Skilled Healthcare crashes; GM dips despite sale, market; WaMu holds steady; broad market firm

By Stephanie N. Rotondo

Portland, Ore., July 7 - Distressed debt continued to be firm during Wednesday trading, though it did not see huge gains like the equity markets.

"The market was better all day, but not nearly as much as the equity markets were," a trader said. He noted that, generally, bonds were up half a point to a full point depending on if there was news out.

"The market flew today," said another source.

However, the generally positive tone in the market did not help Skilled Healthcare Group Inc.'s debt. The nursing home operator was slapped with a nearly $700 million bill for statutory damages and restitution in regard to a 2006 lawsuit filed against it. Upon learning that news, the company's term loan lost more than 10 points, while the bonds were being quoted down significantly from where they last traded.

Meanwhile, General Motors Corp.'s notes did not react in line with the market, ending the day down about half a point. This surprised one market source, who noted that the bonds typically trade within the context of the market.

Washington Mutual Inc. saw its bonds holding steady, even as a group of preferred shareholders filed a lawsuit against the now-defunct bank. The lawsuit has to do with the 2008 transfer of certain securities and the subsequent sale of the company.

Skilled Healthcare crashes

Skilled Healthcare Group's debt fell significantly during the midweek session as a jury ruled that the company should pay $613 million in statutory damages and $58 million in restitution, according to a trader.

The verdict relates to a complaint filed in 2006 that claimed certain of the company's California-based facilities were understaffed and misrepresented the quality of care provided in their facilities.

The verdict is a result of the first phase of deliberations. The jury has yet to hear the punitive damages phase of the trial.

Following the news, Skilled Healthcare's term loan was quoted by one trader at 82 bid, 85 offered, down from 98½ bid, 99 offered, and by a second trader at 82 bid, 85 offered, down from 98½ bid, 99½ offered.

The first trader said that he saw the paper quoted in the 70s at one point during the day, but he didn't think that it actually traded that low.

In the bonds, a trader noted that the 11% notes due 2014 - which he said last traded on July 1 at 104 - were being quoted at 35 bid, 75 offered. According to the Trace bond-tracking system, the bonds did not trade on Wednesday.

"We are deeply disappointed in the verdict, and continue to firmly believe that our facilities are appropriately staffed and that our caregivers work hard every day to provide the care and services our residents need and deserve," said Boyd Hendrickson, chairman and chief executive officer, in a statement posted on the company's website. "We strongly disagree with the outcome of this legal matter, and we intend to vigorously challenge it."

In order to satisfy the typical bonding requirement to defer enforcement of a judgment during the pendancy of an appeal, the company would be required to post a bond for 150% of the final judgment amount.

The company currently has $94 million of borrowing capacity under its $100 million revolving credit facility. However, its ability to draw the funds is limited by the revolver covenants.

And, the company's primary professional liability insurance coverage has been exhausted for the policy year applicable to this case.

Skilled Healthcare is a Foothill Ranch, Calif.-based healthcare services company.

GM dips despite sale, market

General Motors' bonds slipped in trading, even as the company announced an asset sale and the general market was trending higher.

"The market was up huge and [GM] is one that has kind of been trending with the general sentiment of the market," said one trader who was surprised by the price move.

The trader - as well as other market sources - said the benchmark 8 3/8% notes due 2033 fell half a point to around 311/2.

The Detroit-based carmaker announced it had reached a deal with Pacific Century Motors, an entity formed by the Tempo Group and an affiliate of the Beijing Municipal Government, to sell GM Global Steering Holdings LLC - more commonly known as Nexteer.

The terms of the deal were not disclosed.

The sale is part of GM's overall objective to "focus on our core auto business," according to GM's vice chairman Stephen J. Girsky. In a press release posted on GM's web site, Girsky said the sale was "a move we believe will make it a more vibrant and healthier business."

The deal is expected to close by the end of the year.

WaMu debt ends steady

Washington Mutual's notes were about unchanged by the end of business on Wednesday, though the Seattle-based thrift experienced another hiccup in its bankruptcy case.

One trader saw the 4% notes that were to have matured in 2009 at 105 and the 5¼% notes due 2017 at 1071/4. Another said the 4% notes were "fairly active," also at the 105 level.

The second trader also said the bank seniors, like the 5.55% notes due 2010, were "pretty much unchanged" around 43.

A group of stakeholders holding about $1 billion in WaMu securities filed a complaint against the company on Wednesday, alleging that the company and federal regulators lied about the 2008 exchange of $4 billion in preferred shares to a subsidiary and the subsequent sale of the bank to JPMorgan Chase & Co.

In other financials, CIT Group Inc.'s 7% notes due 2017 were "active today," a trader said, though he added they were "probably unchanged" at 92 bid, 93 offered.

Broad market mostly better

Among other distressed issues, OPTI Canada Inc.'s due 2014 inched up half a point to 861/2, according to a trader.

Anadarko Petroleum Corp. meanwhile took the top trading spot for the day yet again, gaining 2 to 3 points "depending on the maturity," a trader said.

"They've been leading the pack again," the trader said, seeing the benchmark 5.95% notes due 2019 at 91, a gain of over 2 points.

The trader also saw the 8.70% notes due 2019 at 99¾ and the 6.95% notes due 2019 at 911/2.

Sara Rosenberg contributed to this article

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