Financials lead with Sallie Mae firm, Aiful trading wide; Realogy slips as swap plans unravel

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Sept. 25 - Traders reported that the financial arena dominated the trading Friday, as that was where the "appetite" was.

However, there were few whose price was significantly different from the day before. SLM Corp., for example, held its ground, despite being one of the day's most active names.

Still, CIT Group Inc. lost a little weight, while Aiful Corp.'s notes were trading in the same range - albeit wide - they had been all week.

Meanwhile, news that negotiations regarding an exchange offer had fallen apart hurt Realogy Corp.'s structure. The bonds had run up in the previous session on word of the debt swap plan.

Residential Capital LLC was basically unchanged, though in light trading. The bonds seemed to shake off a rating downgrade from Moody's Investors Service.

Financials dominate

Financials were among the busiest names trading on Thursday, a trader said.

For example, a good $25 million of Sallie Mae's 5.45% notes due 2011 traded at 94.5, while at least that much of its floating-rate notes due 2011 traded at 83. The trader said that was "all kind of right where it has been, but it is a good indication of where the appetite is."

The trader also saw about $50 million of CIT Group's 4¼% notes due 2010 trade, down a little at 74.5. He noted that the issue had started the week in the high-60s, low-70s and had moved up to the high-70s before settling back in.

However, the issue's gyrations were insignificant, he said. "It's like, one day you got to have it and the next day you don't."

"There is a lot of short paper changing hands," he added, as many issues across the board with maturities in "2016 and in, mostly in 2010 and 2011" were moving around.

"I don't know if that's a function of taking the longer-term risk out of the equation or what," he said.

Aiful markets wide

Also among financials, Japanese company Aiful saw its bonds quoted wide and tight in line with where they have been all week as Moody's Investors Service cut its rating on the company.

A trader quoted the 6% notes due 2011 at 37 bid, 42 offered, the 4.45% notes due 2010 at 64.5 bid, 69 offered and the 5% notes due 2010 at 50 bid, 57 offered.

Moody's dropped Aiful's long-term senior unsecured debt and unsecured medium-term note ratings to Caa1 from B3, though its issuer rating remained steady at Caa1. However, the agency is placing the company on review for another potential downgrade.

Realogy hurt by exchange news

Realogy's debt lost some ground during the trading session after the company announced that talks of a potential exchange of notes for equity and new debt were terminated, according to traders, who added that an overall heavier secondary may have been to blame as well.

One market source saw the 10½% notes due 2014 slipping 6 to 7 points on the day to 73 bid, 74 offered, while the 12 3/8% notes due 2015 dropped to 56 bid, 57 offered from 62 bid, 63 offered previously.

The strip of institutional bank debt was quoted at 86¼ bid, 87¼ offered, down from 86¾ bid, 87¾ offered on Thursday, traders said.

The exchange talks were going on with Apollo Management LP and certain institutional holders of the company's 10½% senior notes due 2014, 11%/11¾% senior toggle notes due 2014 and 12 3/8% senior subordinated notes due 2015.

During these discussions, Apollo advised the company that it held approximately $875 million principal amount of the existing notes as of Sept. 25.

After giving effect to the consummation of the incremental second-lien term loan, if consummated, and the related exchange transaction with Icahn Partners LP, Apollo's ownership of existing notes will increase to approximately $970 million principal amount.

As was previously reported, Realogy is trying to syndicate an incremental second-lien term loan (Caa3/C) that will be used to refinance a portion of its existing bank debt.

This loan was originally talked at a size of $325 million, but chatter on Friday was that the deal might be upsized to $500 million.

In addition, the second-lien loan is now set to mature in October 2017 as opposed to in January 2014 as was initially proposed.

Also changing is the call protection, which has gone to non-callable for three years from non-callable for two years.

Price talk on the loan is a fixed-rate in the 13½% area with an original issue discount of 98, sources said.

J.P. Morgan Securities Inc. is the lead bank on the deal.

If Realogy's second-lien loan (or an alternate second-lien transaction) is successfully completed, Icahn Partners LP has agreed to exchange approximately 70% of the company's $311 million 11%/11¾% senior toggle notes due 2014 held by it for $150 million of new second-lien term loan debt.

The $150 million second-lien loan would be in addition to the potential $500 million second-lien loan and would carry the same terms.

Furthermore, concurrently with the exchange, Icahn has agreed to sell the balance of the senior toggle notes held by it for cash to Apollo Management LP.

Realogy is a Parsippany, N.J.-based provider of real estate and relocation services.

ResCap little fazed by downgrade

Residential Capital's bonds ended the day unchanged to only slightly weaker as Standard & Poor's downgraded some of the company's notes.

A trader called the 6 3/8% notes due 2010 "basically unchanged" around 77. Another source deemed the 8 7/8% notes due 2010 a point weaker at 77 bid, 78 offered.

On Friday, S&P said it cut ResCap's secured second-lien notes to CC with a recovery rating of 6 from CCC with a recovery rating of 3 and affirmed the junior secured third-lien notes and unsecured debt at CC with a recovery rating of 6.

The company has a CCC counterparty credit rating.

The agency said its reasoning for the cut was due to the belief that, even with the $2.2 billion senior secured revolving loan facility it received from parent company GMAC, it did not believe there would be enough funds to pay off second- and third-lien creditors in a restructuring.

Simmons loan remains steady

Simmons Co.'s term loan D held in at levels that are close to par following news that the company has decided to file for Chapter 11 in order to complete a restructuring plan that calls for bank debt holders to get repaid in full, according to a trader.

The term loan D was quoted at 98 bid, par offered, unchanged from Thursday's levels, the trader said.

Several other traders said there was little to no activity in the company's bonds.

Under the company's plan, not only will senior bank lenders be paid in full, so will its trade vendors, suppliers and employees.

Each holder of the company's senior subordinated notes will be entitled to receive its pro rata share of $190 million in cash and each holder of its discount notes will be entitled to receive its pro rata share of $15 million in cash.

As part of the restructuring, the company will reduce its total debt to approximately $450 million from approximately $1 billion.

The company has arranged for a $35 million debtor-in-possession revolving credit facility with Deutsche Bank as the lead arranger, bookrunner and administrative agent.

Simmons said in a news release on Friday that it expects to launch a formal process to solicit votes for its prepackaged plan from the senior bank lenders and the holders of the senior subordinated notes and discount notes as soon as solicitation materials are ready. The solicitation process is expected to be completed within 30 days after launching.

A significant majority of noteholders has already agreed to support the plan, including holders of 75.4% of the $200 million 7 7/8% senior subordinated notes and 72.6% of the 10% discount notes.

Following the solicitation period, the company will commence a Chapter 11 filing and seek confirmation of the prepackaged plan.

In addition, as part of the restructuring, Ares Management LLC and Teachers' Private Capital will acquire Simmons.

The transaction comprises total consideration of approximately $760 million, including equity from the purchaser and some of Simmons' current lenders as well as debt commitments from some current lenders.

Simmons is an Atlanta-based mattress manufacturer.

Distressed sector firm

Elsewhere in the distressed debt arena, Visteon Corp.'s bonds "moved up some yesterday and a little more today," according to a trader, who pegged the debt generically at 25.5.

"So that bond continues to creep higher," he said.

Another trader said the 7% notes due 2014 were "kind of active" at 25.5 bid, 26 offered, though he deemed that unchanged.

"They have moved up this week from 20," he noted.

Smurfit Stone Container Enterprises Inc.'s notes were "up a little bit," a trader said. He pegged the notes at 66 bid, 67 offered across the board.

Momentive Performance Materials Inc.'s 9¾% notes due 2014 continued to improve some after the company released preliminary financials on Thursday. A trader said the paper was "up slightly" on the day at 77 bid, 78 offered, "but up 8 to 10 points on the week."

"They had good numbers," he said. "I think people were short, so I think there was definitely some short covering going on."

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