GGP jumps on Chapter 11 filing; AbitibiBowater bonds hold on; AIG steady on asset sales news

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., April 16 - It was a day of bankruptcy filings Thursday, as General Growth Properties Inc. and AbitibiBowater Inc. both petitioned for court protection.

But despite the filing, General Growth's bonds managed to gain as much as 7 points on the day. AbitbiBowater's bonds were, meanwhile, unchanged to somewhat better. Both companies' bonds were tracing flat, or without accrued interest.

American International Group Inc.'s bonds held steady despite news of a pending asset sale. The company announced a completed asset sale as well.

Hawker Beechcraft Acquisition Co. LLC reported better-than-expected earnings, which resulted in a boost for the company's bonds. Burlington Coat Factory Warehouse Corp.'s debt was also continuing to move up, after reporting decent numbers on Wednesday.

GGP jumps on Chapter 11 filing

General Growth Properties filed for Chapter 11 protections, but instead of declining, traders saw the company's bonds gaining.

A trader called the 8% notes due 2009 better by nearly 4 points at 37.25, with $35 million trading. He also saw the 3 5/8% notes due 2009 at 36.75, a gain of 7 points, with $26 million changing hands. He noted that the debt was trading flat.

Another trader said the bonds were "up at least 5 points," the 8% notes at 35 bid, 37 offered. Another trader quoted the debt at 36 bid, 37 offered.

Meanwhile the term loan A due 2010 was higher by 3 points to 21½ bid, 23½ offered.

But traders could not explain why the debt moved higher post-filing. One trader called it "strange," as the bonds had dropped in anticipation of the filing then moved higher once it became official. Another trader "initially thought it was short covering," but as the bonds continued to move higher throughout the session, he thought there must be another reason. However, if there was in fact another reason, he was not aware of it.

The real estate investment trust ended up in bankruptcy court after incurring about $27 billion in debt. The debt came as the company amassed enough assets to be considered the second-largest shopping center owner, acquiring $29.5 billion in assets.

The company plans to continue operating its more than 200 properties and is reportedly not considering any asset sales.

Before the filing, General Growth had entered negotiations with creditors to restructure its debt. On March 23, the company said a deadline for bondholders to agree to new terms on $2.25 billion in debt had expired. A week later, the company said it was continuing to negotiate with creditors.

"The decision to pursue reorganization under Chapter 11 came after extensive efforts to refinance or extend maturing debt outside of Chapter 11," the company said in a press release. "Over many months, the company has endeavored to negotiate with its unsecured and secured creditors to obtain the time needed to develop a long-term solution to the credit crisis facing the company. Unable to reach an out-of-court consensus, the company reluctantly concluded that restructuring under the protection of the bankruptcy court was necessary."

"Our core business remains sound and is performing well with stable cash flows," said Adam Metz, chief executive office, in the statement. "We believe that Chapter 11 is the best process for restructuring maturing mortgage loans, reducing the company's corporate debt and establishing a sustainable, long-term capital structure for the company. While we have worked tirelessly in the past several months to address our maturing debts, the collapse of the credit markets has made it impossible for us to refinance maturing debt outside of Chapter 11."

General Growth is based in Chicago.

Abitibi gains, files for protections

In other bankruptcy filing news, AbitibiBowater also entered court protections after restructuring talks failed.

A trader called the 7.95% notes due 201 "really active," with about $36 million trading. However, he saw the issue unchanged at 9.75, trading flat.

But another trader called the issue "up a little" at 9.5 bid, 10 offered.

At another desk, a trader quoted the 8.55% note due 2010 at 4 bid, 6 offered, a gain of about half a point, though he called the issue "relatively unchanged."

The company's term loan B due 2009 traded down ¾ point to 69 bid, 713/4, according to a market source.

The newsprint maker was forced to enter bankruptcy after creditors rejected a recapitalization plan first announced on March 13. Lower demand for newsprint had hurt the company's bottom line and it struggled to make payments on its more than $2 billion in debt. Furthermore, because of its debt load, borrowing costs were much higher, which did not help the company in its quest to refinance existing debt.

"The company has concluded that there are no viable alternatives to its previously announced proposed refinancing of its Bowater and Abitibi-Consolidated subsidiaries, and as a result has determined that the best course of action is to pursue its overall restructuring under court supervision in the United States and Canada," the company said in a press release announcing the filing. "Concurrently with its CCAA filing, the Abitibi-Consolidated subsidiary will request the termination of its previously announced recapitalization transaction under the Canada Business Corporations Act."

"Today's announced decisions ensure business continuity for AbitibiBowater and were made only after all other viable options to recapitalize our long-term debt were exhausted," stated David J. Paterson, president and CEO, in the statement. "The steps we are taking today and the vote of confidence given to us by our restructuring financial partners will enable us to protect the value of the business for our many loyal employees, customers, suppliers and other stakeholders."

"Over many months, we undertook an exhaustive examination of the company's recapitalization options," said Dick Evans, chairman of the Board of Directors. "The board and management believe the actions initiated today will allow the company to make the necessary changes to ensure the long-term viability of the company within a process that ensures fair and equitable treatment for all stakeholders, while allowing it to continue to meet the needs of its customers."

Montreal-based Abitibi plans to file for bankruptcy in Canada on Friday.

AIG steady despite asset sale

American International Group's debt closed the session unchanged, despite news of an asset sale.

A trader saw the 6.9% notes due 2017 at 39.5, with $25 million trading, and the 5 3/8% notes due 2012 at 45, with about $7 million trading. He said there was "no change" in AIG's other issues as well.

AIG announced Thursday that it would sell its car insurance unit, 21st Century Insurance, to Zurich Financial Services Group - the owner of Farmers Group Inc. - for $1.9 billion.

Farmers Group will pay $1.5 billion of the purchase price in cash and will fund the remaining portion with $400 million subordinated euro-back capital notes issued backed by Zurich Insurance Co. Farmers will assume $100 million of outstanding debt as well.

Additionally, the sale of the AIG Private Bank Ltd. unit was completed. The business was sold to Aabar Investments PJSC for $253 million. Aabar also assumed about $55 million in intra-company loans.

Funds from the asset sales are expected to be used to repay part of a $182.5 billion government bailout loan.

Hawker, Burlington better

Hawker Beechcraft's bonds moved up after the company posted stronger-than-expected earnings.

A market source deemed the 8½% notes due 2015 up a deuce at 30 bid, while another called the issue up more than 3 points at 31 bid, 32 offered.

For the first quarter, the helicopter manufacturer posted an operating loss of $41.2 million, compared with a loss of $1.5 million in 2008. Net sales came to $537.6 million, a nearly $39 million decline form the year before.

However, net after-tax income came to $66.9 million, more than double that seen during the same period of 2008.

In other earnings news, Burlington Coat Factory's 11 1/8% notes due 2014 continued to gain after the retailer posted good numbers on Wednesday.

A trader placed the issue around 60, noting that it had closed around 50 in the previous session. Before that, the bonds had been in the low-40s.

Another trader said the notes "continue to trade up," quoting the issue at 59 bid, 60 offered.

Yet another trader deemed the debt up 4 points on the day at 58 bid, 60 offered.

The retailer reported a 3.4% increase in sales for the quarter ending Feb. 28. Sales totaled $1.02 billion, compared with sales of $987.1 million the year before. Net loss came to $150.9 million, versus net income of $26.8 million in 2008.

Broad market mixed

In the rest of the distressed world, General Motors Corp.'s 8 3/8% notes due 2033 were unchanged at 8 bid, 9 offered, while Ford Motor Co.'s 7.45% notes due 2031 dropped a point to 37.5 bid, 39 offered.

OSI Restaurant Partners LLC's 10% notes due 2015 were seen "up a good bit" at 47. A trader said that was up from the mid-30s, but he did not know what had sparked the move.

Traders gave mixed reports on Lyondell Chemical Co.'s bonds Thursday.

One trader called the bonds lower, pegging the 10¼% notes due 2010 at 15.25, a loss of about a quarter point.

But another saw the 9.8% notes due 2020 up 1.5 points at 14 bid, 16 offered, following news that a bankruptcy judge had denied a motion by Bank of New York Mellon, as trustee for noteholders. The motion had alleged that the company's debtor-in-possession financing was unfair to bondholders, but the judge ruled that the creditors were adequately protected.

GM loans sharply higher

In loans, news reports that GM proposes to swap out $27.5 billion of bond debt for equity by the end of the month sent the automaker's term loan paper sharply higher on Thursday, a trader said.

The GM term loan ended the day 58 bid, 60 offered, up from 51 bid, 53 offered on Wednesday.

"It jumped up a lot," the trader said.

The more bond debt that the company can exchange into stock, the better it is for the term loan holders, the trader said.

The GM term loan traded as high as 60 bid, 62 offered during the Thursday session, another source said.

Levels on GM's bonds seem to bear out the trader's contention.

As mentioned above, GM's 8 3/8 notes due 2033 closed at 8 bid, 9 offered, unchanged on the day, according to a hedge fund manager.

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