds gyrated during Friday's session, as differing news reports showed just how shaky the company's CityCenter project was.

A trader saw the 6% notes due 2009 falling 3.75 points to 51, with about $15 million trading. The 8½% notes due 2010 dropped nearly 2 points to 40.75, while the 7 5/8% notes due 2017 slipped just a quarter point to 36. The trader said that about $12 million and $7 million, respectively, changed hands.

At another desk, a trader also saw the 8½% notes falling to around 40 from 42 previously, as the 6% notes closed around the 54 mark. He said that was "kind of in the range where they have been trading."

The trader also noted that he expected the bonds to head higher after news came out that the company was granted permission to pay $200 million associated with the CityCenter project. However, he said that he had not seen any fresh markets since that news was released.

Yet another trader said the bonds opened a few points weaker before rebounding some post-payment news. He saw the 6% notes hit a low of 50 before they climbed back to 52.

In the bank debt, MGM's term loan was quoted at 43 bid, 45 offered, down from around 45 bid, 47 offered, a trader said.

Early in the session, news reports indicated that the CityCenter joint venture project - Dubai World is MGM's partner - was considering a bankruptcy filing as it had a $220 million payment due on Friday. The reports claimed that the venture had even gone so far as to hire a law firm to represent it in a bankruptcy case.

But later in the day, word appeared that MGM had received approval from its lenders to pay $200 million on the project, allowing the company to continue with construction. MGM said that the payment was made without Dubai's involvement.

On Monday, Dubai World filed a lawsuit against the casino operator, alleging breach of contract. Dubai said that auditor comments in the company's quarterly report - auditors raised concerns about the company's ability to continue - constituted the breach and placed the joint venture project in jeopardy. MGM has struggled to find the additional funds it needs to complete the $8.6 billion development.

Charter files, debt gains

Charter Communications held true to its word and filed a pre-packaged bankruptcy on Friday, ahead of its April 1 deadline.

As a result of the filing, the St. Louis-based cable provider's debt gained about 4 points, traders reported.

One trader, who called the name the "most active" of the day, placed the 10¼% notes due 2010 at 91, a gain of 4.25 points. He added that more than $25 million traded.

Another trader also pegged the issue around 91, calling that level 4 points stronger.

"There is always an element of risk about whether it gets done," the second trader explained when asked why the bonds had improved although the filing was expected. He stated that it was "the knowing" that could have inspired investors to get on board.

"Guys might not have been buying [before news of the filing] in case it didn't get done," he said.

Speculated another trader: "It could be a short squeeze; who knows?"

The old term loan was quoted at 81½ bid, 82½ offered, up from 78¾ bid, 79¾ offered, and the new term loan was quoted at 92¾ bid, 94¾ offered, up from 90½ bid, 92½ offered, another trader said.

Charter filed for bankruptcy in New York on Friday. In court papers, the company said that it had raised $3 billion in new capital - about $2 billion in equity, $1.2 billion in rollover debt and $267 million in new debt. About $8 billion of its $21.7 billion debt will be canceled, which will cut annual interest expenses by more than $830 million. With the fresh financing, Charter did not need to secure debtor-in-possession financing.

Furthermore, under the terms of the restructuring package, bondholders Franklin Resources Inc., Apollo Management LP and Oaktree Capital Management LLC agreed to swap part of their debt holdings for equity, giving each of them minority stakes in the company.

"The financial restructuring is good news for Charter and our customers and, if approved, will result in Charter being better positioned to deliver the products and services our customers demand now and in the future," said Neil Smit, president and chief executive officer, in a news release.

"The support of our bondholders and their new investment in Charter also underscores their confidence in our company and business. Charter's operations are strong, and throughout this process, we will continue serving our customers as usual. We look forward to an expeditious restructuring, and once completed, we believe that Charter will be a stronger company," Smit added.

On the news, both Moody's Investors Service and Fitch Ratings cut Charter's default rating to D.

GM paper mixed

General Motors' debt ended the day mixed after the company's offers to bondholders were made public.

A trader deemed the 7 1/8% notes due 2013 a point better at 22, while the benchmark 8 3/8% notes due 2033 dropped half a point to 19.5. The 7.2% notes due 2011 were unchanged at 26.5.

As part of its requirements in accepting a bridge loan from the government, GM has to reduce its debt to $9 billion. According to news outlets, GM is offering two options for bondholders. The first option for holders of the debt totaling about $28 billion is 8 cents in cash, 16 cents in new unsecured debt and 90% of the equity. The second option also includes 90% of the equity, though the rest of the terms are unclear.

But bondholders are objecting to the terms in the first round of negotiations. Some believe that the labor unions and suppliers are getting a bigger piece of the pie, which they claim will harm the company in the long run.

"As you know, the basic framework for restructuring GM was set out by the previous administration in the (U.S. Treasury) bridge loan that remains in effect under the Obama administration," the bondholders wrote in a letter to Treasury Secretary Timothy Geithner and the leaders of the auto task force on Sunday. "GM's bondholders were not asked to participate in creating this framework. Others determined what the bondholders should sacrifice in order to restructure GM.

"GM bondholders have been asked to make deeper cuts than other stakeholders: namely, to reduce two-thirds of our instruments' principal and trade it for speculative securities that may, if the currently planned cost reductions and sales projections prove inaccurate, end up having little or no value.

"It appears a purely arbitrary decision was made in December as to what bondholders would receive," the letter continued. "All other parties involved in the restructuring process will walk away with far more. Many will be paid in full. It is unclear why it was decided that GM's bondholders should bear the greatest risk here. Consequently, it is not surprising that others may be ready to accept a deal that severely disadvantages bondholders who had no role in crafting it."

Broad market mostly better

In the rest of the distressed bond market, Michael's Stores Inc.'s bonds were unchanged to slightly better despite a rating downgrade from Moody's. A trader called the 10% notes due 2014 "relatively unchanged" at 48, noting that the market the previous day was 47.5 bid, 49 offered.

"It looked better bid though," he added.

The 11 3/8% notes due 2016, however, gained a tad to end at 37.25.

Another trader also placed the 10% notes around 48 but said that the name was "not all that active."

"They have been steadily moving up, along with names like Claire's [Stores Inc.]," he added.

Michael's term loan B was quoted at 54½ bid, 56 offered, down from Thursday's levels of 55½ bid, 57½ offered, according to another trader.

Meanwhile, Amkor Technology Inc.'s 9¼% notes due 2016 remained active following the company's announcement of a convertible debt sale on Thursday. A trader said more than $20 million of the issue traded at 75.5, a gain of just less than 2 points.

GMAC LLC's 5 5/8% notes due 2009 slipped 3 points to 91 1/8.

Sara Rosenberg contributed to this article.

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