ResCap, GMAC slip on a series of downgrades; McClatchy, Tribune dip, Harrah's inches up

By Stephanie N. Rotondo

Portland, Ore., April 24 - It was bad news for Residential Capital LLC Thursday, as the mortgage lender experienced a series of downgrades prompted by the exiting of two members of its board.

As a result, the company's bonds slipped during trading. ResCap's parent, GMAC LLC, was also on the receiving end of some downgrades, as the market continues to speculate how much the company will put into its offspring to keep it afloat. GMAC's bonds were also seen lower to unchanged on the day.

Meanwhile, the media and entertainment sector, which has recently been seen as one of the worst affected amid the economic slowdown, ended the day mixed, at best. McClatchy Corp.'s bonds were seen weakening on the back of a ratings downgrade from the previous session, while Tribune Co.'s debt also fell. But on the gaming side, Harrah's Operating saw its newest issue continue to be a popular name among investors, and the bonds just kept inching higher.

But while many traders called the day's tone generally firm yet again, one trader categorized the day as "funny."

"There were lots of onesies and twosies as opposed to big block trades," he said. "The market was pretty strong, but nothing made me stand up and take notice."

ResCap, GMAC slip on downgrade

It was a downward day for Residential Capital's debt Thursday, after a series of downgrades prompted by resignations from its board.

One trader said the mortgage lender's bonds have fallen around 2 points since Tuesday, pegging the upcoming June maturity at 93.5 bid, 94.5 offered, the 4 1/8% notes due 2009 at 64 bid, 66 offered and the 12% notes due 2013 at 52 bid, 53 offered.

At another desk, a trader said the company's subordinated issues were trading around 50. He said the 6½% notes due 2013 started the day at 52 bid, 52.5 offered before closing down to 51.5 bid, 52.5 offered. Meanwhile, the 6 3/8% notes due 2010 closed at 55 bid, 56 offered.

The trader also saw the June 2008 paper at 93.5 bid, 94.5 offered, which he said some might find "odd."

"It's a big bet," he said of the upcoming maturity. "People must think they make it."

The trader noted that the November 2008 issue ended at 82.5 bid, 84.5 offered. He pointed to the difference between the two as evidence that the market believes the June payment will be made.

"These wouldn't be 11 points ahead if people didn't think they will make it," he opined.

Elsewhere, a trader deemed trading in ResCap "active," its 2013 issue around 53 and the November 2008 paper at 83 bid, 83.5 offered. He called the company's bonds down 1 to 2 points overall.

Another trader saw the 6½% down 1.5 points at 52 bid, 54 offered, while another quoted the 8 7/8% notes due 2015 more than 2 points lower at 52 bid.

ResCap was "under a little pressure today," yet another trader said, noting the ratings downgrade and the board shakeup that led to it. He saw the 6½% notes as "quite active today," down 1.5 to 2 points on the day at trading levels as low as 52.

ResCap's term loan was quoted at 88 bid, 90 offered on Thursday, unchanged from Wednesday's levels, a trader said.

On Wednesday, Moody's Investors Service cut its ratings on ResCap to Caa1 from B2, following the resignation of two independent directors on the lender's board.

"The absence of independent directors increases the likelihood that ResCap will take actions that are negative for creditors," Moody's vice president Craig Emrick said in a written statement.

Come Thursday's session, Standard & Poor's followed Moody's lead, dropping ResCap to CCC+ from B. Along with the directors' exit, S&P cited continued concerns about the company's performance.

The downgrades came as GMAC lent its floundering offspring $468 million, a move aimed at increasing liquidity until it could secure more long-term financing. In order to finance the loan, GMAC drew the funds from a $750 million credit facility obtained the same day ResCap borrowed the money.

Given GMAC's exposure to the money-losing unit, it was not immune from the recent downgrades. Moody's cut GMAC to B2 from B1, while S&P dropped its rating to "B" from "B+."

In the wake of the ratings reassignment and financing activities, GMAC's bonds were lower to unchanged on the day. One trader said the 5 5/8% notes due 2009 were actively traded, closing at 95.25 bid, 95.75 offered. He called that "kind of where they were."

Another market source saw GMAC's 6 7/8% notes due 2012 slip 1 point to around 83, while yet another source pegged the benchmark 8% notes due 2031 down 1.5 points to 77.5.

But despite GMAC's continued efforts to try to keep ResCap afloat, there remains concern in the market about whether the child can survive on its own - meaning, a bankruptcy could still be in the cards.

Still, "I think it will be a long time before they file," one trader said.

GMAC will release its first-quarter results on Tuesday.

Among other names in the financial sector, Ambac Financial Group Inc.'s 6.15% notes due 2037 were called active and lower around 36.

Thornburg Mortgage Inc.'s 8% notes due 2013 gained half a point to end at 74.

A trader saw MBIA Insurance Corp.'s 14% surplus notes due 2033 - nominally investment-grade rated but trading around in the junk market - fall as low as 88 bid, 90 offered from Tuesday's levels at 92 bid, 94 offered, before coming off that low to end down 2 points at 90 bid, 92 offered, as the credit "continues to go down with [rival] Ambac." The bonds were seen around a 96-97 context at the end of last week but tumbled after Ambac reported a huge quarterly loss, including $3 billion of chargeoffs.

Media, entertainment names mixed

In the media and entertainment sector, traders reported a mix of goings-on.

One trader said Knight-Ridder's, also known as McClatchy, notes were weaker following a downgrade in the previous session. He said he saw the 5¾% notes due 2017 at 68 bid.

"Some of the notes they are tendering for, so those will stay about where they are, but the others were weaker," he said.

S&P cut the media company's rating by one notch to BB- from BB, citing a 15% decline in advertising revenue and a 14% decline in total revenue. On the same day as the downgrade, the company announced a tender offer for its 9 7/8% notes due 2009, its 7 1/8% notes due 2011 and its 4 5/8% notes due 2014.

Meanwhile, Tribune's debt slipped about a point, as one trader called the name "a nightmare."

The trader quoted the 4 7/8% notes due 2010 at 48.5 bid, 49.5 offered, the 5¼% notes due 2015 at 35.5 bid, 36.5 offered and the 5.67% notes due 2008 at 93 bid, 95 offered.

The dip in the debt came a couple days after the company's term loan rallied in trading on the news that it was close to inking a deal to sell Newsday to News Corp.

In the gaming arena, Harrah's Operating's 10¾% notes remain "a busy one," a trader said. The trader said the recent new issue started the day off at 84.25 bid, 84.5 offered, closing around 85. Though he called that only up a half point, "a lot of it is trading and it seems to be holding its own," he said.

Another trader quoted the notes at 85 bid, 85.25 offered, up from 84.5 previously.

After running up in the previous session, Trump Entertainment Resorts Inc.'s bonds fell half a point to around 65.5 bid, a trader said. And Majestic Star Casino's 9¾% notes due 2011 firmed more than a point to 37 bid.

Broad market tidbits

A trader said Sea Containers Ltd.'s 7 7/8% notes due 2008 traded around 41, "around where they have been." He added that the 10½% notes due 2012 were experiencing some short covering, and he saw those with a 43 bid.

Swift Transportation Co. Inc.'s 12½% notes due 2017 remained "kind of active," a trader said, and were "still hanging around" 35 bid, 36 offered.

Level 3 Communications Inc.'s paper not only "held its gains from yesterday" but "kept moving up," a trader said, pegging the 8¾% notes due 2017 around 83.5.

Delphi Corp.'s bonds were quoted lower at 35 bid, 36 offered but were not very actively traded.

Sara Rosenberg and Paul Deckelman contributed to this article.

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