MGM Mirage structure wins big; General Motors, Ford see declines; broad market mostly softer

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., May 13 - The distressed debt marketplace ended with a weaker tone Wednesday, despite big gains in MGM Mirage paper.

"Mostly, the market was softer with the equity markets," a trader said. "The calendar helped bring out some paper and the market weakness brought out some sellers."

The weakness is in stark contrast to the recent run-up the market as a whole has experienced over the last few weeks. The trader speculated that the market was simply going through a "healthy retrenchment."

"There has been some noise that the market had gone too far," he said. "People are not sure the valuations are there.

"I'm sure there is still money out there to be spent, but there is no frenzy to put it to work now," he stated.

But investors were putting their money into MGM Wednesday, after the company released a bevy of financial news, including that it amended its bank facilities and was planning a $1.5 billion debt offering. The news resulted in a 5- to 15-point jump in the bonds and a 5- to 6-point gain in the bank debt.

General Motors Corp. and Ford Motor Co. also remained in the news. Bankruptcy concerns continued to pressure GM's bonds, while Ford's $1.4 billion stock sale announced late Tuesday seemed to weigh on the automaker's corporate debt.

MGM structure wins big

MGM Mirage's capital structure posted sizable gains during the mid-week session as the casino operator announced a flurry of financing news.

"MGM was the huge gainer of the day," a trader said. He called the bonds up 5 to 10 points across the board, "so it was a good day for MGM bondholders."

The trader placed the 8 3/8% notes due 2011 around 79, the 6% notes due 2009 at 98.75 and the 8½% notes due 2010 at 91.75.

Another trader quoted the 13% notes due 2013 at 106.5 bid, 108.5 offered.

Yet another source pegged the 13% notes at 107 bid, 109 offered, compared with 101.5 bid, 102.5 offered previously. He also saw the 6% notes up 5 points at 98, the 8½% notes up 6 points at 91 and the 8 3/8% notes up 12 to 13 point s around 79, compared with levels around 64 on Tuesday.

MGM's term loan and revolving credit facility debt saw a fairly large improvement in the secondary market following the release of details of an amendment that was completed on Tuesday but is still subject to all sorts of conditions before becoming effective, according to a trader.

The term loan was quoted at 79½ bid, 81½ offered, up from around 74 bid, 75 offered and the revolver was quoted at 78 bid, 81 offered, up from around 72½ bid, 74 offered, the trader said.

The trader went on to explain that the positive momentum in trading levels was due in large part to all the repayment demands contained in the amendment, which were outlined in a 424B2 filed with the Securities and Exchange Commission.

MGM loan amendment terms

One such repayment requirement under MGM Mirage's amendment is that $750 million of the credit facility borrowings be permanently paid down with proceeds from two offerings that were announced on Wednesday morning - a $1.5 billion private placement of senior secured notes and the sale of 81 million shares of common stock.

The repayment will be allocated between the term loan and the revolver on a pro rata basis and to the extent that the gross proceeds of the offerings are in excess of $2.5 billion, 50% of that excess amount must also be used to permanently repay bank debt borrowings.

In addition, the amendment provides that the company must use 50% of the net proceeds from any future asset sales to permanently reduce the term loan and revolver on a pro rata basis.

Another repayment requirement is that the company can incur up to $500 million of additional unsecured debt, but only if 50% of the net proceeds are used to permanently reduce the term loan and revolver on a pro rata basis.

Lastly, the amendment says that the $400 million in aggregate repayment of the credit facility borrowings made as a condition to earlier amendments to the credit facility must be treated as a permanent prepayment of the facility.

MGM Mirage's amendment didn't only address repayment provisions; it also raised pricing on the bank debt by 100 basis points to Libor plus 400 bps.

Furthermore, the amendment eliminated the total leverage and interest charge coverage ratios and permanently waived any prior non-compliance with the ratios for the quarter ended March 31, and requires the company to meet a quarterly minimum EBITDA test.

The amendment also limited annual capital expenditures and permanently waived any potential default from the inclusion of a going concern opinion for the years ended or ending Dec. 31, 2008 and Dec. 31, 2009.

In addition to the bank debt amendment, MGM also announced a plan to raise $1.5 billion via a bond offering. The company will sell two senior secured issues maturing in 2014 and 2017. The notes will be secured by a first-priority lien on certain assets, including the Bellagio Hotel and Casino and the Mirage.

Traders said that price talk on the notes is somewhere around 11¼% to 11¾%. The 2014 issue is expected to be about $500 million to $600 million and the 2017 issue is expected around $900 million to $1 billion. Both tranches are expected to come in under par.

The funds raised from the debt offering will be used to repay its $750 million senior credit facility, its 7¼% notes due 2017 and its 2009 maturities.

But despite the seemingly positive response to the news, there is still some question as to whether MGM is out of distressed territory just yet. Standard & Poor's, for one, is considering lifting its rating on the company and placed it on CreditWatch positive. Fitch Ratings meanwhile did in fact upgrade MGM to CCC from C.

"I don't know if they are out of the woods, but it should take some financing worries away for the rest of the year," a trader opined.

GM, Ford decline

The looming threat of bankruptcy and a $1.4 billion stock sale kept both General Motors and Ford Motor topical Wednesday.

GM's debt was seen dropping to near record lows, its 7 1/8% notes due 2013 at 5 bid, 6 offered and its 8 3/8% notes due 2033 at 4.5 bid, 5.5 offered.

Ford, meanwhile, was also weaker, with its 7.45% notes due 2013 at 55 bid, 55.5 offered, its 7 3/8% notes due 2009 at 95.25 and its 7.8% notes due 2012 at 79.5.

"That's a little bit softer," a trader said.

GM has until June 1 to complete a debt-for-equity swap that bondholders have overwhelmingly opposed. Under the terms of the exchange, bondholders would receive 10% equity in the reorganized company. However, bondholders have countered with a proposal of their own, in which they would get over 50% of the new equity. Company management has indicated that it was not willing to negotiate.

In order for the debt swap to be successful, 90% of bondholders must tender their debt.

Over at Ford, the company said late Tuesday that it had raised $1.4 billion by selling 300 million new common shares at $4.75 per share, a 5.2% discount to its closing price as of Tuesday.

Broad market mostly softer

Elsewhere in the distressed debt marketplace, Freeport-McMoRan Copper & Gold Inc.'s ever-active 8 3/8% notes due 2017 closed "a little softer," a trader said, at 96.75.

First Data Corp.'s 9 7/8% notes due 2015 fell a couple points, according to another market source, to 67.5 bid, 68.5 offered. That compared with levels around 70 on Monday.

After the U.S. Commerce Department's monthly retail sales report showed an unexpected decline in April, Rite Aid Corp.'s 9½% notes due 2017 continued to be weak, ending around 56. Traders reported that the rest of the retail sector was on the quiet side.

Washington Mutual Inc.'s senior bank holding company paper, such as the 4% notes due 2009, moved up around 82, while its subordinated issues, like the 8¼% notes due 2010, inched up to 57.

Smurfit-Stone Container Corp.'s 8¼% notes due 2012 gave back some gains it had incurred in the previous session, a trader said. He quoted the bonds at 25.5 bid, 26.5 offered, versus 26.5 bid, 27 offered on Tuesday. The bonds had moved up in the previous session after the company announced it would receive tax credits of $183 million for Jan. 1 through April 30 and it expected credits of $45 million a month through the rest of the year.

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