Lehman troubles hurt markets; MagnaChip bonds down on lower forecast; Masonite call weighs on debt

By Stephanie N. Rotondo

Portland, Ore., Sept. 9 - Troubles at Lehman Brothers Holdings Inc. forced the distressed bond market down during Tuesday trading, traders reported.

"Everything is weaker for the most part," one trader said.

"Some stuff was just drifting," said another. "People are backing off."

"It's still pretty quiet," said yet another source, "when things do trade, they trade down steeply."

Such was the case for MagnaChip Semiconductor Ltd.'s debt. The South Korea-based company lowered its forecast for the rest of the year. As a result, the bonds traded off 10 points.

Masonite International Inc.'s debt structure also took a hit, as traders reported that the company held yet another lender conference call. As the company tries to obtain a forbearance agreement from its lenders, market players are speculating that the lack of any deal could send the company into bankruptcy. Traders saw the company's term loan and bonds end lower, by half a point and 5 points, respectively.

Meanwhile, Cheniere Energy/Sabine Pass LNG announced that it was adding $145 million in notes to its existing 7½% notes due 2016. But investors seemed unperturbed by the news and traders reported little action in the name.

Lehman talk shakes investors

Lehman Brothers is causing problems again. Just as the market started to believe that the fourth-largest investment bank would pull through and raise its needed capital through an asset sale, reports came out claiming that talks with Korea Development Bank had broken down.

As a result, Lehman's shares fell more than 40% in trading. But the news also sent shocks through the wider equity market - with the Dow Jones Industrial Average down 280 points after gaining 290 points on Monday -as well as the bond market.

"Everybody is watching Lehman Brothers blowing up," said one trader. He added that the rumor mill was once again churning with buzz regarding the troubled company. One rumor, he said, was that the buyout was still on, while another claimed the buyout was off and there would be no government bailout, given the recent plan to salvage Freddie Mac and Fannie Mae. Without the bailout, a bankruptcy could be in Lehman's future.

"It's one of those time-will-tell things," he said.

Furthermore, another trader said that "numerous rumors of hedge fund redemptions and hedge fund closures continue to weigh on the market."

But with distressed traders already frustrated with the lack of activity in that sector, the most recent Lehman debacle has some wondering what will come next.

"We just got to get through this stuff," a trader said. "You can't fundamentally make an investment decision with that kind of volatility," he added. "Nobody wants to take any credit risk."

"I think tomorrow is going to be an interesting day," said another source. "We'll see what happens with Lehman. It seems like the market is capitulating to them, so we'll see if they can do something to shore things up."

"It's a mess right now, that's what it is," stated another.

MagnaChip takes dive

MagnaChip Semiconductor's debt took a 10-point hit, a trader said, after the company lowered its guidance for the second half of the year.

The trader quoted the 8% notes due 2014 at 25. He said that the company's forecast was "much weaker than expected."

Another trader placed the 6 7/8% notes due 2011 in the mid-40s, also 10 points lower.

The Seoul, South Korea-based company cut its forecast for the remainder of the year, citing lowered demand for its semiconductors. Third quarter revenue is expected to be between $185 million to $190 million, with EBITDA at $11 million to $13 million. For the fourth quarter, revenue is expected to be between $210 million and $220 million.

"'We have updated our guidance to reflect lower-than-expected demand, as our customers continue to tighten their inventory control due to the current uncertain economic environment,'" MagnaChip's top executive Sang Park said in a statement.

"In spite of the challenging external markets, we are confident we can meet our updated revenue ranges. We continue to add new accounts and to offer new products and services which we expect to contribute to our revenue performance in future quarters."

Masonite debt falls

Masonite's term loan headed lower in trading as the company held a lender call to talk about its overall situation, a trader said.

The term loan was quoted at 82 bid, 83 offered, down from Monday's levels of 82.5 bid, 83.5 offered, the trader said.

"This thing basically seems like it's marching towards bankruptcy. They have a bond coupon due Oct. 15. Been trying to get a [loan] forbearance and that hasn't happened. [And], they hired an advisor," the trader remarked, adding that the lender call was held to discuss these issues.

At another desk, a distressed bond trader called the company's 11% notes due 2015 "down a good bit" to 28 bid, 30 offered from the high-30s. He also mentioned there was a call, noting, "something going on that's bad."

Another trader deemed the bonds down 5 points around 28.

As has been previously reported, the company has been negotiating with its credit facility lenders for quite some time now regarding an amendment and a waiver of non-compliance with its adjusted EBITDA and interest coverage ratios.

The company's ratio of net debt to trailing 12 months adjusted EBITDA was 8.25 times at June 30, compared with 6.00 times at Dec. 31, 2007 and a covenant maximum of 7.00 times.

And the company's cash interest coverage ratio was 1.51 times at June 30, compared with 1.91 times at Dec. 31, 2007 and a covenant minimum of 1.65 times.

Masonite is a Tampa, Fla.-based manufacturer of residential and commercial doors.

Sabine bonds quiet

Despite news of a bond issue, Cheniere Energy/Sabine Pass's bonds were trading pretty light.

According to one trader, there was one print in the 7½% notes due 2016 at 84.25, down from the last trade around 86.

The company announced that it is marketing $145 million of new 7½% notes due 2016 that mirror the current issue. Price is talked at 83.75.

Moody's Investors Service gave the new issue a B2 rating, the same as the existing debt. Standard & Poor's affirmed its rating of B+.

Broad market weaker

Harrah's Entertainment LLC's 10¾% notes due 2016 continue to weaken, a trader said, pegging the bonds at 65 bid, 66 offered.

"Those are still a nice buy," he added.

Another trader saw the bonds open at 67 before closing at 65.5 bid, 66 offered.

Elsewhere in gaming, Pinnacle Entertainment Inc.'s 7½% notes due 2015 were up a couple points at 79 on no news. Conversely, Majestic Casinos' 9½% notes due 2010 were down 4 to 5 points to the mid-50s.

Meanwhile, Bon-Ton Stores Inc.'s 10 ¼% notes due 2014 softened to 44 bid, 45 offered.

Charter Communications Inc.'s 11% notes due 2015 dipped slightly after gaining in the previous session. A trader quoted the bonds at 76 bid, 76.5 offered, down half a point.

Morris Publishing group LLC's 7% notes due 2013 fell 10 points during trading, a trader said, though he was not sure what caused the decline. He placed the debt around 50.

In other publishing names, Dex Media Inc.'s 8% notes due 2013 gained just over 2 points to close at 60 bid, while Idearc Inc.'s 8% notes due 2016 fell almost a point to 46.25 bid.

OSI Restaurant Partners Inc.'s 10% notes due 2015 ended weaker at 54.

Sara Rosenberg contributed to this article.

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