E*Trade Financial continues to climb; Solo Cup plans new debt offering, existing bonds steady

By Stephanie N. Rotondo

Portland, Ore., June 19 - A trader said, "There was not much going on outside of E*Trade [Financial Corp.]" on Friday in the distressed marketplace.

"There was no volume," said another trader of the day's overall activity. He noted that trading in the secondary world fell under $1 billion, all told.

"Today was really just a waste of time," lamented another source.

Still, E*Trade continued to generate interest. The bonds have soared up around 30 points since Wednesday, when the company announced a recapitalization plan that included a $1 billion-plus debt swap.

Away from that, Solo Cup Co. announced it would offer new secured notes, a move aimed at paying down its existing debt. But as the company looked to attract new investors, holders of existing debt did not seemed fazed and the bonds ended unchanged.

E*Trade continues to climb

E*Trade Financial bonds were "up a bunch again," a trader said, as the debt has gained momentum since the company announced a debt exchange and public equity offering.

A trader said the 8% notes due 2011 had hit 110, "so that's like through the roof." Another trader pegged the issue at 109.5 bid, 110 offered and the 12½% notes due 2017 around 106.

"I think it is because [bondholders] have decided [the company] will take all this stuff out," the first trader said of the massive gains racked up in the name since the announcement. Word of the recapitalization deal first came out Wednesday and resulted in a 15-point-plus gain in the company's corporate debt.

E*Trade's bonds "are up so much that it's a joke," another trader said, calling the 8% notes up as high as the 109.5, 110 level. He noted that "yesterday [i.e., Thursday], they were at 103 - and a month ago, they were much, much lower."

"Anybody who had shorted them," thinking they would go lower, "will be crying all weekend."

And, though so-called distressed issues rarely trade in the par range, Standard & Poor's still considers the credit to be squarely in junk territory and went so far as to call the proposed swap a distressed debt exchange.

"The exchange is under duress and bondholders are giving up substantial interest income," the rating agency wrote in a statement.

Still, S&P's characterization may mean little to the broader market.

"S&P has proven to have less of a clue than any single entity in the market," opined one market source. The source also saw the overall transaction as a positive.

"I think the economics work out," he said. "They'll end up with some cash and control of the company. "And the company obviously has some value."

Under the terms of the recapitalization plan, E*Trade will issue more than $1 billion zero-coupon 10-year convertible notes in exchange for all of its outstanding 8% notes and some of its 12½% notes.

The company will also issue 435 million new shares of common stock. The deal includes a greenshoe good for an additional 65 million shares.

The stock deal priced Friday at $1.10 per share. Total proceeds expected are $478.5 million.

Solo Cup steady on debt news

Solo Cup announced a new debt offering Friday, but the news did little to the company's existing debt.

One trader said there had been "no round lot trades in three weeks, best I can tell." He said the 8½% notes due 2014 last traded around 81.5.

Another market source quoted the notes at 81 bid, 82 offered, calling that "about where it's been, but down from levels a week ago."

But at another desk, a trader said the bonds "are up about 2 points" on the news that the company will do a secured financing deal. He called the 8½% notes 82.5 bid, 83.5 offered.

The Highland Park, Ill.-based company will issue $300 million of new senior secured notes due 2013. Funds from the transaction "are expected to be used to repay all amounts outstanding under the company's existing first-lien credit agreement and to pay the fees, expenses and other costs relating to the offering and the bank financing," the company said in a press release. "The bank financing includes a proposed $200 million asset-based revolving credit facility."

On the news, Moody's Investors Service affirmed its rating on the company and deemed the outlook stable. The agency also called the deal credit neutral, given what proceeds would be used for.

Paul Deckelman contributed to this article.

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