Distressed bonds firmer in slow trading; ResCap debt improves; Delphi bonds edge higher

By Stephanie Rotondo

Portland, Ore., May 19 -Trading in the distressed bond market ended on a firmer note as the equity markets fluctuated throughout Monday's trading session - ending the day still in positive territory.

But the first trading day of the week started more with a crawl than the bang many were hoping for.

"It was back to a slow market," said one trader. "It was a real snoozer today."

As such, market sources reported that Residential Capital LLC's debt closed better on the day - though trading was not as much as was expected. The gains come as the mortgage lender's debt exchange offer turned out to be a success.

Meanwhile, Delphi Corp.'s bonds keep ticking up. On Friday, news came out that the company was taking an Appaloosa Management-led investor group to court for backing out of the investment deal that ultimately left Delphi languishing in bankruptcy. Still, one trader said he did not think that was the catalyst for recent gains in the name.

As the market prepares for a short week - the market will close early on Friday in preparation for the Memorial Day holiday - traders are thus far seeing a repeat of last week's lackluster performance. One trader speculated that investors have turned their focus to the recent onslaught on new issues hitting the marketplace.

"The Street was particularly quiet," a trader said. "It really was that bad, sadly."

ResCap debt gains on exchange

As ResCap announced that its exchange offer was successful - and also extended the "early" deadline for investors to tender their debt - ResCap's bonds moved up another couple points, adding to its gains from Friday.

A trader called the 6 3/8% notes due 2010 up a couple points to the 55 area, while the 2013 issue closed at 52.5 bid, 53 offered. At another desk, a trader pegged the 2010 maturity at 54.4 bid, 55.5 offered by the end of business, though he noted the bonds traded as high as 55.25 bid, 55.75 offered.

The trader also saw the upcoming November maturity - the floating-rate notes due 2008 - at 88.5 bid, 89.5 offered.

Still, the trader noted that there was "not as much [trading] as you would think" in ResCap's corporate debt.

Another source saw ResCap's 8 7/8% notes due 2015 half a point firmer at 52 bid, while parent company GMAC LLC's 6 7/8% notes due 2012 garnered a 2.5-point increase, closing at 84 bid.

Meanwhile, ResCap's term loan gained ground after the news regarding the progress of the company's refinancing proposal, traders reported.

One trader said that the loan was quoted a 97 bid, 99 offered, up from 94¾ bid, 95¾ offered on Friday, while a second trader said that the loan was quoted at 97 bid, 98 offered, up from morning levels of 95½ bid, 97½ offered and from Friday's levels of 94½ bid, 951/4.

On Sunday night, ResCap revealed that needed consents were received for its exchange and cash tender offers for $14 billion in notes.

In the offers, ResCap is offering to issue new 8.5% senior secured guaranteed notes due 2010 in exchange for existing 2008 and 2009 notes, and new 9.625% junior secured guaranteed notes due 2015 in exchange for existing 2010 through 2015 notes.

Holders participating in the exchange are able to elect to receive cash in place of the new notes that they would otherwise receive under a modified Dutch auction.

The company is also tendering for any and all of its outstanding $1.199 floating-rate notes due June 9, 2008.

ResCap already entered into supplemental indentures adopting the proposed amendments to the indentures under which the old notes were issued.

The amendments to the old notes release the subsidiary guarantees of ResCap's obligations under the old notes and eliminate certain of the restrictive covenants and events of default in the indentures.

As a result, claims related to all new notes issued in the exchange offers will be effectively senior to claims regarding unexchanged old notes.

The offers are conditioned on ResCap entering into a new first-lien senior secured credit facility, providing for at least $3.5 billion of commitments on terms acceptable to the company.

To this end, ResCap has been negotiating a new $3.5 billion first-lien revolver with GMAC as the lender.

Pricing on the revolver is expected to be Libor plus 275 basis points, and the company is expected to pay an upfront fee of 50 bps, according to previous filings with the Securities and Exchange Commission.

Covenants include a minimum cash balance and a minimum consolidated tangible net worth.

The company must prepay revolver borrowings in an amount equal to net cash proceeds in excess of retained proceeds that are not reinvested in eligible assets within an agreed period of time. Amounts prepaid will permanently reduce the commitment under the senior secured credit facility to the extent such amounts are not reborrowed to acquire new eligible assets within an agreed period of time.

Furthermore, the company will be required to repay the amount of any deficit in borrowing base availability in the minimum amount of $250,000.

The revolver will mature on the earlier of May 1, 2010 if the offers are completed in a manner satisfactory to the lender, otherwise March 31, 2009, and the date on which the maturity of the new notes issued in connection with the previously announced tender offers is accelerated due to an event of default.

Proceeds from the revolver will be used to fund the cash required for the note offers, to repay the company's term loan maturing in July, to replace its $875 million 364-day revolver and to replace its $875 million three-year revolver.

ResCap's new senior secured guaranteed notes will be secured on a second-lien basis by the collateral for the credit facility and the new junior secured guaranteed notes will be secured on a third-lien basis by the collateral.

The note offers will expire on June 3.

ResCap, an indirect wholly owned subsidiary of GMAC Financial Services, is a Minneapolis-based real estate finance company focused primarily on the residential market.

Delphi drives up

Delphi's debt has slowly but steadily inched upward of late, and Monday was no exception.

A trader said there was "very little activity in Delphi, but it is still trending higher." He quoted the 7 1/8% notes due 2029 around 43, adding that there were a couple prints late in the day between 43 and 44.

Another market source saw the 2029 paper up 2 points, also in the 43 context, while other issues of the company's bonds traded between 40 and 41.

On Friday, Delphi filed a lawsuit against an investor group led by Appaloosa Management. Delphi is asking a court to hold the group to its end of a $2.55 billion investment deal.

In early April, Delphi was expecting to exit bankruptcy with the help of the Appaloosa group's equity investment. Delphi had only to secure the remainder of its needed exit financing and was close to inking a deal before Appaloosa pulled out of its commitment.

As a result, Delphi, which was already struggling to find exit financing amid the credit crunch, was left languishing in bankruptcy.

Still, a trader said he was not sure if the recent court filing had anything to do with the movement in the notes.

"I don't get the impression that that is what is driving the bonds," he said.

Delphi is a Troy, Mich.-based automotive parts supplier.

Elsewhere in the autosphere, Visteon's 7% notes due 2014 ended half a point stronger at 72.25 bid, while Metaldyne Corp.'s 10% notes due 2013 eased 1 point to 63 bid.

Homebuilders mixed

A trader saw Hovnanian Enterprises Inc.'s new 11½% secured notes due 2013 "hanging in" around the same 103-103.25 level to which those bonds rose on Friday after pricing at 99.064.

Another trader saw the company's existing 6 3/8% notes due 2014 and 6¼% notes due 2016 up a point at 71 bid.

Among other homebuilders, a trader saw Tousa Inc.'s 9% senior notes due 2010 trading at 62 bid, 64 offered and its junior paper, like the 7½% notes due 2011 and 2015 and its 10 3/8% notes due 2012, at 11 bid, 13 offered - the former up from levels in the low-to-mid 50s and the latter from single-digit levels around 8-10, although he acknowledged that he "hadn't seen them in a while." He suggested that "something may be going on with them," although he did not know what.

Another market source saw the 9% notes trading in the lower-60s at the tail end of last week, although the bonds were in the mid-50s earlier in the week. Bankrupt Tousa recently asked the bankruptcy court handling its reorganization for an extension of its exclusivity period for the reorganization plan.

A trader saw Beazer Homes USA Inc.'s 8 5/8% notes due 2011 unchanged at 86 and Standard Pacific Corp.'s 7% notes due 2014 unchanged at 74.

WCI Communities Inc.'s 9 1/8% notes due 2012 were quoted down more than a point at 41.25 bid.

Broad market mostly firmer

A trader said Sabine Pass has been a "more active name in the news" recently, and its bonds have continued to edge up.

During Monday's session, the 7½% notes due 2016 ended 1.5 points better at 93.5 bid, 94 offered. The gains come as Moody's Investors Service downgraded the notes to B2 from Ba3. The ratings agency cited liquidity concerns at the company's parent, Cheniere Energy Inc.

Level 3 Communications' paper "continues to move up," the trader said, pegging the company's various issues up about 1 point. The trader quoted the 8¾% notes due 2017 at around 90.5.

The trader said there was no news to prompt the move, but noted, "The whole capital structure has been moving up for a while now."

Trump Entertainment Resorts Inc.'s 8½% notes due 2015 were seen softer at around 60, while Harrah's Operating's 10¾% notes due 2016 traded up a point to 88 5/8 bid, 88 7/8 offered.

Sara Rosenberg and Paul Deckelman contributed to this article.

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