E*Trade bounces back; Revlon gains on refinancing plans; Delphi dives

By Paul Deckelman and Paul A. Harris

New York, Dec. 3 - E*Trade Financial Corp.'s bonds pushed upward Tuesday after three consecutive sessions during which the paper had been pounded lower by the negative investor response to the company's $2.55 billion bailout deal.

Elsewhere, Revlon Consumer Products Corp.'s bonds were sitting pretty on the news that the New York-based cosmetics company plans to refinance its 8 5/8% senior notes slated to come due on Feb. 1.

On the downside, Delphi Corp.'s bonds were seen down as much as 9 or 10 points on the session in heavy trading after the bankrupt Troy, Mich.-based auto parts maker sought an extension of the time it needs to propose a plan of reorganization and announced changes in its previously introduced plan - including a reduction in the overall value of the company, which could mean less new stock to be issued to its creditors.

The primary market produced no news whatsoever during the session.

Quiet market, bearish tone

Trading remained relatively quiet, with many market participants no doubt still in Orlando for the Banc of America Securities credit conference. Volume levels Tuesday were about 31% higher than Monday's had been - although Monday's levels were particularly anemic. Declining issues led advancers by a not quite six-to-five margin.

A trader said that the widely followed CDX junk bond performance index was down 1/16 at 95 1/8 bid, 95 3/8 offered. Among other market barometers, the KDP High Yield Daily Index, which had retreated 0.07 on Monday, was down another 0.06 to 77.85. Its yield rose 1 basis point to 8.55%.

E* Trade bounces back

Traders saw E*Trade Financial's bonds rebound smartly after having taken a drubbing over the previous three sessions, on a feeling that the selling had perhaps been overdone.

A trader also noted "the general idea" that the much-maligned $2.55 billion cash infusion by a syndicate led by Citadel Investors Group at least means that "someone is investing in them," and noted a Wall Street Journal piece suggesting that the terms at which Citadel is investing in E*Trade in exchange for new bonds, stock and its asset-backed securities portfolio "may represent a price bottom" for the troubled New York-based on-line financial services company.

He saw E*Trade's 8% notes due 2011 "all over the place," starting the day at 74.5 bid and ending "somewhere in a 75-79 context."

Another trader saw the 8s at 77 bid, 78 offered, versus 73 bid, 75 offered on Monday, while its 7 3/8% notes due 2013 firmed to 72.5 bid, 73.5 offered, up from Monday's 67 bid, 69 offered, while its 7 7/8% notes due 2015 ended at 71.5 bid, 72.5 offered, versus Monday's 66.5 bid, 68.5 offered. The bonds, he declared were "up pretty good" on the company's 8-K filing with the securities and Exchange Commission, in which it gave the details of the complex transaction with Citadel.

Another market source saw the 8s going home at 78.25, up from a Monday level at 76, although they failed to hold on to gains that had pushed the bonds as high as 83 at one point in the day. The 7 3/8s were seen up 5 points at 72.5, while the 7 7/8s were around 4 points better at 71.5, although on lesser volume than the other two issues.

While bondholders may believe the three-day retreat was overdone, shareholders disagreed, taking the bonds down for a fourth consecutive session after Lehman Brothers lowered its price target by $11 a share, to $8, citing the company's problems even independent of the Citadel deal. Its Nasdaq-traded shares fell another 17 cents, or 4.14%, to $3.94

Revlon climbs on refi plan

Revlon's 8 5/8% notes slated to come due in February were seen by a market source to have advanced ½ point to par bid on the news that the company has entered into a term loan agreement with its majority stockholder, MacAndrews & Forbes Holdings Inc. - controlled by Revlon's chairman, billionaire tycoon Ronald O. Perelman - with Perelman/McAndrews & Forbes agreeing to front Revlon $170 million, which the company will then use to repay in full the $167.4 million remaining outstanding 8 5/8s, which mature on Feb. 1.

Revlon will pay 11% interest on the loan, which will come due in August 2009.

A trader saw the 8 5/8s up 1 point at 99.5 bid, 100.5 offered on the refinancing news, and also saw its 9½% notes due 2011 also up 1 point at 92 bid, 93 offered.

Standard & Poor's revised Revlon Consumer Products' outlook to "developing" from "negative" previously and affirmed its existing ratings, including its CCC+ corporate credit rating.

Delphi dives on delay

Perhaps the most actively traded name Tuesday was Delphi Corp. - and its bonds were seen having slid anywhere from 7 to 10 points across the board, apparently on a combination of investor unease with the company's having asked for 90 days of additional time to issue a definitive new plan of reorganization and further extra time to solicit approvals for it, as well as with changes in the previous plan which Delphi said Tuesday had been approved by some creditors and stakeholders. Among the changes was a reduction in the overall enterprise value of the company, potentially cutting the bondholders' recovery.

A trader saw Delphi's 6.55% notes that were to have come due last year at 58 bid, 59 offered, saw its 6½% notes due 2009 at 58.5 bid, 60 offered, its 61/2s due 2013 at 57 bid, 60 offered and its 7 1/8% notes due 2029 at 59 bid, 60 offered, all down 10 to 12 points, he said.

Delphi, another trader said, "had been on a ride," with its bonds first rising to above the 120 bid levels during the summer and now trading for not even half of that. He saw the 6.55s at 57.75 bid, 58.75 offered and the 2013s at 56.5 bid, 57.5 offered, pronouncing both of the bonds "down 9½ to 10 points.

"That's what happens when people fight in bankruptcy," he observed. "They all get screwed."

Delphi and its various creditor groups and shareholders have been battling for a long while over the eventual makeup of a plan; the agreements announced Tuesday will be presented to the bankruptcy court overseeing its restructuring. The court has a hearing scheduled on Thursday.

"There's a tremendous amount of spinning going on" by people on the various stakeholder committees, noted Bill Featherston, managing director at J. Giordano Securities in Stamford, Conn. "As one guy said, 'it's like a drama school,' the acts which these people are going through."

The negotiations, he said, "have been dramatic - and I think a few people have thrown in the towel, as evidenced by the size of the paper that's been trading today. It's been dramatic."

Featherston said that Delphi's announcement of the lowered enterprise value of the company could well mean that "the unsecured creditors are going to getting less equity in the new [i.e. restructured] company than they originally planned on." He said that Delphi having cut the amount of financing that it will need to $6.8 billion from more than $8 billion originally "will be coming out of the unsecured creditors' pockets."

"The good news," he said is "they cut a deal with General Motors" on the compensation to be paid to Delphi's former corporate parent, "but the bad news is that in terms of exiting from bankruptcy, Delphi is requesting that the court extend their exclusivity from December to the end of March - so nothing is going to happen in a hurry."

While Delphi said it wants the extra time to gain approval of all of its creditors and other stakeholders to the revised terms of its plan, the reality, said Featherston, is "they'll continue to fight - and there is what we call 'investor fatigue' setting in. Some of the investors have just said 'screw it,' and they're throwing in the towel to sell their stuff at whatever the market will bear."

Trump, Isle, Harrah's seen lower

In the gaming sector, Trump Entertainment Resorts Inc.'s 8½% notes due 2015 were seen down 1½ points on the session at 76 bid, 77 offered, with a trader attributing the fall to the news that the Atlantic City, N.J.-based casino operator's chief financial officer, Dale Black, unexpectedly resigned to take a similar position with Isle of Capri Casinos Inc.

Black becomes the third Trump executive making that exodus in the past few months, following in the footsteps of Trump's former chief executive officer, James Perry and the company's fired chief information officer, Virginia McDowell, both of whom left Atlantic City for St. Louis-based Isle in July.

Like their bondholder counterparts, equity investors apparently worried about the latest symptom of a brain drain at the already underperforming Trump voted with their feet, taking its Nasdaq-traded shares down 30 cents, or 6.10%, to $4.62 on volume of 1.1 million shares, nearly double the usual turnover. At one point during the session, the stock plummeted to $4.26, its lowest point since the company emerged from bankruptcy in 2005. Those shares have lost fully 80% of their value in a little less than a year since Pennsylvania gaming authorities turned down Trump's application to operate a casino in Philadelphia.

Despite having successfully spirited Black away from Trump's organization, Isle of Capri's own 7% notes due 2014 were seen by a market source at 83.625 bid, down more than 2 points on the session, in brisk trading.

Another source pegged its bonds down 2½ points at 84 bid. Yet another also saw the bonds at 84, but called that a 1¾ point loss.

The bonds fell - along with the company's Nasdaq-traded shares, off $1.04, or 6.29%, to $15.50 - after Isle swung to a loss in the fiscal second quarter ended Oct. 28 versus a year-ago profit. The company reported a quarterly loss of $24.6 million, or 80 cents per share, versus its year-ago earnings of $9.6 million, or 32 cents per share. Excluding charges and other one-time items, the company racked up a loss of 45 cents per share - surprising analysts who were looking for a loss of about a nickel per share.

Elsewhere in the sector, Harrah's Operating Co.'s 5 5/8% notes due 2015 were seen down more than 3 points at 75 bid, in brisk trading. Its 5¾% notes due 2017 were off 1 point at 70. There was no fresh news seen out on the Las Vegas-based gaming giant.

Meanwhile, Station Casinos Inc.'s 6 5/8% notes due 2018 rose 1 point to 76 bid, also on no news.

'In the market'

The familiar vestiges of a smooth-running high yield primary market, such as roadshow announcements and price talk, have been in scarce supply since Thanksgiving.

That's because presently high yield is a "choppy market," sources lately are telling Prospect News.

The sell side now draws a distinction between deals that are "in the market," and those which are being "quietly marketed."

It doesn't take very long to run down the list of those deals that are now "in the market," with announced roadshows and expected pricing dates.

NewPage Corp. is marketing a $456 million add-on to its 10% senior secured second-lien notes due May 1, 2012, which is expected to price late this week or early next week, via Goldman Sachs.

Unisys Corp. is expected to price its $250 million offering of eight-year senior notes (existing ratings Ba3/BB-) on Wednesday or Thursday via Bear Stearns, Banc of America Securities and Citigroup.

Legends Gaming, LLC, along with Legend Finance Corp., is in the market with a $220 million offering of five-year senior secured notes - a debt refinancing deal via Jefferies & Co., which is expected to price next week.

And Sequa Corp. is in the market with a $700 million two-part offering of eight-year senior unsecured notes (Caa2/CCC+).

'Quietly marketed'

Market watchers face a more formidable challenge in tracking the deals that are being "quietly marketed."

This set of deals includes nearly all of the so-called LBO-related risk overhang, i.e. debt left on the underwriters' balance sheets from the summer freeze-up in the credit markets, and the ensuing chill in the junk market which continues to prevail, sources say.

In this category gossip lately has circulated around one of the names synonymous with the LBO-related risk overhang: First Data Corp.

Throughout spring 2007 the company was expected to bring $8 billion of new high yield bond issuance to help fund the LBO of the company by Kohlberg Kravis & Roberts.

However, when the word "subprime" set teeth to chattering in earnest, the deal became unwieldy, sources said.

In September New Omaha Holdings Corp. priced $1 billion of nine-year senior PIK notes at par to yield 11½% via Goldman Sachs.

As those terms circulated, however, market sources insisted that the PIK notes, although priced, mostly remained on the balance sheets of the underwriters, unplaced.

In mid-October underwriters priced a $2.2 billion tranche of First Data's 9 7/8% eight-year senior cash-pay notes at 94.796 to yield 10 7/8% via Citigroup, Credit Suisse, Deutsche Bank Securities, HSBC Securities (USA), Lehman Brothers, Goldman Sachs and Merrill Lynch.

And recently numerous sources have told Prospect News that a $1 billion portion of First Data senior subordinated notes is presently believed to be in the market.

However late last week an informed source insisted that it is definitely not "in the market," and added that no official values have been set with respect to coupons, yields or original issue discounts.

The informed source went on to assert that all that can be said of the First Data subordinated debt can be said of most if not all of the hung LBO risk: Underwriters are quietly marketing it. Period.

The quiet way

On Tuesday sell-side sources told Prospect News that, given the present choppiness of the high yield, the "quietly marketing" treatment, which involves securing a critical mass of "anchor orders" for bonds before making them available to the market at large, makes sense even for more "bread and butter" issuers.

One sell-sider, not in the deal, said that IKON Office Solutions, Inc., which is a relatively well known entity to high yield investors, is thus marketing its $150 million offering of senior unsecured floating-rate notes due 2011 via Wachovia.

Under normal circumstances this deal would probably be marketed with the customary roadshow, the source said.

But securing those anchor orders, which will ensure that the deal crosses the finish line, is presently critical, the sell-sider insisted.

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