SemGroup bonds under pressure; Trace wrong about Masonite; GMAC, ResCap hold up despite numbers

By Stephanie N. Rotondo

Portland, Ore., July 31 - Month-end pricing might have been what was weighing on the distressed bond market Thursday - or it could have been the more than 200-point drop in the Dow Jones Industrial Average. Regardless, most things in distressed territory were weaker.

SemGroup LP's bonds continue to drift, traders said. As more and more lawsuits and potential claimants come out of the woodwork, one market source sees the bonds potentially falling even more.

Meanwhile, despite was NASD Trace said Wednesday night, Masonite International Inc.'s bonds did not fall 30 points on Wednesday. In fact, the bonds have been languishing in the mid- to upper-30s since at least last week, sources said.

GMAC LLC and its offspring Residential Capital LLC reported earnings Thursday - neither of which was good. But surprisingly, the bonds of both companies seemed unfazed by the hefty losses. One trader said that ResCap's bonds had fallen Wednesday ahead of the numbers.

In other earnings news, Primus Telecommunications Group Inc. reported Thursday as well. It seems that the company's efforts to turn around its business have proved successful so far, as the numbers were called "pretty damn good." However, traders said the bonds had not yet reacted to the figures, as the report came after the market closed.

The automotive sector was hit with another round of downgrades. This go-around, General Motors Corp. and Ford Motor Co. saw their bank debt take a hit during trading.

Stations Casinos was scheduled to release quarterly financials on Thursday but instead elected to postpone the report until Aug. 11. The company's bonds were largely quiet, traders said. But Boyd Gaming, which will release numbers Friday, saw its bonds edge up on the day.

SemGroup under pressure

SemGroup's bonds "keep coming in," a trader said, as the laundry list of court filings and objections to the company's proposed debtor-in-possession credit facility continue to grow.

The trader placed the 8¾% notes due 2015 at 10 bid, 12 offered.

"The line gets longer and longer for the handout," he said. "And everybody in line is ahead of the bonds."

At another desk, a trader saw the bonds opening at 13.5 bid, 14.5 offered. He said the bid later was pulled, leaving them at 14.25 offered.

The Tulsa, Okla.-based company, which filed for bankruptcy on July 22, is in process of getting its DIP facility approved by the courts. The hearing began on Thursday and was adjourned until Aug. 5.

Meanwhile, oil supplier LCS Production Co. filed a lawsuit against the company. In the filing, LCS is alleging that it holds a first and prior security interest lien on materials sold to SemGroup over the last two months. The lien also extends to proceeds from the sale of that oil. LCS is claiming it is owed somewhere in the neighborhood of $5 million.

Trace system gets it wrong

Late Wednesday night, the NASD Trace system put up its list of the day's most active bonds. According to the list, Masonite's 11% notes due 2015 traded heavily and fell nearly 30 points on the day.

But come Thursday, traders were puzzled, as the bonds had been trading in the 30s since late last week.

One trader pegged the bonds at 30 bid, 35 offered and said the company was close to filing for bankruptcy. Another trader said the notes ended the session at 37 5/8 bid, 37 7/8 offered, up from the 30 level on Wednesday and about the same as Tuesday.

Meanwhile, the company's term loan traded around 88, essentially unchanged from Wednesday.

Masonite's bank and corporate debt started to take a hit in early July after news surfaced that the company might breach certain covenants of its credit facility.

ResCap, GMAC hold tight

Despite a heftier loss for the second quarter, ResCap's bonds were called unchanged on the day.

A trader saw the 8 3/8% notes due 2010 in the low-30s, "pretty much where they were," and the 8½% notes due 2010 at 72, also unchanged.

"They traded off [Wednesday] ahead of the numbers," he added.

Another source, however, called the 8 7/8% notes due 2015 up half a point at 29 bid.

Elsewhere, parent company GMAC also saw its bonds virtually stable despite its numbers. A trader quoted the 6 7/8% notes due 2011 around 67. Another called the benchmark 8% bonds due 2031 down a point at 55 bid, 57 offered.

In a conference call to discuss the quarterly results, GMAC management said it was committed to supporting the money-losing ResCap. During the second quarter, GMAC lost $2.48 billion - $1.86 billion of which was attributed to ResCap.

In the rest of the financial sector, a trader said that Washington Mutual Inc. "was the big mover," calling its 4% notes due 2009 "a heavily traded bond, all over the place," before finally settling at 86 bid, 87 offered, which he called "slightly up," maybe around a point. He also noted a 12% rise in the troubled company's shares, which occurred after a hedge fund, Toscafund Asset Management LLP, disclosed a 6% stake in the nation's largest thrift.

WaMu's 4 5/8% notes due 2014 were up more than 2 points, just under the 49 mark.

Primus numbers 'pretty damn good'

After the market closed, Primus Telecommunications released its quarterly figures, which a trader called "pretty damn good."

"They do look pretty good," agreed another trader.

Still, the market had not yet reacted to the numbers, the second trader said. The first trader quoted the 8% notes due 2014 at 30 bid, 31 offered, the 3¾% notes due 2010 at 43 bid, 45 offered and the 14¼% notes due 2011 at 87 bid, 89 offered.

For the second quarter, the McLean, Va.-based telecommunications provider saw a 5% increase in revenue from the previous quarter at $236 million. The company posted net income of $44 million versus a net loss of $3 million in the first quarter. The company also managed to reduce its debt by $64 million.

"Maybe they are starting to turn the corner," a trader said.

Downgrades weigh on GM, Ford loans

General Motors and Ford Motor saw their term loan levels weaken in trading as Standard & Poor's downgraded the ratings of both companies, according to a trader.

GM, a Detroit-based automotive company, saw its term loan quoted at 77¾ bid, 78¾ offered, down from 78 bid, 80 offered, the trader said.

And Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 78¾ bid, 79¼ offered, down from 79 bid, 79½ offered, the trader added.

On Thursday, S&P lowered the ratings on GM and Ford to B- from B, and the ratings were removed from CreditWatch with negative implications, where they had been placed on June 20.

Also downgraded on Thursday was Chrysler LLC, with its rating dropped to B- from B as well. Chrysler will remain on CreditWatch pending the renewal of certain bank lines at DaimlerChrysler Financial Services Americas LLC, which S&P said it expects will be completed in the next few days.

S&P cited the mounting cash losses in GM's, Ford's and Chrysler's North American automotive operations and deteriorating conditions in the U.S. auto market as the reasons behind the downgrades.

"We believe sharply lower U.S. light-vehicle demand and the recent dramatic shift in demand away from large pickup trucks and SUVs amid higher gas prices will complicate the turnaround efforts of all three automakers and reduce their currently adequate liquidity considerably over the next year and a half," said Robert Schulz, S&P's credit analyst, in the rating release.

"This will leave them more vulnerable to already adverse industry, economic and credit market conditions," Schulz continued.

S&P estimates that GM will use as much as $16 billion from its global automotive operations this year, and Ford will use as much as $12 billion to $13 billion. Chrysler does not make its financial results public, but the rating agency expects the company to experience a net cash outflow from its automotive operations in 2008.

Regarding bankruptcy speculation surrounding the automakers, S&P said that it believes that the most likely trigger for a bankruptcy filing would be cash reserves falling to dangerously low levels, rather than the companies making a strategic choice to seek Chapter 11 reorganization.

"Managements at all three companies have strongly denied any such intention and appear committed to executing on their turnaround plans," the rating release said.

"Few of the automakers' problems - including lower sales, adverse product mix shifts, and high commodity costs - would be altered by a bankruptcy filing," the release added.

Gaming sector mixed

Market sources characterized Thursday's session as an up-and-down day in the gaming sector.

Station Casinos' 6 5/8% notes due 2018 were called unchanged - and strangely quiet - at 41 bid, 41.5 offered. Another source placed the 6% notes due 2012 at 67 bid, down almost 2 points.

The casino operator was slated to release its 10-Q during the session. However, in an 8-K filing with the Securities and Exchange Commission, the company postponed its report until Aug. 11 to give its auditors more time to look over the figures.

"I'm sure [the numbers] will be sweet," quipped one source.

Meanwhile, Boyd Gaming, which is scheduled to report Friday, saw its debt trade "pretty active," a trader said. He said the 7¾% notes due 2012 opened around 79 and closed up at 83.

The trader said he had not seen any news out on the company to warrant the move. However, on Wednesday an analyst lowered his earnings forecasts for the company, which had sent the stock down. The stock then rebounded some in Thursday trading.

Elsewhere, Trump Entertainment Resorts Inc.'s 8½% notes due 2015 closed lower at around 49, a trader said. Harrah's Entertainment LLC's 10¾% notes due 2016 fell 2 to 3 points to 74.5.

Idearc loses ground again

After regaining some losses Wednesday, Idearc Inc.'s 8% notes due 2016 gave up about 5 points on the day.

"They got slammed pretty good," a trader said. He saw the bonds open around 49, only to close at 44.

Another trader quoted the debt at 43 bid, 44 offered, while another placed the notes at 44.5 bid, 46.5 offered.

The bonds had lost some ground earlier in the week on the back of an abysmal quarterly report. However, the next day the bonds recovered some as sector peer R.H. Donnelley Corp. released its numbers, which were not as bad as expected.

Idearc took Dex Media down with it as well Thursday. The subsidiary of R.H. Donnelley saw its 8% notes due 2013 close 1.5 points weaker to 62.5 bid.

Sara Rosenberg and Paul Deckelman contributed to this article.

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