Synovus debt posts gains; CIT notes steady; Blockbuster goes back down; Spansion enters market

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Feb. 1 - There was some hesitancy in the distressed debt market Monday, as there was "not a lot pushing anything around," a trader said.

Though the calendar is in full swing, he saw very little in the way of "compelling" activity.

Except, that is, in Synovus Financial Corp. Those bonds were up as much as 6 points on the day, which was attributed to earnings that came out late last week.

Among other financials, CIT Group Inc.'s notes closed steady, even as the company announced further management changes.

And, as per usual in the last few weeks, Blockbuster Inc. remained one of the more active credits. This time, the bonds were seen giving back some, as market players debated the future of the movie rental industry and Blockbuster's place in it.

Synovus debt posts gains

Synovus Financial, a Columbus, Ga.-based financial services holding company, saw its bonds gaining 5 to 6 points following last week's release of fourth-quarter results.

A trader said the 5 1/8% notes due 2017 hit 73 Monday, compared with 67 "before the numbers." He also noted that the 4 7/8% notes due 2013 had not traded, but said they "should be" 85 bid, 86 offered.

On Thursday, the company posted a narrower fourth-quarter loss on higher revenue and a rise in deposits. Synovus reports a loss of $249.9 million, or 54 cents per share. That compared with a loss of $634 million, or $1.93 per share, the year before.

Revenue increased by 15% to $392.7 million and core deposits improved 3.3% form the third quarter and 5.8% from 2008.

However, non-performing assets grew to 6.13%, versus 5.77% in the third quarter and 3.3% for the same quarter of 2008. Net charge-offs dropped to 5.58% from third-quarter levels of 7.33%, but that was still higher than year-ago levels.

"During the quarter, we continued our aggressive approach of recognizing, charging down and disposing of non-performing assets," remarked Richard Anthony, chairman, chief executive officer and president, in the earnings release.

"As we look into 2010, we expect our credit costs to continue to decline, our net interest margin to improve, and our capital ratios to continue to exceed current regulatory standards. Additionally, we look forward to the recovery of the regulatory allowable portion of the $425 million valuation allowance for the deferred tax asset once we demonstrate a sustainable return to profitability. We continue to believe that we have an opportunity to return to profitability during 2010."

CIT notes hold their own

Also in the financial sphere, CIT Group's bonds ended the day relatively unchanged, despite news of another management shakeup.

A market source quoted the 7% notes due 2015 at 86½ bid, 87½ offered, unchanged from Friday.

The New York-based lender announced Monday that Alexander T. Mason, president and chief operating officer, was resigning his position, effective Feb. 26.

"Alex came to CIT at a time of enormous challenge," said Peter J. Tobin, interim CEO, in a prepared statement. "We would like to thank him for his contributions during our restructuring, and we wish him continued success in the future."

The release did not specify Mason's reasons for leaving.

Mason's departure comes about a month after Jeffrey Peek resigned as CEO.

Meanwhile, a trader said that several of Washington Mutual Inc.'s bank issues - such as the floating-rate notes due 2011 issued by Washington Mutual Bank, FA - "was a little active today," trading a few times around 44¼ bid, 44½ offered. He said that the other bank issues - as opposed to the parent corporation's holding company paper - had "all kind of trades right in that same context."

Blockbuster goes back down

Investors were seemingly not yet tired of dabbling in Blockbuster debt, as traders reported the movie rental chain's bonds continued to be "pretty active."

A trader said the 9% notes due 2012 were "a little lower" at 22 bid, 23 offered, compared to 23 bid, 24 offered on Friday. Another source echoed that market.

Another trader said that Blockbuster "seems to again be active," with the 9% senior subordinated notes ending around a "23ish" level, with "good activity." He called the bonds down a point versus Friday's finish.

He meantime saw Blockbuster's 11¾% senior secured notes due 2014 in a 71 bid, 72 offered context, which he called a point lower as well.

At another desk, a trader said the company's 9% notes were active on the day, mostly in a 22½ bid, 23 range, with the 11¾% trading around a 71½ bid, 72 offered context most of the day.

He noted that the 9% paper had gyrated last week, from the high-20s - where they had begun the week after having been mercilessly hammered down from the lower-60s the Thursday and Friday before that, Jan. 21 to 22 - down to lows around 22, then back up to the highs around 27 to 28, before retreating Friday and again Monday back to the 22 area. "I won't say the volume has dried up," he said. "It's just not as active as it was that first couple of days [when] you had a lot of paper changing hands."

A market source agreed that turnover in the Blockbuster bonds as of mid-afternoon was around $8 million - well down from recent sessions.

Blockbuster has been on a roller coaster of late, first dropping more than half its value when the Dallas-based company provided weaker-than-expected fourth-quarter results. Since then, the bonds have fluctuated both positively and negatively, but with no real news driving it.

Last week, a trader told Prospect News that Movie Gallery Inc.'s recent admission that it was considering filing for Chapter 11 protections - again - probably had little to do with any price movements.

"The reality is if Movie Gallery is filing, that should take away competition from Blockbuster," he said. "So wouldn't that, in theory, be good?"

Still, others are pointing to the similar business models of Movie Gallery and Blockbuster as the reason for the industry-wide demise.

"Movie Gallery may end up in liquidation, testimony to the difficulty of maintaining the bricks and mortar business model," wrote Gimme Credit LLC analyst Kim Noland in a research note. In her view, companies like Netflix - which "reported a handsome fourth quarter, adding over 1.1 million subscribers and beating market estimates" - have the right idea and, as such, Blockbuster is one step behind.

"It may not be possible to turn Blockbuster's business around," Noland wrote. "While its high yield issuance last year appeared to buy it some time, its recent negative revision in guidance and inroads into its business by competitors bode very ill for its long term health."

Gimme Credit revised its view on the company to deteriorating from stable.

Spansion, Chemtura enter the market

Spansion Inc.'s $450 million five-year term loan hit the secondary market on Monday, with levels quoted at par bid, 101 offered on the break and then moving up to par ¼ bid, par ¾ offered, according to a market source.

The term loan is priced at Libor plus 550 basis points with a 2% Libor floor and it was sold at an original issue discount of 98. The loan includes 101 soft call protection for one year.

During syndication, the Libor floor on the loan was reduced from 2.5% due to strong demand.

Barclays and Morgan Stanley are the lead banks on the exit financing term loan.

Also as part of the exit financing package, the Sunnyvale, Calif.-based maker of flash memory products will be getting a new $65 million ABL revolver; however, different banks are leading this part of the transaction.

Another deal to free up for trading during the session was Chemtura Corp.'s debtor-in-possession financing credit facility, according to a trader.

The $300 million term loan was quoted at par ¼ bid, par ½ offered, the trader said.

Pricing on the term loan is Libor plus 400 bps with a 2% Libor floor and it was sold at an original issue discount of 991/2.

Citigroup is the lead bank on the deal that also includes a $150 million revolver priced at Libor plus 400 bps with a 2% Libor floor.

During syndication, pricing on the term loan and the revolver was lowered from Libor plus 425 bps and the discount on the term loan was decreased from 99.

Chemtura is a Middlebury, Conn.-based manufacturer and seller of specialty chemicals and polymer products.

Cinram loan falls on Warner news

Cinram International Income Fund's term loan D dropped significantly in trading on Monday after the company announced that Warner Home Video Inc. is terminating its service agreements on July 31, according to traders.

Warner Home Video revenues for 2009 represented approximately 28% of the total consolidated revenues of Cinram.

"While we are disappointed with the decision by [Warner Home Video] to end our over six-year relationship as their exclusive service provider of standard DVD products and distribution services, we will nevertheless be working closely with [Warner Home Video] to ensure an orderly transition of the services and ensuring that all affected employees and other stakeholders are given the absolute greatest consideration during this process," said Steve Brown, chief executive officer, in a news release.

On the news, Cinram's term loan D was quoted by one trader in the low 70s, down from around 86½ bid, 88½ offered, and by a second trader at 67 bid, 72 offered.

Cinram is a Toronto-based provider of pre-recorded multimedia products and related logistics services.

Broad market steady

Also in the distressed debt realm, NewPage Corp.'s 10% notes due 2012 continued to see action. However, a trader called the bonds unchanged around 66, on about $10 million traded.

Energy Future Holdings Corp.'s 10 7/8% notes due 2017 were not "much different" at 78 bid, 80 offered, according to a trader.

Paul Deckelman contributed to this article.

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