Sinclair dodges bankruptcy bullet with debt pact; AIG rides momentum up; TXU unit loan better

By Paul Deckelman and Sara Rosenberg

New York, Aug. 21 - Sinclair Broadcast Group Inc. - which last month warned that it could be forced into bankruptcy if its convertible debt holders exercised their upcoming put options - seems to have averted that possibility, announcing a new debt agreement that will take out those converts with the proceeds from a new issue of secured debt. The convertibles jumped Friday on the news, and even Sinclair's straight bonds were up, although traders noted that the holders of the latter paper will be pushed further down the food chain with the new debt issue.

Elsewhere, American International Group Inc.'s bonds were seen mostly better for a second straight session, helped by the momentum generated Thursday by new chief executive officer Robert H. Benmosche's assertions that the problem-plagued insurer will be able to right its financial ship enough to repay the billions of dollars it now owes to Uncle Sam.

However, another big mover from Thursday - Bon-Ton Department Stores Inc. - was seen deriving little additional benefit from the previous day's solid gains notched after the York, Pa.-based retailer issued fiscal second-quarter results and improved full-year guidance.

American Axle & Manufacturing Inc.'s bonds, and those of CIT Group Inc.'s former Canadian financing unit, big gainers earlier in the week, were likewise little-traded and little-moved on Friday, their momentum spent.

In the bank debt market, Texas Competitive Electric Holdings Co. LLC's recently battered term loan paper was being quoted at stronger levels as the day wore on, in line with the overall market's improvement in sympathy with equities, although participants said there seemed to not be enough volume to really get any momentum going. Its bonds meantime were unchanged.

Sinclair converts 'on fire'

A trader said that one of an otherwise dull summer Friday's major features was Sinclair Group, after the Hunt Valley, Md.-based television station group owner announced its debt agreement with its convertible debt holders, in all probability heading off the likelihood that those holders will demand payment on their notes next spring and in early 2011, which Sinclair had previously warned could force it into Chapter 11.

He said that those converts were "on fire" on the news, seeing Sinclair's 3% converts due 2027 having moved up to a 90-92 context from previous levels around 83-84, on good volume. "Holy s**t!" he exclaimed, as he checked the price quotes and saw the magnitude of the move. He also noted that it was not so very long ago - back in the spring, to be more precise - that those bonds had been trading around in the 50s.

He also saw the company's 4 7/8% convertibles due 2018 - which had dipped below 40 for a while earlier this year - trading in an 86-89 range, well up from its most recent sizable trades, seen the week before, around 75 bid, 75¾ offered.

At another desk, a trader said the 3% convertibles were "up a lot," seeing them trading in a 90-93 range before going out at 90, which he said was still up around 6 points from prior levels.

"These were not very active prior to today," he said. "They're off their tops, but still improved." He said he saw "seven or eight" large-sized trades.

Sinclair announced late Thursday, after the domestic financial markets had closed for the day, that it had reached agreement with a committee representing the holders of its $294.3 million of outstanding 3% convertibles and its $143.5 million of 4 7/8% converts, who have the contractual right under those securities' indentures to put them back to the company and demand immediate payment in full in May of next year and January 2011, respectively.

Sinclair had warned in an 8-K filing with the Securities and Exchange Commission back on July 10 that it does not have the money to pay those bonds off should the holders put them back to the company - an event which it said was "highly probable" considering its current stock price, and said it was experiencing difficulty in raising new funds. Sinclair added at that time that it had begun planning for a potential restructuring, including contingency plans for a possible bankruptcy filing.

Under the new agreement, the company's Sinclair Television Group subsidiary would complete a private placement of new 12% second-lien debt securities due 2014, guaranteed by the parent company and certain of its subsidiaries, and secured by a second lien on the assets currently securing the loans under Sinclair Television's senior secured bank credit facility. The coupon on the new notes would increase by one-quarter of a point each six months, of which at least 8% would be paid in cash and the remainder could be paid in additional second-lien notes, subject to a fixed-charge coverage test. Sinclair would use the proceeds from the secured note issue to tender for the 3% converts at a price of 93.5, and the 4 7/8% converts at a price of 90, plus accrued and unpaid interest for each. The tender offers would be conditioned upon, among other things, the company raising sufficient funds from the secured-note placement, and getting at least 95% of the holders of each class of convertible notes to go along with the buyback.

Sinclair bonds rise - but why?

The traders meanwhile noted that Sinclair's $273 million of outstanding senior subordinated notes due 2012 were also higher on the day - and that left them scratching their collective heads in puzzlement.

"We thought that the 8s were going to go down on this news, that they were going to be squashed," one said, noting that issuing the more than $417 million principal amount of second-lien notes required under the deal would push the holders of the unsecured straight bonds further to the back of the line in the event of a bankruptcy or other restructuring situation.

Even so, he said, those 8% bonds traded up 1½ to 2 points, closing at 82.

Another trader, who saw those bonds go home at 82½ bid, 82¾ offered, admitted that he "was surprised. I don't see how this could be good for the 8s" - other than on the theory that the debt agreement might avert a catastrophic restructuring event, even if it means putting another layer of debt above the straight bonds. Even so, he said, "it seems strange that they're up."

Yet another trader quoted the 8s going out at 81½ bid, 82½ offered, which he called up 2½ points, on "not a lot of trading."

One of the traders also noted "some skepticism that the deal will get done," perhaps due to the high threshold of participation needed from the converts holders, or perhaps on the fact that, as Sinclair said in its filing last month, any restructuring of the convertible notes would need to address a potential refinancing and/or extension of the company's revolving loan facility due June 2011. Sinclair also cautioned at that time that restructuring the convertibles at higher redemption prices would leave very little EBITDA cushion, with Sinclair projecting about $159 million of 2009 EBITDA in a soft market which it said is showing "no signs of recovery" from depressed advertising revenues, at least not before the second half of next year.

Also compounding Sinclair's troubles, even if the debt deal does go though, is the problem that Sinclair is having with its local management agreement partner in six of the markets where its TV stations operate, Cunningham Broadcasting Corp. That company is itself facing a potential bankruptcy, which would cause a default under Sinclair's bank credit agreement.

Sinclair warned in the July filing that the potential bankruptcy of Cunningham may result in the rejection of Sinclair's local management agreements with the company - and said that any rejection by Cunningham of these agreements would result in a material loss of revenue, business cash flow and enterprise value for Sinclair.

Despite those looming potential problems, Sinclair's Nasdaq-traded shares jumped as much $1.30, or 60% above Thursday's close, at one point in the Friday session, before closing up 70 cents on the day, or 32.56%, at $2.85. Volume of 4.535 million shares was more than eight times the norm.

AIG improvement continues

A trader said that American International Group's paper "was a bit better today," up for a second straight session on investor response to hopeful-sounding comments from the company's newly installed CEO Benmosche.

"We had a continuation from [Thursday] after the comments by the new CEO," with the New York-based insurance giant's 8¼% notes due 2018 moving up to the mid-70s, ending around 75. He noted that earlier in the week, the bonds had traded in the high 60s, "so in the past couple of days, they're probably up around 5 or 6 points.

"There were a lot of comments [Thursday] by Benmosche" - a respected former CEO of Metropolitan Life Insurance Co. who took the helm of troubled AIG on Aug. 10 - "about the plans that he wants to do - he's going to repay the [government] loans, and he's not going to sell businesses on the cheap [to raise cash for loan repayment] - he's going to sell them for the right price. These were positive comments" that helped the bonds, both Thursday and again on Friday, the trader said.

At another shop, a trader saw AIG's 6¼% bonds due 2037 trading at 40 bid, versus 38 on Thursday, "a nice 2 point pop," on volume of $9 million. One of the day's most actively traded issues, he said, was AIG's 5.60% notes due 2016, which moved up to 64½ bid, up from 63 on Thursday, on volume of $20 million. AIG's 4 7/8% notes due 2010, on the other hand, were up "just a measly 1/8 point" to 933/4, on $12 million traded.

RBS hybrids get rocked

Also among the financials, the trader saw Royal Bank of Scotland Group plc's 7.64% hybrid preferred securities due 2099 as one of the day's active issues, with the Edinburgh, U.K.-based banking company's issue falling to 43 bid versus 48½ on Thursday.

"They got whacked," the trader said, whole noting that the company's ADR shares were actually up 33 cents in NYSE trading, so "I don't know why they would be down so significantly, and on $15 million of [bond trading] volume - certainly nothing to sneeze at."

CIT seen lower

Elsewhere among the financials, CIT Group's bonds were "maybe a touch weaker," said a trader, "particularly at the shorter end."

A second trader said that the New York-based commercial lender's paper was "down another point, on not a lot of volume." He quoted its 7 5/8% notes due 2012 trading in a 57-58 context, while its 4¾% notes coming due in 2010 were "down around 62."

Another trader noted that the company's CIT Group Funding Co. of Canada bonds - which had risen solidly, on pretty heavy volume, earlier in the week on media speculation that those bondholders might be able to file additional claims in the event of a bankruptcy, potentially enhancing their projected recoveries - were almost untraded on Friday, their run having come to an end. The unit's 5.20% notes due 2015 had last been seen on Thursday quoted at 73 bid, while its 5.60% notes due 2011 hung in around 79 and its 4.65% notes due 2010 at 81, all around, or slightly below, the levels to which they had jumped in heavy dealings earlier in the week.

Bon-Ton, Axle bonds fall quiet

Two other major movers earlier in the week were Bon-Ton Department Stores' 10¼% notes due 2014, and the two issues of American Axle & Manufacturing - but on Friday, both were seen not doing very much.

A trader said that the Bon-Ton bonds - which had jumped to levels as high as 61 on Thursday from prior levels around 49, before going home traded around 58 bid, on better numbers and guidance than the market had been fearing - "sort of stopped at 60," a trader said, estimating the bonds up perhaps a point, though on limited volume.

Traders meantime saw little or no movement in American Axle's 5¼% notes due 2014 and 7 7/8% notes due 2017, which earlier in the week had each jumped into the mid-60s from prior levels in the low-to-mid 50s, on the news that the Detroit-based automotive drive train components maker's former corporate parent, General Motors Corp., had agreed to pay American Axle $110 million to cover costs arising from GM's bankruptcy filing earlier this year - which seriously affected American Axle as the company still does 75% of its business with GM. The car maker also agreed to loan its former operation up to $100 million. Assuming the agreement goes through, analysts said it should enable American Axle to avoid having to join the growing list of auto parts suppliers who have been forced into bankruptcy over the last several years, including another former GM unit, Delphi Corp., and onetime Ford Motor Co. subsidiary Visteon Corp.

Axle's paper was "really quiet" on Friday, a trader said.

Ply Gem paper rise rolls on

A trader said that Ply Gem Industries Inc.'s bonds - which started firming solidly a week ago after the Cary, N.C.-based building products maker showed favorable quarterly numbers and executives spoke about its liquidity position on its conference call - were "still feeling good" on Friday, a trader said, although on "not a lot of volume."

He saw its 11¾% senior notes due 2013 at 82 bid, 82 3/8 offered - "call that up 1½ points," he said

- while seeing no trades in the 9% subordinated notes due 2014, most recently seen trading around 40.

TXU unit's loan moves up

Traders in the bank debt market said that Texas Competitive Electric Holdings' paper had improved during the session, although one said that there really was not enough volume to get any kind of momentum going,

The company's loan was seen stronger in line with the overall improvement in the bank debt market, helped by strength in equities.

Texas Competitive, a wholly-owned indirect subsidiary of Dallas-based Energy Future Holdings Corp. - the company formerly known as TXU Corp. before its 2007 leveraged buyout by Kohlberg Kravis Roberts & Co., Texas Pacific Group and Goldman Sachs Capital Partners. - saw its term loan B-2 quoted at 75½ bid, 76½ offered, up about a point on the day, the trader said.

The trader went on to say that Texas Competitive's term loan B-2 gained more ground than most other names in the secondary market.

"Most names were up ½ point," he said, "while TXU is up close to a point. But, it got beat up over the past couple of days.

"It always moves more," the trader remarked.

He added "plus, it's in the 70s - whereas other stuff is in the 80s or 90s - so it's a good buy."

Back on the bond side of the fence, Texas Competitive's 10¼% notes due 2015 were seen little traded on Friday, staying around the same 68ish context to which those bonds had fallen earlier in the week. They were being quoted a week ago around the 73 bid level.

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