Reader's Digest debt mixed on bankruptcy filing; Six Flags bonds weaken after plan disclosure

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Aug. 24 - Monday's distressed market "definitely felt like it was softer," a market source reported Monday.

The source said that "bids were getting hit," while offers were falling - or in some cases, were not available at all.

"It was a Monday in the summer during the last week of August," a trader said. "And it's behaving that way."

"There are no demands for anybody to do anything right now," the trader continued. "And there's no calendar."

Add to that a lack of real news and the day was "just really a snoozer," another trader remarked.

Of the things that were going on, Reader's Digest Association Inc.'s capital structure ended the day mixed as the company officially filed its prepackaged bankruptcy plan. The bonds were unchanged to lower, while the bank debt was largely unchanged.

Meanwhile, Six Flags Inc. saw some action - albeit not a lot - following the company's reorganization plan filing on Friday. As investors had the weekend to mull the plan lower, they helped to push the bonds a tad lower come Monday.

Reader's debt mixed on filing

Reader's Digest Association's debt ended the day mixed after the company officially filed for Chapter 11 protections.

One trader said the 9% notes due 2017 were being bid at 2, "without a right side." On Friday, the notes had been offered at 5, but had traded at 2.5 bid, 3.5 offered most of the week.

Another source quoted the issue at 2 bid, 3 offered, down a quarter of a point.

Reader's term loan B meanwhile held in at previous levels after the company announced that it moved forward with its restructuring plan by filing for bankruptcy, according to a trader.

The term loan B was quoted at 40½ bid, 42½ offered, in line with Friday's levels, the trader said.

Under the restructuring agreement, senior secured lenders will exchange a substantial portion of the company's $1.6 billion in senior secured debt for equity and will reduce the company's total debt by 75%, from approximately $2.2 billion to $550 million. Ownership of the company will be transferred to the lender group.

Prior to the filing, more than 80% of the company's senior secured lenders had signed on to the agreement in principle.

As part of the restructuring, Reader's Digest has received a commitment for a $150 million new money debtor-in-possession term loan that is being led by JPMorgan.

The DIP, which is convertible into a three-year exit facility, has a term of nine months with one three month extension and is priced at Libor plus 1,000 basis points with a 3.5% Libor floor. If the extension option is exercised, pricing will move to Libor plus 1,100 bps. There is also a 200 bps unused commitment fee.

"Our business operations remain solid, with anticipated fiscal 2009 revenue only down by low single digits, currency neutral, despite the recession. We look forward to emerging with a restructured balance sheet and as a financially stronger organization that is positioned to pursue our growth and transformational initiatives," said Mary Berner, president and chief executive officer, in a news release.

On the news of the filing, Moody's Investors Service cut its rating on the company to D from Ca.

Reader's Digest is a Pleasantville, N.Y.-based media and marketing company.

Six Flags gets some action

Six Flags' debt saw a little action Monday, following the amusement park operator's reorganization plan disclosure on Friday.

A trader said he saw "a couple of quotes," but not many trades in the name. He saw the 9 5/8% notes due 2014 with a bid around 8, but without an offer.

At another desk, the notes were generically quoted at 8 bid, 9 offered, while another source pegged the 9 5/8% notes at 8 bid, down 1.5 points.

According to the terms of the plan filed with Delaware's bankruptcy court, Six Flags' bank lenders will receive 92% on the new equity in the reorganized company. The lenders will in turn issue a new $600 million term loan in exchange for canceling $1.13 billion in debt. By retiring a large portion of its debt, Six Flags would have "appropriate liquidity and a sustainable capital structure," according to court papers.

Bondholders holding about $400 million in debt will meanwhile get 7% of the new stock, amounting to 8% to 12% of what they are actually owed.

Other unsecured creditors - holding about $1.35 billion in debt - will get the remaining 1% of stock.

Sinclair quiets down

A trader saw "no activity" in Sinclair Broadcast Group Inc.'s 8% notes due 2012, which had firmed about 2 points on Friday, to around the 82 level on news of a debt agreement with a committee of its convertible holders aimed that preventing those holders from pushing the company into eventual bankruptcy by putting their debt back to the company - which cannot afford to pay off those bonds - next year. He said the bonds were "in the low 80s, which is where they'd been, but I did not see activity" in the name.

A second trader agreed that there had been "no trades today," leaving the bonds still quoted at the same 82.5 to 83.25 level at which they had been seen finishing up on Friday.

"I'm just seeing old bids out there - nothing today. You don't see any bids in the street on it." He also saw "a few trades" in the 3% convertible notes due 2027 around 90 to 90.25, about the levels to which they had risen on Friday on news of the debt deal.

Paul Deckelman contributed to this article.

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