General Growth mixed on equity investment; Blockbuster gains on hiring news; Kodak debt higher

By Stephanie N. Rotondo

Portland, Ore., Feb. 24 - General Growth Properties Inc. and Blockbuster Inc. were Wednesday's most notable names in the distressed debt market, as a news flurry took over.

In General Growth, the company's bonds fell some in active trading after word the company had received an equity investment that would allow it to exit bankruptcy - and remain a standalone company. However, the news did result in some gains for the bank debt.

Blockbuster meantime saw its bonds heading upward as news outlets reported the company had hired financial advisers and was also looking at picking up some of Movie Gallery Inc.'s assets. Late in the day, the company also filed its quarterly results - which, as promised, were not stellar.

Elsewhere, Eastman Kodak Co.'s notes inched up a tad as the company readied to price a new issue. Toward the end of the session, the company said it had upsized the new deal and pricing was set.

U.S. Concrete Inc. began trading without accrued interest during the midweek session. Traders had seen the bonds quoted flat all week, but it was confirmed Wednesday that they were in fact trading in such a fashion.

GGP mixed on equity investment

General Growth Properties' bonds were among the day's most active "obviously," a trader said, following news of an equity investment from Brookfield Asset Management.

The trader saw the debt "off probably about a point," placing the "shorter stuff" - such as the 7.20% notes due 2012 - "up and down" 112, while the longer issues - like the 5 3/8% notes due 2013 - closed at 107 bid, 108 offered.

Another trader said the 5 3/8% notes were the "most active" of the General Growth debt. He pegged the issue around 106, which he called "down a couple from [Tuesday]."

However, the Chicago-based mall operator's term loan gained some ground on the proposed recapitalization plan, according to a trader.

The term loan was quoted at 101¾ bid, 102¾ offered, up from 101 1/8 bid, 101 5/8 offered, the trader said.

The company's revolver, meanwhile, was only up on the bid side moving to 101½ bid, 102 offered from 101¼ bid, 102¼ offered, the trader added.

Under the proposed recapitalization, Brookfield would provide $2.625 billion of equity to General Growth Properties.

The company said that the proposed plan is designed to maximize value for all stakeholders and enable it to emerge from bankruptcy on a standalone basis with a diverse portfolio of high-quality income-producing assets, strong cash flow and a solid balance sheet capitalized principally with long-term non-recourse debt.

Specifically, the proposed plan would provide General Growth Properties' existing shareholders with one share of new common stock with an initial value of $10.00 per share, plus one share of General Growth Opportunities with an initial value of $5.00 per share, for total consideration of $15.00 per share.

General Growth Opportunities will be a new company that will own certain non-core assets, such as all of the company's master planned communities and landmark developments like South Street Seaport.

Also, General Growth Properties' unsecured creditors will receive par plus accrued interest.

And, Brookfield will invest $2.5 billion at $10.00 per share for new General Growth Properties common stock and up to $125 million at $5.00 per share for General Growth Opportunities common stock

The plan is subject to definitive documentation, approval of the Bankruptcy Court and higher and better offers pursuant to a bidding process to be approved by the Bankruptcy Court.

"This proposed plan offers significant value for all of our stakeholders," said Adam Metz, chief executive officer of GGP, in a press release announcing the news.

"It is designed to allow GGP to deliver a minimum of $15.00 per share in value to our existing common shareholders, while providing our unsecured creditors with par plus accrued interest. The Brookfield-sponsored recapitalization - coupled with the more than $13 billion of restructured debt, our compelling scale as the second-largest regional mall owner, our fortress assets and a business plan that focuses on further deleveraging the balance sheet and building liquidity - provides a strong financial foundation for the future. In addition, GGP shareholders will be able to participate in the value-creation opportunity presented by this plan.

"We have tremendous respect for Brookfield and its management team," Metz added. "We believe Brookfield will add substantial value to both enterprises over the short and long term through its asset management expertise and access to global institutional capital sources. We look forward to welcoming Brookfield as a significant shareholder in the company following our emergence from Chapter 11."

Blockbuster bonds gain on hirings

Dallas-based movie rental chain Blockbuster saw its bonds improving during the midweek session as The Wall Street Journal reported the struggling company had hired financial advisers.

Several market sources saw the 9% notes due 2012 ending around 20, on about $25 million traded.

"So that was up a couple points," a trader said, "which makes no sense to me. Somebody must think something good is happening."

Blockbuster has reportedly hired Rothschild Inc. and Weil, Gotshal & Manges to explore its recapitalization options. The Journal also said that the company was talking with Movie Gallery Inc. to purchase some of its assets.

Late in the day, Blockbuster also released its fourth-quarter and full-year results. Last month, the company had forewarned the market that the results were not going to be good, due to disappointing holiday sales.

For the fourth quarter of 2009, Blockbuster reported total revenues of $1.08 billion, versus $1.31 billion the year before. Net loss widened to $434.9 million, or $2.24 per share. That compared with a net loss of $359.8 million, or $1.89 per share, for the same quarter of 2008.

The company ended the quarter with $188.7 million in cash and equivalents, as well as $58.5 million in restricted cash related to letters of credit. Free cash flow was positive at $42.9 million.

For fiscal 2009, total revenues fell to $4.06 billion from $5.07 billion in 2008. Net loss jumped to $558.2 million, or $2.93 per share, versus $374.1 million, or $2.01 per share, the previous year.

"While Blockbuster had a challenging year, we did make progress during the year towards the continued transformation of Blockbuster," said Jim Keyes, chairman and CEO, in the earnings release. "We completed these initiatives in spite of a challenging global economy and the practical constraints of limited liquidity while we were refinancing the company's debt."

"While we believe the future is bright, the next 12 to 18 months will remain challenging as we balance the secular decline of a single channel with the ascension of emerging channels; such as vending and digital," Keyes added.

"We recognize the need to focus on liquidity and regain the confidence of our stakeholders and will continue to reduce costs, while expanding our new channels through collaborative partnerships. Meanwhile, we will continue to explore a variety of strategic alternatives to strengthen our capital structure to position the company for success in our transformational efforts."

Kodak debt up on new issue

Eastman Kodak's bonds inched up slightly as the company readied to price a new issue.

A trader pegged the 7¼% notes due 2013 at 953/4, which he called up half a point.

The company was slated to price the $400 million secured notes on Wednesday via Citigroup. By the end of the day, it was learned that the deal had been upsized to $500 million. Pricing was set at 9¾% for the eight-year notes, which will be issued at 97.967, yielding 10 1/8%.

Pricing was originally expected to be around 10% to 10¼%.

Also on Wednesday, Rochester, N.Y.-based Kodak said it had agreed to repurchase $300 million of 10½% secured notes due 2017 that were issued to Kohlberg Kravis Roberts & Co. L.P. The repurchase is contingent on the sale of at least $300 million of the new notes.

"The repurchase of the notes from KKR, together with Kodak's previously announced tender for up to $100 million aggregate principal amount of [7¼% notes], will extend the maturity of Kodak's debt, and is expected to increase Kodak's financial flexibility," the company said in a statement.

Standard & Poor's rated the new issue at B-, while Moody's Investors Service placed the paper at Ba3. Fitch Ratings rated the notes at BB-.

U.S. Concrete bonds officially flat

There were "a lot of trades" in U.S. Concrete's bonds Wednesday, according to a trader.

The trader deemed the 8 3/8% notes due 2014 "up a little from yesterday" at 55 bid, 57 offered.

At another desk, a trader confirmed that the bonds were officially trading flat, or without accrued interest, at 56 bid, 57 offered.

"That's a lot of accrued," he said, noting that the bonds had about "150-odd days" worth of interest piled up. "So they have really come off."

The second trader also noted that the bonds had been "shaky" all week, as investors absorbed news out last Friday regarding the hiring of financial advisers. However, he added that there was "bigger size trading as people start to absorb it."

Broad market mixed

Among other distressed credits, Sprint Nextel Corp.'s 8 3/8% notes due 2017 were active "up and down" 97 bid, 98 offered, a trader said. He added that about $25 million of the issue changed hands.

Harrah's Entertainment Inc.'s 10% notes due 2018 also continued to be active, with total volume in the paper coming to about $30 million in Wednesday's session. The trader placed the notes at 75, while another quoted them at 74 bid, 75 offered.

And, Six Flags Inc.'s 9 5/8% notes due 2014 closed unchanged around 25, on "a few trades," according to a trader.

Sara Rosenberg contributed to this article

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