Blockbuster debt boosted on new bond offering; Sprint jumps on Deutsche buyout chatter

By Stephanie N. Rotondo

Portland, Ore., Sept. 14 - The distressed debt market started the week out firmer, market players reported Monday.

Leading the way was Blockbuster Inc. and Sprint Nextel Corp.

Blockbuster's bonds continued their upward climb, breaking the 70 barrier during Monday's session. The company's bank debt was also stronger following news that the company was planning a new debt issue.

Meanwhile, rumors regarding a Deutsche Telekom buyout helped Sprint's paper jump as much as 8 points on the day. But not everyone sees a merger of the T-Mobile parent and Sprint as the wisest choice.

Nortel Networks Ltd.'s notes gyrated after the company announced Avaya had won Nortel's corporate networking business at auction. But by the end of business, the bonds had come back to about unchanged.

Blockbuster debt rallies

Blockbuster's bonds and bank debt continued their upward ascents following news that the movie rental chain was planning a new debt issue.

One trader said about $4 million to $5 million of the 9% notes due 2012 traded between 69 and 701/4. Another trader remarked that the issue "cracked 70," quoting the debt at 70 bid, 70½ offered. That compares to 67 bid, 69 offered last week.

Another trader said the notes closed around "plus/minus 70."

The term loan B was quoted at 92 bid, 93 offered, up from Friday's levels of 90¾ bid, 91¾ offered, a trader said.

On Monday, Blockbuster revealed that it would give term loan B lenders the option to trade their debt in for new notes or extend the maturity on their debt.

The notes that are being offered in exchange for term loans are senior secured notes due in 2014 that will have equal priority to liens granted under the company's credit facility.

Blockbuster is offering to sell up to $340 million of these new notes.

JPMorgan is the lead on the notes and plans to hold an investor call on Tuesday to launch the offering.

Proceeds from the notes that are not exchanged for term loans will be used to repay all outstanding debt under the company's revolver and Canadian asset-based revolver, and for general corporate purposes.

Concurrently with the notes offering, Blockbuster is doing an extension offer for its term loan B, under which lenders can agree to push out the debt's maturity to May 31, 2012 from Aug. 20, 2011.

The extended term loan B debt will have higher pricing.

In addition, the extended term loan B will have a revised loan amortization payment schedule.

The credit facility amendment will also include changes to financial covenants.

Also, the notes carry a "springing maturity," meaning that if the company cannot refinance its 9% notes, the new notes would become due May 2012.

But market players are having a hard time believing the notes could be refinanced at this time.

"I don't know how they are going to refinance those," a trader said. "They have a losing business model that has been losing money for years.

"I certainly wouldn't want to own stock in them," the trader added, noting that the equity was trading well above its 13-cent high, around $1.30.

"They are going to have to do something creative," said another trader. "I don't know how they would be able to refinance with the bonds at this price, without somebody putting more money into them."

Blockbuster is based in Dallas.

Sprint jumps on Deutsche buyout talk

Sprint Nextel's debt gained as much as 8 points on the day as rumors circulated that T-Mobile parent Deutsche Telekom was considering a buyout.

A trader called the 8 3/8% notes due 2017 "up a little bit" at 98 5/8, while the 8¾% notes due 2032 improved by 3 to 4 points to around 91, on about $75 million and $30 million traded, respectively.

Another market source deemed the 6% notes due 2016 up 3½ points to 87½ bid.

Yet another source called the longer-dated paper up 8 points,and the shorter debt up somewhere below that 8-point mark. He quoted the 8¾% notes at 90 bid, 91 offered, versus levels around 84½ on Friday.

At another desk, the 6% notes jumped to 88 bid, 89 offered from 83 bid, 84 offered previously, and the 6 7/8% notes due 2028 closed at 78 bid, 79 offered, compared to 73 bid, 74 offered previously.

The Sunday Telegraph first reported that Deutsche Telekom had secured Deutsche Bank as an adviser on a potential sale, with an offer expected in the next few weeks.

A combination of Sprint and T-Mobile would pose a bigger threat to AT&T Inc., which currently is the second-largest mobile carrier in the United States. Verizon Wireless is the country's largest carrier.

Still, not everyone sees this as the right move.

Dave Novosel, an analyst with Gimme Credit LLC, said in afternoon comment that a purchase of Sprint "creates a host of problems," the foremost being the financial risk.

"Sprint has a market cap of nearly $11 billion and a deal would almost certainly contain a significant premium," Novosel wrote. "Raising cash of this magnitude would push [Deutsche Telekom's] leverage considerably higher."

In addition to the financial concerns, Novosel also said that Sprint's "major problem" is that the company operates on two technologies, CDMA and iDEN.

"Adding a third does not seem to be an elegant solution," he said.

But rumors of this kind tend to pop up from time to time, he reminded, "so these reports need to be placed in perspective."

Sprint Nextel is based in Overland Park, Kan.

Nortel notes take a ride

A trader saw Nortel Networks' bonds "on a little ride, based on the news" that Avaya is to acquire Nortel Networks' corporate networking business for $915 million in cash - almost double its initial $475 million "stalking horse" offer.

He said "there was a lot of volume" in the Nortel 10¾% notes due 2016, seeing them start the day at 54½ bid, 55½ offered but ending at 52½ bid, 53 offered, which he called "almost unchanged" versus their late-Friday levels.

"The news of the sale took them up a couple of points, but they're ending unchanged. They came back down [from the earlier peaks]," the trader said.

Elsewhere in the technology sphere, Freescale Semiconductor Inc.'s 8 7/8% notes due 2014 closed around a 77-78 range, with the last trade at 771/2, "which is up a point from last week, but on not a lot of volume," a trader said.

Sara Rosenberg and Paul Deckelman contributed to this article.

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