Smurfit notes hit by weak market; casino drops in market sympathy; broad market under pressure

By Stephanie N. Rotondo

Portland, Ore., May 6 - The distressed debt market turned distressed indeed on Thursday, following a trend set by a rapidly declining equity market.

Still, one trader pointed out that distressed bonds were already on a weakening path before the Dow Jones Industrial Average lost nearly 1,000 points before returning to finish at 10,520.32, or down 347.80 points on the day.

"Our market was getting hit before that," he said, as investors worried about the so-called stock market correction, as well as what was going on with the European economy.

"Obviously, the market was pretty volatile," he said. "A lot of stuff was getting smacked around."

Smurfit-Stone Container Corp.'s bonds continued a losing streak that began on Wednesday. The bonds lost another 3 points, adding to the 3 points lost the day before. The losses were credited to the overall market trend - 3-point losses seemed to be pretty standard in the broad market - but the company had also reported its first-quarter results late Wednesday.

The gaming arena also suffered in the depressed trading day. Harrah's Entertainment Inc.'s bonds were seen losing as much as 5 points on the day, while MGM Mirage - which also released earnings on Thursday - dropped as much as 4 points.

Weak market hurts Smurfit

Smurfit-Stone Container debt ended the day "down 3 points, across the board," a trader said, following the general trend of the market.

The trader quoted both the 8¼% notes and 8 3/8% notes due 2012 at 93 bid, 93½ offered and the 8% notes due 2017 at 941/4.

Another trader deemed the bonds down 3 to 4 points, quoting them generically at 92 bid, 93 offered.

And, yet another source pegged the 8¼% notes at 93½ bid, a 3-point loss on the day.

Late Wednesday, the Chicago-based manufacturer of paper packaging posted its quarterly results for the period ending March 31. The results showed a $31 million operating loss on $1.46 billion in net sales.

That compared with a $6 million operating loss for the same period of 2009, on $1.37 billion in net sales.

Net loss narrowed to $89 million from $214 million the year before. Cash and equivalents was $702 million as of March 31, down just $2 million from the prior quarter.

Smurfit also said that the confirmation hearing on its reorganization plan came to an end on May 4 and that it hopes to emerge from bankruptcy protections in the second quarter.

Casinos drop in sympathy

Casino credits were weaker in sympathy for the market, though there was also some sector news that could have accounted for the losses.

Harrah's Entertainment paper continued to be active, traders reported, but closed about 4 to 5 points softer.

One trader saw the 10% notes due 2018 at 791/2, a loss of 4 or 5 points, he said. The 10¾% notes due 2016 were also down about that much, trading around the 82 level. But the 11¼% notes due 2017 lost only 2 points, ending around 104.

The trader also saw MGM Mirage's debt falling 2 to 4 points, depending on the flavor. The 6¾% notes due 2013 slipped 3 points to around 90, while the 7½% notes due 2016 dipped 4 points to around 82 1/2.

"The shorter ones were down a little less," he said. He also noted that MGM paper was "not all that active, considering the day" and considering the company had quarterly earnings out.

At another desk, Harrah's 10% notes were seen falling as low as 78 bid, 79 offered before they came back to finish at 81 bid, 82 offered.

"Good God, what a rollercoaster," the trader said, adding that the bonds had been "in the mid-80s yesterday."

On Thursday, the American Gaming Association published a report that estimated 2009 revenues from the U.S. commercial casino industry at $30.74 billion, a 5.5% decline year over year.

Still, the AGA maintained that the industry was "a vital asset to the nation's economy."

"This past year was tough for all Americans, and it was tough for our business as well," said Frank J. Fahrenkopf, Jr., president and chief executive officer of the AGA, in a statement. "Nearly every industry that depends on consumer spending to succeed has been negatively impacted by the recession. But I'm pleased to say that our industry has continued to provide Americans with jobs and state and local governments with tax revenues that have helped hard-hit government budgets weather this storm."

Also on Thursday, MGM reported a first-quarter loss of $96.7 million, or 22 cents per share. The year before, the Las Vegas-based casino operator posted a profit of $105.2 million, or 38 cents per share.

"We see signs of improvement in the Las Vegas market and expect those to accelerate in the second half of the year and into 2011," stated Jim Murren, chairman and CEO, in the earnings release. "Our forward bookings continue to improve as our convention bookings continue to gain traction. We are well positioned to increase our operating margins and cash flows as the economy recovers.

"We expect Las Vegas visitation to be strong for the balance of 2010 and Aria's conference calendar is strengthening; therefore, we expect Aria's occupancy to improve over the balance of the year," he added.

"Now that CityCenter is complete, we are able to use its architecturally unique and highly visual assets in a coordinated global advertising push."

Broad market under pressure

There was "a lot of paper just getting slaughtered," a distressed debt trader said of the day's goings-on.

But, some credits managed to "rebound from their lows," he added.

For example, Clear Channel Communications Inc.'s 11% notes due 2016 hit 71½ bid, 72½ offered and then came back to end at 72½ bid, 73½ offered.

Still, the trader noted that the bonds were still 2 to 3 points weaker than levels seen Wednesday.

CIT Group Inc.'s 7% notes due 2017 were also down in the neighborhood of 3 points around 90.

Another "interesting one," the trader said, was General Motors Corp.'s 8 3/8% notes due 2033, which fell 5 or 6 points to levels below 30. But, like Clear Channel, the bonds regained some ground, closing only 3 points lower at 31½ bid, 32 offered.

And, Blockbuster Inc.'s 9% notes due 2012 fell "another point," according to another source, to around 191/4.

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