Dynegy Holdings debt heads up as settlement proceeds; Caesars, Clear Channel fall with market

By Stephanie N. Rotondo

Portland, Ore., April 4 - A distressed debt trader said that "some things got beat up" in Wednesday trading.

"We were weak with the rest of the market," said another trader. "Stocks kind of got beat up pretty bad."

But the big distressed story of the day was Dynegy Holdings LLC, which had reportedly inked a deal with creditors that would allow it to move forward in its bankruptcy proceedings. The bonds subsequently moved up, bucking the overall trend of the day.

The rest of the market, however, followed the crowd, even without fresh news to act as a catalyst. Typically liquid names like Caesars Entertainment Corp. and Clear Channel Communications Inc. were finishing softer, with some calling bonds down as much as 3 points.

Best Buy Inc. was also getting hammered, as Standard & Poor's threatened to downgrade the currently investment-grade rated name to junk. The rating agency cited poor recent earnings and the recent news that the company was planning on shuttering stores.

Dynegy up on settlement

Houston-based Dynegy saw its bonds improve during midweek trading after the company announced that it had reached a settlement with creditors that would allow it to move forward with its bankruptcy case.

A trader said the debt was active, seeing the 8 3/8% notes due 2016 up "almost 2 [points]" to 68. The 7¾% notes due 2019 were a point higher at 66.

Another trader said Dynegy bonds were "up a little bit," pegging the 8 3/8% benchmark notes at "67-ish."

A third trader, however, deemed the debt unchanged at 66 bid, 67 offered on the 8 3/8% notes.

"It doesn't look all that different," he said.

Dynegy Holdings is the bankruptcy subsidiary of Dynegy Inc. The parent company agreed Wednesday to alter its reorganization plan for the subsidiary if creditors agreed to drop about $2.5 billion in claims.

The settlement will put an end to the fight about whether or not the parent company fraudulently transferred assets from the subsidiary, thereby stripping the unit of assets and practically ensuring a bankruptcy would occur.

A court-appointed examiner asserted last month that a fraudulent transfer had in fact taken place.

Under the settlement, the plan will give unsecured creditors common stock in the reorganized company. The original plan called for those creditors to receive new senior secured notes and preferred stock.

Upon implementation, the unsecured creditors will hold a 99% stake in the company.

Caesars, Clear Channel fall

Given the weak marketplace, typically liquid names like Caesars Entertainment and Clear Channel Communications were declining on Wednesday.

One trader saw Caesars' 6½% notes due 2016 falling as much as 3 points to end at 631/2. Another market source called the 10% notes due 2018 down over a point at 76½ bid.

The first trader also said Clear Channel's 10¾% notes due 2016 were a point softer at 75. Another trader called the multimedia company's debt down a point as well, pegging the 10¾% notes at 75 and the 11% notes due 2016 at 73 bid, 74 offered.

Best Buy in trouble

Best Buy paper took a hit as S&P threatened to drop the company's current investment-grade ratings to junk.

A trader called the 5½% notes due 2021 down 5 points on the day, ending at 93. Another market source saw the bonds hit a low of 911/2, before they came back up to close at 92½ bid, 93½ offered.

That was down 3 to 4 points on the day, according to the source.

S&P said it placed the BBB- ratings on watch with negative implications, citing the company's plan to decrease its big-box store base and reduce costs by $800 million over the next five years.

"In our view, these actions underscore that its current business model is not working and that the steps taken to date have not been enough to improve performance," S&P said in a statement.

Gimme Credit LLC analyst Carol Levenson said in an afternoon report that S&P's action was belated and that Gimme Credit has been thinking the company had issues for some time. The independent research firm placed Best Buy on their "Bottom Ten" list last year.

"There is no pressing need for the company to tap the capital markets," Levenson said. "But we worry that if Best Buy loses its investment grade status, management would have less of a motive to maintain conservative financial policies, perhaps becoming more aggressive with share buybacks to boost the stock price."

Best Buy is a Minneapolis-based electronics retailer.

Hawker remains depressed

Hawker Beechcraft Acquisition Co.'s strip of institutional bank debt continued its downward trend, dropping to 67½ bid, 68½ offered from 68¼ bid, 69¼ offered, according to a trader. On Monday, the debt had closed the day at 70 bid, 72 offered and at the end of last week, levels were 73½ bid, 75 offered.

In the bonds, a trader said the 8 7/8% notes due 2015 were still offered at 11.

This week's decline started after the company said on Monday that it did not file its 10-K for 2011 by the March 30 deadline, that it anticipates 2011 losses from operations at around $481.8 million, compared to losses from operations of about $173.9 million in 2010, and that it would not make interest payments due April 2 on its 8½% senior notes, 8 7/8%/9 5/8% PIK notes and 9¾% subordinated notes.

Furthermore, last week, it was disclosed that a forbearance agreement has been reached through June 29 with about 70% of credit facility lenders to defer interest payments and get covenant relief, and that a new $124.5 million senior term loan due June 29 was obtained to fund ongoing operations.

With all of this news, Standard & Poor's downgraded the Wichita, Kan.-based aircraft company's corporate rating, secured credit facility and unsecured and subordinated notes to D.

Cengage rebounds

A trader said Cengage Learning Acquisition Inc.'s 10½% notes due 2015 rallied a bit on Wednesday, after gyrating in the previous session ahead of the pricing of a new issue.

He saw the notes at 77 bid, 78 offered, versus levels around 76 on Wednesday.

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

Of the new issue, the trader said it hit as high as 104 before coming back to close around 103.

Sara Rosenberg contributed to this article

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