Hawker Beechcraft debt slides; ResCap pressured as fate dangles; Cengage gyrates pre-new issue

By Stephanie N. Rotondo

Portland, Ore., April 3 - Activity in the distressed debt market continued to be subdued Tuesday, though certain news-driven names were getting pushed around.

Hawker Beechcraft Acquisition Co.'s debt was declining further Tuesday, as investors reacted to a recent onslaught of negative news. On Monday, the company had said it was delaying filing its 10-K due to ongoing negotiations with creditors. That resulted in a downgrade from Moody's Investors Service and Standard & Poor's followed suit on Tuesday.

Meanwhile, Cengage Learning Acquisitions Inc. paper was gyrating throughout the day, ending about unchanged to steady. The company had been attempting to bring a new bond issue to market since last week, leaving some to question if it could get done at all. The deal did finally come Tuesday as an upsized $725 million issue of 11½% notes due 2020.

Also, Residential Capital LLC paper was on the weaker side, though not all that active. The movement came as an investor in parent company Ally Financial Inc. urged the company not to put ResCap into bankruptcy, as it would likely result in an extended legal fight that would put the company's initial public offering on hold for some time.

Hawker losing altitude

Hawker Beechcraft's bonds "got beat up again," a trader said.

He saw the 8 7/8% notes due 2015 trade down to 11, while he said he saw offers around 2 for the 9 ¾% notes due 2017.

Another trader said the credit was "down a little bit," also pegging the 8 7/8% notes at 11. He noted that the paper "wasn't all that active."

The decline in Hawker's strip of institutional bank debt continued into Tuesday as well, with the debt seen at 68¼ bid, 69¼ offered, versus Monday's late day levels of 70 bid, 72 offered, according to a trader. Last week, the debt had been seen in the 73½ bid, 75 offered context.

Another trader quoted the debt at 68 bid, 69 offered.

On Monday, the company revealed that it was unable to file its year-end 2011 report with the Securities and Exchange Commission by the March 30 deadline partly because it has been focused on negotiations with senior lenders and other creditors.

The expectation is that the 10-K will be filed by April 16 and will include a going concern warning.

For the 2011 year, the company anticipates losses from operations at around $481.8 million, compared to losses from operations of about $173.9 million in 2010.

Also on Monday, Hawker Beechcraft said that it will not make interest payments due April 2 on its 8½% senior fixed-rate notes, 8 7/8%/9 5/8% senior PIK election notes and 9¾% senior subordinated notes, but a default won't occur until 30 days passed the payment deadline.

And last week, the company disclosed that it reached a forbearance agreement through June 29 with about 70% of its credit facility lenders to defer interest payments and get covenant relief.

With the forbearance, the company got a $124.5 million senior term loan due June 29 that is priced at Libor plus 1,200 bps with a 2% Libor floor, and will be used to fund ongoing operations.

As a result of all of these actions, Standard & Poor's downgraded the company's corporate rating, secured credit facility and unsecured and subordinated notes to D.

Hawker Beechcraft is a Wichita, Kan.-based manufacturer of business, special mission, light attack and trainer aircraft.

Cengage gyrates pre-new issue

Cengage Learning's 10½% notes due 2015 were "up and down" during Tuesday's session, according to a trader.

He saw the notes hit a low of 73 before they rebounded back to 75 bid, 76 offered.

"It probably wasn't all that different [day over day]," he said. "They're still trying to get that deal done."

The deal in question was a new high-yield bond issue that has been in the works since last week. It did in fact get done, but priced after the closing bell and the anticipation of "will they or won't they?" was blamed for recent gyrations in the name.

At another shop, a trader said the paper "opened lower" at 72½ bid, 74½ offered. The bonds were soon lifted, he said, and the paper "bounced up a little bit," ending at 74½ bid.

In comparison, he said the bonds were 76 bid, 77 offered on March 30.

The Independence, Ky.-based educational company was able to bring an upsized offering of 11½% notes due 2020 after Tuesday's close. The company intends to use proceeds to pay down its extended term loan.

ResCap paper slips

Yet another Ally Financial investor has chimed in on the fate of Residential Capital, which is potentially gearing up for a bankruptcy filing and subsequent sale.

Still, a trader said he "didn't see much" going on in the 9 5/8% notes due 2015, which he quoted at 85 bid, 86 offered.

Another market source called the 8½% notes due 2013 down 3 points to 32 bid.

In a letter to Ally's board of directors last week, Elliott Management - which owns 2.3% of Ally's common stock - urged the company not to put ResCap into a bankruptcy, as it would likely result in a protracted legal battle that would hurt the company's chances of getting an IPO done.

Ally has said that it wants to bankrupt the money-losing mortgage lender and sell it off in hopes of getting the IPO accomplished. But the former lending arm of General Motors Corp. could face more trouble overcoming that obstacle, as news outlets also reported Tuesday that the Treasury Department - which owns 73.8% of Ally - is considering breaking up the bank.

As previously reported, Ally has been in talks with Fortress Investment Group to purchase ResCap in a deal that could bring in as much as $1 billion. Players are pondering whether something can get done before mid-May, when ResCap faces a hefty maturity.

ResCap is based in Minneapolis. Ally is based in Detroit.

Bon-Ton has busy day

A trader said Bon-Ton Stores Inc.'s 10¼% notes due 2014 were higher at 88¼ bid, 88½ offered, despite there being no fresh news out on the York, Pa.-based retailer.

However, another trader called the debt a touch softer at 88 1/8.

"They were pretty active," the second trader remarked.

Sara Rosenberg contributed to this article

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