E*Trade jumps up to 20 points on debt swap; Clear Channel active, lower; broad market weaker

By Stephanie N. Rotondo

Portland, Ore., June 17 - E*Trade Financial Corp. was the name most thrown about on Wednesday, after the company announced a recapitalization plan that included a debt exchange.

Following the news, the online stock trading company's debt traded in good size and gained as much as 20 points, depending on which issue you were looking at.

Meanwhile, Clear Channel Communications Inc.'s bonds were also on the active side. However, unlike E*Trade, the debt was seen losing ground on no new news.

Overall, the market was decidedly weaker, as the equities gyrated throughout the session. Volumes were still on the smaller side, which more and more, sources were attributing to the advent of summer.

E*Trade jumps on debt swap

E*Trade Financial's bonds spiked as much as 20 points higher during the mid-week session on news of a recapitalization effort.

One market source deemed the name the "most active overall," quoting the 12½% note due 2017 at 89 bid, 90 offered and the 8% notes due 2011 at 98 bid, 99 offered. He said the former was up 20 points, while the latter gained 15 points.

Another source quoted the 12½% notes at 87 bid, 89 offered, calling that up about 15 points. The second trader also saw the 8% notes at 98 bid, 99 offered, while also seeing that 7 3/8% notes due 2013 at 80b bid, 81 offered.

On Wednesday, the New York-based company said it would conduct a debt swap for more than $1 billion, as well as a $400 million common stock offering. The company's largest shareholder, Citadel Investment Group LLC - which has already agreed to purchase up to $100 million of the new equity - supports both efforts. Citadel said it would also tender at least $800 million of the debt it holds.

Under the terms of the debt exchange, E*Trade will swap out all of its 8% notes and a portion of its 12½% notes for new 10-year convertible debt. The strike price will be no less than $1 per share and no higher than $1.20 per share.

Following the news, Moody's Investors Service said it would continue its review of the credit and maintained its Caa3 rating on the company's outstanding bonds.

"If successfully executed, the recapitalization should be beneficial to E*Trade's credit profile and, consequently, would increase the likelihood that its B3 rating would be confirmed," said Alexander Yavorsky, Moody's vice president, in a statement. "However, given the magnitude of the task, and the company's unstable financial condition, there is substantial execution risk. This is the main reason why we are continuing our review for a possible downgrade."

Clear Channel active, weaker

Clear Channel Communications' debt traded actively as well Wednesday, though there was no fresh news to explain the action.

A trader said the bonds ended the day anywhere from 2 to 4 points softer, pegging the 6¼% notes due 2011 at 46 bid, 47 offered. He also quoted the 5½% notes due 2014 at 24 bid, 25 offered and the 10¾% notes due 2016 at 29 bid, 30 offered.

Clear Channel is currently involved in negotiations with lenders regarding a proposed debt exchange. Under the terms, Clear Channel Outdoor - which sells radio and outdoor advertising - would repay $2.5 billion in debt to its parent company. But thus far, lenders have resisted the proposal, hoping instead that the company would be forced into breaching its loan covenants, thereby giving said lenders more control of the talks.

Broad market lower

The distressed debt market continued to experience weakness Wednesday and, away from such names as E*Trade and Clear Channel, volumes were still lagging behind recent highs.

Retailers like Neiman Marcus Group Inc. and Rite Aid Corp. were seen softening as fellow retailer Eddie Bauer filed for Chapter 11 protections. Neiman's 10 3/8% notes due 2015 fell nearly 7 points to 59.75 bid, while Rite Aid's 8 5/8% notes due 2015 dipped 4 points to 64.5 bid.

Among retail-related names, General Growth Properties Inc.'s 5 3/8% notes due 2013 closed at 66.5, down from around 68.

Capmark Financial Group Inc.'s bonds dropped about 3 points, a trader said, placing the 7 7/8% notes due 2012 at 24 bid, 25 offered, compared with 27 bid, 28 offered previously. The 8.3% notes due 2017 slipped to 21.5 bid, 22.5 offered, versus levels around 24 on Tuesday.

In the technology sector, Freescale Semiconductor Inc.'s 8 7/8% notes due 2014 declined 5 points to around 53, while the 10 1/8% notes ended around 35. The 9 1/8% notes due 2014 were seen finishing around 38.

Pilgrim's Pride Corp.'s 7 5/8% notes due 2015 decreased more than 2 points to 86.5. The move came just one day after Smithfield Foods Inc. posted its first annual loss in three decades.

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