MGM Mirage bonds, loans fall after loss, despite credit waiver; Momentive moves up; Lear little moved

By Paul Deckelman and Sara Rosenberg

New York, March 18 -- MGM Mirage's bonds and term loan were lower on the day in response to the company's release of poor fourth-quarter numbers on Tuesday evening, even though the Las Vegas-based casino behemoth got its banks to waive enforcement of its credit facility financial covenants till mid-May. However, bond traders said that its notes did bounce off their early lows to in most cases finish only moderately lower.

Momentive Performance Materials Inc.'s bonds - which had swooned earlier in the week after the specialty materials maker reported bad financials results - were bouncing back at least part of the way in active trading.

Lear Corp.'s bank debt loans were seen mostly little changed on the day as investors digested the auto supply company's warning that it might have to file for bankruptcy, balanced out against a temporary waiver of its covenants as it tries to get its financial house in order. However, the company's bonds were seen slightly firmer.

And a sharp surge in E*Trade Financial Corp.'s shares linked to falling loan delinquency rates among its customers helped to carry its bonds a few points higher as well, albeit on relatively light dealings.

MGM Mirage moves downward

MGM Mirage's bonds were seen bouncing around at mostly lower levels on the day in very active trading as investors weighed the impact of all of the news they received after the close of equity trading on Tuesday night - the company's slide deep into the red in the fourth quarter versus its year-earlier profit and the issuance of a "going concern" warning by its auditors, balanced against the two months of breathing room the company won from its bankers on complying with its credit facility loan covenants, while it attempts to improve its dire financial situation.

A trader said that the company's bonds were "riding a roller coaster." He said that "the really short stuff got hit early this morning, with the 6% secured notes slated to come due on Oct. 1 opening at 61 bid, down from Tuesday's closing levels around 65, and then nosediving down into the 50s. However, the bonds came off those lows - likely helped by the generally stronger market later in the day following the Federal Reserve's announcement on its plan to buy government bonds - to finish up "right around the 60 level, still down on the day."

He saw the company's 8½% notes due 2010, which had finished Tuesday around a 46 context, getting down to around 43 in early Wednesday dealings, but came just about all the way back, "bouncing up several points" to end essentially little changed in the 46 area.

The company's secured 13% notes due 2013 were "down a couple of points" early on, falling from Tuesday's 81 bid, 83 offered close to levels as low as 75 bid, 77 offered, before rebounding to end around 80 bid, 81 offered.

"The real activity was in the short stuff," he said. Among the somewhat longer issues, he saw the 5 7/8% notes due 2014, the 7½% notes due 2016 and the 7 5/8% notes due 2017 all gyrating around in the 30s, going from Tuesday's respective closes around 38 down to around 33-34, but then coming back to end around 38.5 bid, 39.5 offered, "actually a little stronger than they were [Tuesday]."

He saw "good volumes on this stuff. They've had busy days, but [on Wednesday], they definitely were among the volume leaders, no question."

Another trader pegged the 13s at 79.5 bid, 81.5 offered, up, he said, from around 77 earlier, while the 6s were "all over the lot," moving from levels as high as 65 early on down to 54 "and all between," and then heading back up to around 60, "really active, with a 10-point spread, but it settled off the high, while the 13s ended up at the high."

MGM, yet another trader said was clearly the most active name in Junkbondland on Wednesday, seeing $50 million of the 81/2s trading at 45 on a round-lot basis, bid, which he called down from 48 on Tuesday. He saw the 6s going out trading at 59.875, for a 136% yield to maturity, down from 65 on Tuesday, on volume of $37 million, while $19 million of MGM's 6½% Mandalay Resort Group legacy bonds coming due on July 31 traded at 70.25, for a 127% yield to maturity, down a little from 72.25 on Tuesday.

MGM term loan eases

In the bank debt market, meantime, a trader saw MGM Mirage's term loan lower on Tuesday night's numbers and the subsequent performance in its bond trading levels, according to a trader.

The term loan was quoted around 42 bid, 44 offered, down from Tuesday's levels of around 45 bid, 47 offered, the trader said, remarking that not a whole lot of activity was seen in the paper.

He explained that the loan moved lower as a result of the option value associated with the loan relative to the bonds, since the option is less valuable as you think more short term in regards to a possible default.

"People thought they'll get some priority, some collateral and be able to extend the default out. With earnings and what happened to the bonds today people got spooked," the trader said, adding that the thinking now is that a default might happen sooner rather than later.

Reports $1.15 billion loss

For the fourth quarter, MGM Mirage reported a net loss of $1.148 billion, or $4.15 per share, versus net income of $872.2 million, or $2.96 per share, in the fourth quarter of 2007.

Revenues for the quarter were $1.625 billion, well down from $1.929 billion in the prior year.

EBITDA for the quarter was negative $859.7, versus positive $1.679 billion in the 2007 period.

At Dec. 31, 2008, the company had approximately $13.5 billion of total long-term debt.

Then, in late February, the company borrowed $842 million under its senior credit facility, which, after giving effect to $93 million in outstanding letters-of-credit, was the total amount of unused borrowing capacity available under the facility.

Also in its earnings release, MGM Mirage announced that it got a waiver from its credit facility lenders on Tuesday so that it does not need to comply with financial covenants through May 15.

Under the waiver, pricing on the revolver was increased by 100 basis points, the company is prohibited from prepaying or repurchasing any debt or disposing of assets, and it repaid $300 million under its revolver, which amount is not available for re-borrowing without the consent of the lenders.

Following the expiration of the waiver, the company will be subject to an event of default under the credit facility if it is not in compliance with the financial covenants at March 31 - which if adverse conditions in the economy and gaming industry continue - is a likely outcome.

The company said that it intends to work with its lenders to obtain additional waivers or amendments prior to the expiration of this one so as to address potential future non-compliance with covenants.

Station: options besides pre-pack bankruptcy

Elsewhere in the gaming sector, a bond trader said he saw "no trading at all" in Station Casino Inc.'s paper after the ailing Las Vegas-based local-oriented gaming operator said in court documents that it could file for Chapter 11 on or before April 15 - although the company subsequently clarified that this is not the only option open to it.

The trader said the Station bonds "didn't trade at all," although he noted that on Tuesday, "it looked like the paper edged up again," theorizing that "there must have been a leak about the paper getting a little bit more satisfactory treatment in the exchange offer that they're putting out there."

He saw Station's 7¾% notes due 2016, which had been trading in the high 20s, having pushed up to around 31 bid, "so they moved up," while the company's subordinated paper, like its 6½% notes due 2014, which had been mired around 2 bid, traded up on a round-lot basis to 4, "so it looks like there's some anticipation that they're going to get a slightly better deal coming out of this."

Station made its original declaration about a Chapter 11 filing in court papers filed in response to a lawsuit by individual bondholder S. Blake Murchison, who went to federal court in Las Vegas to challenge the company's efforts to restructure its more than $5 billion of debt, claiming that the pre-packaged bankruptcy filing Station envisions and which it is trying to negotiate with its creditors would disenfranchise holders like him by giving institutional holders priority in the current debt exchange offer, an assertion the company denies. That exchange offer expires April 10.

News reports Wednesday quoted a company spokesperson as saying that the April 15 pre-pack bankruptcy is just one possible scenario; other possibilities include a straight bankruptcy filing without creditor agreement on any plan, or alternatively getting another extension past the current April 15 expiration of its forbearance agreement so that it can continue negotiating the terms of a pre-packaged reorganization.

Harrah eases

The trader also said that it was "very quiet" in Harrah's Entertainment Inc. bonds, which he called "down marginally, like ¼ to 1/2" point.

He saw the Las Vegas gaming giant's 5 3/8% notes due 2013 at 12, which he called off ¼ point, while its 10¾% PIK toggle notes due 2018 was at 101/4, off ½ to ¾ point.

Fall-off in Wynn activity

He further saw Wynn Las Vegas LLC - the star of Tuesday's session as it moved up a point or so on very heavy dealings after the Nevada casino company's successful equity offering -- as "busy earlier on, although it's gotten quiet now [by late afternoon]."

He saw the "old" 6 5/8% notes due 2014 - so-called because the $1.3 billion issue was the first of two tranches of those bonds to price, back in February 2004 - going out at 72 bid, 73 offered, while the "new" 6 5/8% '14s, which priced in 2007, continuing to trade around 2 to 2½ points behind that. The latter bonds, he said, "really didn't trade much today," quoting them at around 70 bid, 70.5 offered. In fact, he said, "it usually doesn't trade very much at all."

He noted the disparity in the trading volumes and the prices, even though the bonds have identical coupons, maturities and other terms, pointing out that "it is a smaller issue," at about $400 million, less than one-third the size of the original tranche, "and obviously, that has something to do with it. There's less liquidity and people can't short it, while the other [larger] tranche is a surrogate" for the gaming sector. "It's one of the large issues, and especially a single-name issue - and it's still in relatively decent shape compared with these other guys" like MGM, Harrah's and Station.

"With the larger issue, you can short it - and that's always worth some valuation," although objectively speaking, he said it's "probably not" worth the spread between the two tranches.

At another desk, a trader saw the "old" Wynn 6 5/8s continuing to gain, pushing up to 73 bid, 73.75 offered on Tuesday. However, unlike that session, when over $80 million of the notes changed hands, making them easily the most actively traded paper of the day, if not the most actively traded junk issue in a good many days, he saw just $14 million of the bonds moving on Wednesday

Momentive momentarily stronger

Apart from the gaming arena, a trader saw Momentive Performance Materials' 9¾% notes due 2014 moving up to 26.75 bid from Tuesday's level at 24.5, on pretty brisk volume of $25 million.

The bonds were rebounding from the sharply lower levels to which they had moved on Monday when the Albany, N.Y.-based company, which provides specialty high-technology materials products to the silicone, quartz and ceramics markets, reported wider losses for fiscal 2008 versus a year earlier, and warned that it may have a hard time staying in compliance with its credit facility financial covenants. That was enough to send those bonds plunging down to the lower 20s, a fall of nearly 10 points from their pre-news levels.

The bonds were beaten down after the company reported that while its net sales rose 4% last year to $2.639 billion from $2.538 billion a year earlier, its other financial measures showed a clear deterioration. Its net loss nearly quadrupled to $997.1 million from $254.3 million in 2007, and it swung to an operating loss of $836.6 million versus year-earlier operating income of $82.2 million. Adjusted EBITDA fell 15.6% year-over-year to $377.1 million from $447 million previously.

Momentive also projected weak first-quarter revenue and adjusted EBITDA numbers, and a sizable GAAP operating loss, and cautioned that it "may have difficulty" complying with its leverage covenants going forward "if weak demand stemming from the global economic downturn continues throughout 2009 and we experience sufficient declines in sales and EBITDA for which we cannot compensate with restructuring or business optimization initiatives."

Lear little changed

Lear Corp.'s term loan held in at unchanged levels of 33 bid, 36 offered on Wednesday on the back of news that the Southfield, Mich.-based automotive components company is engaged in continuing discussions with its credit facility lenders and others regarding a restructuring of its capital structure. It said that such a restructuring could include negotiated modifications to its debt obligation agreements or possibly even a Chapter 11 filing.

Lear also said late Tuesday that it had amended its credit facility, with lenders agreeing to waive existing defaults through May 15.

In addition, under the amendment, the company will not be subject to the interest coverage ratio for the four consecutive fiscal quarters ending with first quarter 2009 or the leverage ratio at the last day of the four consecutive fiscal quarters ending with first quarter 2009.

A bond trader said that Lear's 8½% notes due 2013 were "up a little bit, on some activity," seeing them at 22.5 bid, 24 offered and its 8¾% notes due 2016 at 20 bid, 21 offered.

Another trader saw the '13s up ½ point at 22.5 and the '16s at 21 bid, up a point, although he rhetorically asked "who would think that there could be any good news about this company," dependent as it is upon the auto manufacturers.

Also in the autosphere, a trader saw General Motors Corp.'s 8 3/8% bonds due 2033, which have recently been on an upside tear, retreating a point to 17.5 bid, although on volume of only $1 million, while GM's 7.20% notes due 2011 were unchanged at 23 bid, on $2 million of dealings.

He saw far more activity in Ford Motor Credit Co.'s 7.80% notes due 2012 rising to 67.25 bid from 66 on Tuesday, with $9 million traded.

Another trader, though called the GM long bonds a point better on the day at 17 bid

Hertz not hurting

A trader said that Hertz Corp.'s 8 7/8% notes due 2014 were "a little bit better" at 48.5 bid, which he called a gain of 1 to 1¼ points, with the trading happening "pretty much this morning.

There was no fresh news out on the Park Ridge, N.J.-based car rental king, although its NYSE-traded shares were also much better, to the tune of 33 cents, or 12.5%, to end at $2.97 after falling over 7% on Tuesday after Barclays Capital analyst Brian A. Johnson warned that Hertz and arch-rival Avis Budget Group Inc. could face liquidity pressures next year. He further cautioned that Parsippany, N.J.-based Avis, in particular, was in danger of possibly violating its debt covenants as soon as the current quarter.

E*Trade trades up

A trader saw E*Trade Financial Corp.'s 8% notes due 2011 up a point or two at 37 bid, 39 offered.

At another desk, a trader saw the New York-based on-line financial services company's 8s get as good as 39 on a round-lot basis, versus recent levels at 37.5, with $4 million traded, although he did see the company's 7 7/8% notes due 2015 dip to 27.5 bid from 29.25, with $2 million traded.

E*Trade's Nasdaq-traded shares meantime surged 37 cents, or 40.66%, to $1.28, on volume of 41.1 million, more than 4 times the norm, propelled upward by a rise in trading volume for its on-line brokerage service, as well as a decline in its rate of customers behind on loan payments, particularly home equity, in February.

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