Hexion heads higher; Six Flags debt swap boosts bonds; AIG gets Treasury funds, paper holding in

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., April 20 - Hexion Specialty Chemicals Inc.'s debt structure moved higher Monday, despite a downgrade from Moody's Investors Service.

The downgrade came as the company released preliminary first-quarter results, which showed weaker-than-expected figures. Still, both Hexion and Moody's noted that liquidity was sufficient.

Six Flags Inc.'s paper gained as much as 6 points on the day, traders reported. The boost came after the amusement park operator announced a debt-for-equity swap on Friday. However, some market players are deeming the plan "coercive."

American International Group Inc. received its latest government bailout on Monday, but the news had little effect on the company's debt. The recent funding comes with new rules regarding how it can and cannot be used, after AIG made huge retention payments to its executives after receiving that last round of funding.

Hexion heads higher

Hexion Specialty Chemicals' debt structure got a boost despite a downgrade from Moody's and a lowered first-quarter outlook.

In the bonds, a trader called the 9¾% notes due 2014 up more than 2 points at 32.5. Another source quoted the issue at 32 bid, 33 offered, up from around 30 last week.

One source attributed gains in the bank debt to comments regarding the company's liquidity position, which appeared to create a more positive tone.

"Moody's said plenty of liquidity and probably won't violate covenants. Low priced loan that will probably pay its coupon for the next year," the source said in explanation of the bank debt's performance.

The term loan debt was quoted in the 48 bid, 52 offered context, compared with levels in the 46 bid, 50 offered context on Friday, the source said.

Moody's said on Monday that despite unusually weak credit metrics, Hexion has more than adequate liquidity at the current time due to the covenant light terms in its credit facility and the availability of $200 million of additional capital from its financial sponsor. The rating agency also remarked that the combination of these items would make a potential breech of the financial covenant over the next 12 months unlikely.

Moody's cut Hexion's corporate family rating on Monday to B3 from B2 and its senior secured bank debt was cut to B1 from Ba3. The rating outlook is negative.

Moody's said that the downgrade reflects the expectation of a deeper and more prolonged trough in several of the company's largest end-markets - construction, electronics and related commodity chemicals, as well as other important end-markets like transportation and automotive.

"We expect Hexion's credit metrics to deteriorate further in 2009, despite ongoing cost reduction initiatives and a meaningful level of debt reduction in the first quarter," said John Rogers, senior vice president, in the ratings release.

Hexion also addressed its liquidity on Monday, saying that it estimates that it had liquidity of approximately $420 million as of March 31, which comprises cash plus available borrowings under its credit facilities and includes a commitment from certain affiliates of Apollo Management.

The company continued to say that it anticipates being in compliance with all of the terms of its outstanding debt, including the financial covenants, at the end of the first quarter.

Net debt is estimated at approximately $3.45 billion March 31, down from $3.73 billion at Dec. 31, 2008.

In addition, on Monday, Hexion released early results for the first quarter, which showed the anticipation that sales, operating income and segment EBITDA will all come in when compared to the previous year's first quarter.

For the quarter ended March 31, the company expects post sales of approximately $900 million, operating income of $5 million to $15 million and segment EBITDA of $55 million to $62 million.

By comparison, in the first quarter of 2008, the company recorded revenues of $1.64 billion, operating income of $83 million and segment EBITDA of $154 million.

"Our volumes remained weak in the first quarter of 2009, declining 11% from the fourth quarter of 2008," said Craig O. Morrison, chairman, president and chief executive officer, in a news release.

"However, first quarter 2009 EBITDA improved sequentially when compared to the fourth quarter of 2008 demonstrating the effectiveness of our ongoing cost reduction initiatives. In addition, our disciplined focus on cash management improved net working capital during the first quarter of 2009. The company also reduced its total debt during the first quarter of 2009 through repurchases of debt securities. As a result, the company was able to reduce its net debt by approximately $300 million, while maintaining its liquidity in excess of $400 million," Morrison added.

Hexion is a Columbus, Ohio-based thermoset resins company.

Six swap results in gains

New York-based amusement park operator Six Flags saw its bonds moving higher after announcing a debt-for-equity swap last week.

A trader quoted the 9 5/8% notes due 2014 at 15 bid, 19 offered and the 12¼% notes due 2016 at 66 bid, 70 offered. That compared with 11 bid, 16 offered and 57 bid, 60 offered, respectively, on Friday.

Another trader pegged the 9 5/8% notes at 16 bid, 18 offered and placed the 12¼% notes "up towards the high-60s."

Still another source deemed the 9 5/8% notes 6 points stronger at 17 bid.

On Friday, Six Flags announced a debt exchange, a move aimed at restructuring the company's debt and to avoid a Chapter 11 filing. Under the terms of the offer, holders of the 8 7/8% notes due 2010, the 9¾% notes due 2013 and the 9 5/8% notes would receive common stock in return for their tendered notes. Additionally, the company hopes to convert all outstanding Preferred Income Equity Redeemable Shares.

The offer expires June 25.

However, come Monday, Fitch Ratings called the company's action "coercive," as bondholders who choose to not tender could get even less recovery. Six Flags also stated that if the exchange were not successful, it would seek other restructuring options, which would likely include a bankruptcy. In that event, bondholders could walk away with nothing.

Furthermore, the company's stock was delisted from the New York Stock Exchange on Monday as it failed to meet listing criteria.

AIG holds steady

American International Group received its latest round of government funding Monday, but the behemoth company's bonds ended the day virtually unchanged.

A trader saw the 5.9% notes due 2012 at 47.5, calling that "flat" from Friday levels.

Another trader called the name "a little active," pegging the 9.95% notes due 2012 at 68 offered. he also saw the 5% notes due 2010 offered at 91 and the 6.3% notes due 2011 at 81 bid, 85 offered.

The U.S. Treasury released its $29.835 billion loan to the insurance giant on Monday, AIG said. The loan was originally for $30 billion but was reduced to cover so-called retention payments made to AIG executives after the company received its first round of federal funds in March. News of those payments, along with reports of expensive corporate get-togethers, caused a massive backlash. As such, in this new round of funding, AIG has promised to follow new, more stringent rules about what the money can be used for.

Currently, the Treasury holds 50% or more of the company's equity.

Broad market mixed

In the rest of the distressed marketplace, the automotive sector was "all over the place," according to one trader.

The trader saw Ford Motor Co.'s 7 7/8% notes due 2010 at 85.5, a loss of just under a point day-over-day. He also saw the 7 3/8% notes due 2009 at 93, up a quarter point, while the 8% notes due 2016 slipped about 3 points to 69. The 5.7% notes due 2010 closed a point weaker at 90.

General Motors Corp.'s 8 3/8% notes due 2033 were meanwhile better at 9.5, the trader said. But the 7.2% notes due 2011 fell nearly a point to 10.25.

Another trader said GM's bonds were "still right around 8," while another placed the 7 1/8% notes due 2013 at 9 bid.

A Ford executive said Monday that it expected sales in China to continue to gain, speculating high single-digit growth for the year. But at GM, things were not as rosy as an executive said about 1,600 would lose their jobs in the next few days.

Elsewhere, Rite Aid Corp.'s 9½% notes due 2017 were trading actively and higher, though there was no news to explain the move.

A trader placed the issue at 39.25, while another quoted the issue at 39 bid, 40 offered.

"Those things have just been on a tear recently," the second trader said of the gains. He also cited a recent 10-point jump in Bon-Ton Stores Inc.'s bonds, which was prompted by "nothing."

MGM Mirage's 8½% notes due 2010 fell to 58.5 from 62 bid, 63 offered previously.

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