Idearc files for bankruptcy, bonds gyrate in heavy trading; GM paper remains weak; Ply Gem goes lower

By Stephanie N. Rotondo

Portland, Ore., March 31 - The big news in the distressed bond arena Tuesday was a Chapter 11 filing by Idearc Inc.

The news was not entirely unexpected. Along with struggling to maintain the status quo as advertising revenues declined, the company had predicted a filing in early March. Still, the news caused the company's debt to gyrate throughout the session, before finally landing under the 3 mark. On the other side, the company's bank debt moved up higher, which was likely due to the company's statement that post-restructuring debt will only be bank debt.

Meanwhile, General Motors Corp.'s bonds continued to slide as the new captain of the sinking ship called a bankruptcy filing "more probable."

Ply Gem Industries Inc.'s bonds dropped as much as 6 points on the day, traders reported. The declines came after a rating downgrade on Tuesday and fourth-quarter results on Monday. The bonds had dropped about 5 points on Monday as well.

Idearc gyrates in heavy trading

Phonebook publisher Idearc filed for bankruptcy Tuesday and, as a result, the company's debt was heavily traded.

A trader said "well over" $110 million of the 8% notes due 2016 traded following the news. He said the bonds moved in a range of 1 to 3.5 before settling in at 2.75, a loss of nearly a point on the day. He added that the bonds were trading flat, or without accrued interest.

Another trader saw the paper "wrapped around 3" at 2.75 bid, 3.25 offered. And while the first trader said the bonds dropped, the second trader saw the bonds "moving up."

"I guess people are trying to figure out what they are worth after trading under 1 for forever," the second trader said of the notes' jockeying throughout the day.

In the bank debt, the term loan B was quoted higher at 36¾ bid, 37¾ offered, up from Monday's levels of 31¾ bid, 32¾ offered, a trader said.

"Today we take an important step forward as we continue to transform Idearc," said Scott W. Klein, Idearc's chief executive officer, in a press release. "Essentially we have a company with good potential being held back by a terminally ill balance sheet. We are not only open for business and serving our clients as usual, we are also continuing our focus on transforming Idearc for the future based on a bold strategy, including all of the new programs launched earlier this month.

"The reorganization process will enable Idearc to quickly finalize and implement a debt restructuring plan that will strengthen our financial condition and position us to compete more effectively in a challenging and rapidly evolving economic environment," Klein continued. "One of our most important priorities is to put in place an appropriate capital structure to support our strategic business plans and objectives. A new capital structure that can give all of our partners the confidence they need in us to be there for them in the years ahead provides us with the greatest chance for success."

Under the terms of the bankruptcy released thus far, Idearc plans to decrease its debt load from around $9 billion to $3 billion. The post-restructuring debt will be in the form of secured bank debt, bearing interest at 12% and maturing in six years. Though a formal plan for bondholders has yet to be negotiated, Idearc expects that most other bank debt and bonds will be converted into new equity in the reorganized company.

GM continues to be weak

General Motors' corporate debt continued to lose weight as the company's new CEO called a bankruptcy "more probable" than before.

One market source said more than $22 million of the 8¼% notes due 2023 traded, falling about 4.5 points to around 13.

At another desk, a source quoted the 7 1/8% notes due 2013 at 17 bid, 18 offered and the 8 3/8% notes due 2033 at 12 bid, 13 offered, a decline of 1 and 4 points, respectively.

Yet another source deemed the 7 1/8% notes down a deuce at 16 bid.

In his first news conference since taking over the helm of the struggling automaker, Fritz Henderson said that GM would have to take even more drastic measures - including a possible bankruptcy filing - as the company aims to restructure its debt-laden balance sheet. That could mean closing more than the five plants included in the first restructuring plan, Henderson indicated.

Detroit-based GM has until June 1 to come up with a new viability plan. President Barack Obama sent the company back to the drawing board on Sunday, stating that the cuts made did not go deep enough. The administration also forced the resignation of former CEO Rick Wagoner.

"It doesn't have to take 60 days," Henderson said at the conference. "If it's quite clear that we're not able to accomplish what we need to do in terms of operational restructuring, reduction of debt on the balance sheet and what we need to do to accomplish these broad parameters of having a viable business, this will be a management judgment" on whether the company will restructure in or out of court.

Ply Gem racks up losses

After suffering losses of up to 5 points in the previous session, Ply Gem Industries' debt continued to drop off after getting downgraded by Standard & Poor's.

A trader said the Cary, N.C.-based company's 11¾% notes due 2013 fell nearly 2.5 points to 44 7/8. Another trader echoed that level, calling that weaker from 47 bid, 49 offered on Monday.

The second trader also saw the 9% notes due 2012 at 24.75 down from 29 bid, 30 offered.

A third source quoted the 11¾% notes at 43 bid, 46 offered.

S&P dropped Ply Gem's corporate credit rating to SD from B-, following the company's release of its fourth-quarter results.

"These actions follow the recent announcement by the company that affiliates of its financial sponsor, CI Capital Partners LLC, (unrated) have made a cash investment and acquired a majority of the company's outstanding 9% senior subordinated notes due 2012 and that the company intends to amend the indenture of these notes to provide it with greater financial and operating flexibility," said S&P credit analyst Tobias Crabtree in a statement.

Conseco loan moves up

Conseco Inc.'s term loan gained some ground as investors were pleased that a credit facility amendment was successfully completed, and chose to shrug off the not so fantastic earnings that the company announced, according to a trader.

The term loan was quoted at 28 bid, 33 offered, up about a point and a half to 2 points on the day, the trader said, adding that activity in the name was pretty light.

Under the amendment, through June 30, 2010, the company's debt to capital ratio was increased to 32.5%, the interest coverage ratio was decreased to 1.5 times, the minimum risk based capital ratio was decreased to 200%, and the minimum level of statutory capital was decreased to $1.1 billion.

In return for revising covenants, lenders received juicier pricing on the facility of Libor plus 400 basis points with a 2.5% Libor floor, plus 100 bps that will be added to the principal balance of the facility and will be payable at maturity.

As a result of the amendment, the company's current cash interest rate on the $911.8 million outstanding under the credit facility increased to 7.5% from approximately 2.6%.

Also on Tuesday, Conseco came out with fourth quarter earnings results that included a net loss of $451.8 million, or $2.45 per share, compared with a net loss of $71.5 million, or $0.38 per share, in fourth quarter 2007.

Revenues for the quarter were $1.046 billion, compared with $1.007 billion in the previous year.

The company increased the valuation allowance by $395 million in the fourth quarter, of which $319.1 million is related to discontinued operations, $30.9 million is related to tax benefits associated with investment losses not used to offset future taxable income and $45 million is related to the projected additional future expense following the credit facility amendment.

"We are pleased to report our final results for the fourth quarter 2008 today, along with the successful renegotiation of our credit facility with our lenders," said Jim Prieur, chief executive officer, in a news release.

"Renegotiating our debt gives us greater financial flexibility during times of market volatility, as we focus on the continued growth of our core insurance businesses. Our businesses produced significant operating earnings, sales and cash flow in the fourth quarter," Prieur added.

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

Broad market mixed

Among other names in the distressed marketplace, Mueller Water Products Inc.'s 7 3/8% notes due 2017 fell to 51.5 bid, 52 offered, a trader said.

"They have been dropping like a rock," the trader noted. "There are still some sellers out there."

American International Group Inc.'s 4 5/8% notes due 2009 traded busily, with about $25 million changing hands, according to a trader. The trader called the debt better at 94 7/8.

Freeport-McMoRan Copper & Gold Inc.'s paper ended the day mixed as the company said that copper demand fell 25% in the United States and Japan. A trader placed the 8 3/8% notes due 2017 around 93, nearly a point off. The floating-rate notes due 2015 inched up, however, to 82, while the 8¼% notes due 2015 closed unchanged at 95.25.

Sara Rosenberg contributed to this article.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.