Distressed market quiet after last week's run; MGM gains on CityCenter offering; Harrah's dips

By Stephanie N. Rotondo

Portland, Ore., Jan. 10 - After last week's surprisingly active trading sessions, distressed debt players came back Monday to find that investors were taking a breather.

"I don't think anyone even started today," a trader said, remarking that less than $1 billion of debt in the secondary world traded. "I think that's a function of a lot of people focusing on the $2.8 billion of new issues that are supposed to come up [this month]." He added that the market's run-up last week might also have prompted people to sit on the sidelines for a few days.

Even MGM Resorts International Inc., which had news out, saw little action. The company announced a note offering linked to its CityCenter project in Las Vegas. Though the news didn't stir up much trading, market sources did see the casino operator's debt quoted higher.

Harrah's Entertainment Inc., a.k.a. Caesar's Entertainment Inc., however, ended the day slightly weaker than were it was on Friday. The declines came as Atlantic City reported its gambling revenues for December and for 2010.

Meanwhile, a trader noted that Reddy Ice Corp. paper has been picking up in trading, though he was not sure what was driving the sudden interest.

And, Washington Mutual Inc. was on the quiet side as investors waited to see if the company could amend its bankruptcy exit proposal to suit a judge who ruled against it on Friday.

MGM gains on CityCenter news

MGM Resorts' debt was "a little better," a trader said, though he noted there was "not a ton of trading" in the name.

He pegged the 5 7/8% notes due 2014 at 94 and the 7½% notes due 2016 at 95.

Another trader said just "tiny scraps" of MGM paper was changing hands, but he also saw the majority of issues moving up. The only decliner on the day was the 6 7/8% notes due 2016, which he said fell almost a point to end around 91.

As for the day's gainers, he saw the 7½% notes at 95 and the 6 5/8% notes due 2015 at 93 5/8.

At another desk, MGM's 6 5/8% notes were deemed up nearly a point at 933/4.

On Monday, MGM and its CityCenter Holdings LLC joint venture partner Dubai World announced a $1.1 billion private placement. The joint venture intends to use the proceeds to pay down existing debt facilities linked to the massive Las Vegas Strip project.

Harrah's slips post-numbers

Also in the casino arena, Harrah's Entertainment/Caesars Entertainment's 10% notes due 2018 were called a tad weaker following the release of Atlantic City's annual gambling revenue report.

One trader said the bonds were "if any, probably down a little bit" at 90 bid, 90¼ offered. Another trader also said the bonds were "down just a little" around 901/4.

"But that's meaningless," the second trader added, referring to the mere $15 million of notes that turned over.

Another source placed the notes around the 91 bid level, calling that half a point softer.

For 2010, the Jersey Shore-based gambling center saw revenue decline 9.6% from 2009, making that the second-worst annual dip ever.

Total revenues came to $3.57 billion.

For the month of December, revenues dropped 13% to $237.2 million.

Reddy Ice getting attention

A trader said Reddy Ice's 13¼% notes due 2015 "have been getting a little more active recently," though he was not aware of any news or other goings-on that would explain the surge in interest.

He quoted the paper at 86 bid, 87 offered.

Reddy Ice is a Dallas-based manufacturer and distributor of packaged ice.

WaMu quiet on nixed exit

There was "lots of news, but not much trading" in Washington Mutual debt, a trader said.

However, he did note that the bonds were quoted lower, with the "holdco" seniors - such as the 5.55% notes due 2010 - at 35 bid, 36 offered.

The muted trading session came despite news out late Friday regarding the company's bankruptcy case. The judge overseeing the proceedings - Mary F. Walrath - ruled against the company's bankruptcy exit proposal on Friday.

Walrath based her decision on the fact that the plan provides lawsuit protection for too many players. However, she did say that she agreed to the core of the plan, which provides for a $10 billion global settlement between the Seattle-based thrift, JPMorgan Chase & Co. - which scooped up the bank in September 2008 for $1.9 billion - and the Federal Deposit Insurance Corp., which seized the bank shortly before the sale occurred.

"Although the court found the global settlement to be reasonable, it did not find the releases to be reasonable," Walrath said in her ruling.

WaMu is said to be optimistic it can amend the plan in order to win approval.

Distressed supply lacking

A high-yield trader said that "it doesn't sound like there's a ton of paper for sale" in the distressed-debt markets, noting that "there's not a lot of paper trading under 60 these days."

He rhetorically asked "if you're a distressed player, it's like 'what are these guys doing?' Is a distressed high-yield bond something that trades in the 90s now? What are these guys buying?"

He suggested that with many bond issues of companies in financially underperforming sectors, and even of companies that are currently or that have recently been in bankruptcy, trading at or above 90 bid - with some even around or above par - maybe some of the distressed-debt dealers have switched away from bonds and are buying bank debt.

"At some point when high-yield gets cheap, or when stuff starts blowing up, they'll start looking at [bonds again]. Because you go through the Trace report - maybe [OPTI Canada Inc.] is in the 60s or 70s - but everything else is in the high 90s or over par."

He noted the fact that the Great Atlantic & Pacific Tea Co. Inc.'s 8 3/8% senior secured notes due 2015 are currently at bid levels around 92 or 93 on investor expectations that they will be made whole, or at the very least recover almost all of their investment in the bankrupt Montvale, N.J.-based supermarket company.

On the other hand, A&P's two convertible issues - its 5 1/8% notes due on June 15 and its 6¾% notes due 2012 - continue to trade around 33-34 bid, considered by investors and traders to be no better than plain unsecured junk bonds, because the underlying stock into which the bonds could be converted is considered essentially valueless, currently trading around or less than 20 cents per share.

The trader also noted the senior secured bonds of such paper companies as NewPage Corp. and Catalyst Paper Corp. trading in the mid-to upper 90s - this despite continued soft economic conditions in the paper business which have forced industry-wide capacity reductions until demand picks up with the economy.

Paul Deckelman contributed to this article

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