GM bonds, loan gain despite tender failure; Harrah's, Rite Aid bolstered by refinancing news

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., May 27 ­ As a bankruptcy filing seemed more and more imminent, General Motors Corp. investors pushed the automaker's debt higher Wednesday.

The company's bonds gained about a point, while the bank debt improved about 10 points on a report that indicated a par paydown was likely. GM announced Wednesday that its tender offer had expired - and failed.

Meanwhile, Harrah's Entertainment Inc.'s debt got a boost after the company announced a $1 billion private placement of senior secured notes. The proceeds from the transaction will be used to pay down existing debt.

Refinancing news released Tuesday was also cited as reason for continued gains in Rite Aid Corp.'s bonds.

GM debt up after tender failure

General Motors' debt traded higher following news that the company's debt-for-equity swap had failed, making bankruptcy the likely next destination.

One trader quoted the benchmark 8 3/8% notes due 2033 at 7 bid, 7.25 offered, with $20 million trading. Another trader said the notes were a little better, generically placing them around 7.

At another desk, a source saw the bonds firming by about a point, the 8 3/8% notes at 6.5 bid, 7.5 offered and the 7.2% notes due 201 at 6 bid, 7 offered.

Meanwhile, GM's term loan moved up, also on bankruptcy buzz. The debt was also helped by a Wall Street Journal article that confirmed rumors that if Chapter 11 is in the cards, loan lenders will get paid down in full, according to a trader.

The term loan was quoted at 94 bid, 96 offered, up from 84½ bid, 86½ offered, the trader said, adding that not a lot of the paper is trading since investors are just waiting for the expected par repayment at this point.

On Wednesday, GM revealed that its exchange offers for $27.2 billion of its unsecured public notes for 225 shares of its common stock expired.

The company went on to say that the amount of tenders received was substantially less than the amount needed to satisfy the debt reduction requirement under its loan agreements with the U.S. Department of the Treasury, to meet the debt reduction objectives under its viability plan, or to meet the minimum tender condition of the exchange offers.

As a result of the exchange offer failing, lenders feel more convinced that the company will be seeking bankruptcy protection.

In fact, when GM launched the exchange offer in April, it had said that if, prior to June 1, there were not enough tenders received, it expects to seek relief under the U.S. Bankruptcy Code, and that a sale might be the most likely result.

While bankruptcy was not specifically mentioned in Wednesday's tender offer announcement, the Detroit-based company did remark that its board of directors would be meeting to discuss its next steps.

In sympathy with GM's performance on Wednesday, Ford Motor Co., Visteon Corp. and Lear Corp. all saw their bank debt posting gains, according to traders.

Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted by one trader at 71¼ bid, 72¼ offered, up from 66¾ bid, 67¾ offered, and by a second trader at 72 bid, 73½ offered.

Visteon, a Van Buren Township, Mich.-based automotive supplier, saw its term loan quoted at 36½ bid, 38½ offered, up from 33½ bid, 35 offered, the trader continued.

And, Lear, a Southfield, Mich.-based supplier of automotive seating systems, electrical distribution systems and electronic products, saw its term loan quoted at 66 bid, 67½ offered, up about a point on the day, the trader added.

Harrah's, Rite Aid gets boost

Refinancing news bolstered Harrah's Entertainment's debt, traders reported, as well as that of Rite Aid.

A trader said Harrah's 10 ¾% notes due 2016 "popped" 4 to 5 points to the mid-50s, after the casino operator announced a $1 billion private placement of senior secured notes. Another said the issue was "definitely better" at 55 bid, 56 offered, compared with 49 bid, 50 offered previously.

Another market source saw the 5 ¾% notes due 2017 inching up to 41 bid.

Also, Harrah's term loan B-2 moved up by a few points during the trading session after news emerged that lenders will be getting a paydown if the company's proposed transactions are successful, according to traders.

The term loan B-2 was quoted at 79 bid, 80¼ offered, up from Tuesday's levels of 76½ bid, 77½ offered, traders said.

Late Tuesday, Harrah's said that it is selling $1 billion of senior secured notes due 2017, with proceeds going toward the repayment of some term loan and revolver borrowings, and for general corporate purposes.

Completion of the bond offering is subject to the company successfully amending its senior secured credit facility.

Under Harrah's amendment, the company would be allowed to sell secured notes or loans as long as an agreed amount of the net cash proceeds from any notes or loan issuance are used to prepay existing term loans or revolving loans at par, according to an 8-K filed with the Securities and Exchange Commission.

The revised credit agreement would exclude from the maintenance covenant notes secured with a first-priority lien on the assets that secure the senior secured credit facility that collectively result in up to $2 billion of gross proceeds and up to $250 million of consolidated debt of subsidiaries that are not wholly owned subsidiaries.

In addition, the amendment would permit loan repurchases at a discount and would allow the company to agree with individual lenders to extend the maturity of their term loans or revolving commitments in return for increased interest rates or otherwise modified terms.

As a result of the news, Standard & Poor's said it might lift its ratings on Harrah's by one level to CCC+.

"We view the bank amendment as being a positive step since we were previously concerned that, given our expectation for operating performance, HOC may not have been able to remain in compliance with its senior secured leverage ratio covenant in the coming quarters," said S&P analyst Ben Bubeck in a statement.

Meanwhile, Rite Aid paper continued to improve after the company said Tuesday it was on its way to refinance its debt.

A trader said the main issue trading was the 8 5/8% notes due 2015. He called the issue better by 3 to 4 points around 68.

Another trader said the 8 5/8% notes, along with the 9½% notes due 2017, were "up a good bit" around 67.

On Tuesday, Rite Aid launched a $400 million term loan due 2015. Proceeds form the loan were slated to refinance existing debt, including a $145 million tranche 1 term loan due 2010. The new loan is "part of a comprehensive plan to refinance Rite Aid's September 2010 debt maturities (including its accounts receivable securitization programs) through a combination of a new revolving credit facility, new term loans, the issuance of high yield notes, which may be secured on a first or second priority basis or unsecured, or the entry into a new securitization program," the Camp Hill, Pa.-based company said in a press release.

Broad market firms

Among other names in the distressed stratosphere, Motorola Inc.'s 6 5/8% notes due 2037 were "happening again... based on absolutely nothing," a trader said. He saw the notes end at 73 bid, 74 offered, with $35 million changing hands.

Chemtura Corp.'s 7% notes coming due July 15 were seen ending around 50.

Another trader saw "definite movement" in bankrupt Chemtura's bonds, in line with a near-doubling of its penny-stock shares to 27 cents from 14 cents, though on no firm news.

There was, he said, "quite an upward move in Chemtura's capital structure."

He saw Chemtura's own 6 7/8% notes rise to 70 bid from 64 on Tuesday, on volume of $8 million, while ancestor company Great Lakes Chemical Corp.'s 7% notes slated to come due on July 15 jumped 6 points, to 49.75 bid, on $14 million traded.

Another Chemtura corporate predecessor Witco Corp.'s 6 7/8% notes due 2026 rose to 35 bid from 31, on $6 million traded.

Clear Channel Communications Inc.'s term loan saw a significant improvement during market hours, but traders were hard pressed to be able to find the reason behind the movement.

One trader had the term loan quoted at 60 bid, 60½ offered, a second trader had it quoted at 60½ bid, 61½ offered, and a third trader had it quoted at 59½ bid, 61½ offered.

All three traders agreed that on Tuesday the loan was quoted at 54 bid, 56 offered.

Paul Deckelman contributed to this article.

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