Distressed debt pressured with broad market; Clear Channel falls; School Specialty loan trades

By Stephanie N. Rotondo

Phoenix, May 29 - It was another soft day for distressed debt on Wednesday.

"There was general heaviness in the market," a trader said. "There were very few on the upside."

Clear Channel Communications Inc.'s LBO paper was deemed the day's "biggest trader," according to one market source. The debt - which is currently the subject of an exchange offer - was down 2 to 3 points on the day.

Away from Clear Channel, a trader said most of the activity was focused on the high-yield sector, especially on Smithfield Foods Inc. and SLM Corp., both of which had news out during the day's session.

But in the distressed realm, Caesars Entertainment Corp.'s 10% notes due 2018 dipped half a point to 62, according to one trader. Another market source pegged the issue at 61½ bid, down 1½ points.

Another trader saw ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 trading with a 1 handle on Wednesday.

That same trader also said that MF Global Futures Ltd.'s 6¼% notes due 2016 slipped to around 68.

Late in the day, news came out regarding Patriot Coal Corp.'s bankruptcy case. The judge overseeing the proceedings agreed to allow the coal producer to nix its union contracts. A trader speculated that the news might have an impact on the bonds come Thursday.

Clear Channel takes its lumps

Clear Channel Communications' LBO debt was busy on Wednesday, but weaker yet again.

A trader called the 11% notes due 2016 off 2¾ points at 943/4, with about $50 million notes changing hands. The 10¾% notes due 2016 were meantime off 3 points to 941/4.

Both issues are the subject of a current tender offer, as the San Antonio-based multimedia company looks to strengthen its balance sheet. The early tender deadline for the securities is June 4.

For holders of the 11% toggle notes who tender early, they will receive $930 of new 14% notes due 2021 and $70 in cash for every $1,000 of notes. Holders of the 10¾% cash pay notes will get $1,000 of new notes for $1,000 of the old notes.

If not tendered by the early deadline, holders have until June 18 to participate in the debt exchange, though for a smaller swap rate.

School Specialty loan breaks

School Specialty Inc.'s $145 million six-year first-lien term loan (Caa1/B) began trading on Wednesday, with levels quoted at 98½ bid, par offered, a market source said.

Pricing on the term loan, which had been upsized from $125 million during the syndication process, is Libor plus 850 bps with a 1% Libor floor, and it was sold at an original issue discount of 98. There is call protection of 102 in year one and 101 in year two.

Credit Suisse Securities (USA) LLC is leading the deal that will be used to help fund the company's exit from Chapter 11.

In addition to the term loan, the company is getting a $175 million ABL revolver that is being led by Bank of America Merrill Lynch and SunTrust Robinson Humphrey Inc.

School Specialty is a Greenville, Wis.-based education company.

Sara Rosenberg contributed to this article

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