GMAC, ResCap firm despite downgrade; casinos end mixed on Atlantic City numbers; Masonite loan up

By Stephanie N. Rotondo

Portland, Ore., Sept. 10 - The distressed bond market attempted a comeback Wednesday after being pushed down during the previous session on troubles at Lehman Brothers Holdings Inc.

The market was still keeping its eye on the investment bank, which is said to be looking into asset sales to shore up its bottom line.

"Lehman dominated the high-grade area, that's for sure," one trader said.

GMAC LLC and Residential Capital LLC posted modest gains on the day, even as Moody's Investors Service downgraded the subsidiary. However, one source said there was not much action in ResCap paper.

In the gaming arena, casinos ended mixed after the monthly revenue report from Atlantic City was released. Trump Entertainment Resorts Inc.'s bonds, which have been on the quiet side, closed unchanged, while Tropicana Entertainment LLC's debt moved up slightly. Harrah's Entertainment LLC's bonds slipped during trading.

After losing ground in the previous session on worries about what came out of a lender call, Masonite International Inc.'s term loan pared its losses. Meanwhile, Idearc Inc. and R.H. Donnelly Corp. continue to seesaw, giving up previous gains during the mid-week session.

GMAC, ResCap firm

Residential Capital and its parent, GMAC, saw their bonds gain some ground during mid-week trading, despite a downgrade from Moody's.

One trader called GMAC's benchmark 8% notes due 2031 up half a point around 56.5. At another desk, that issue was quoted at 56 bid, 57 offered. The second source also saw the 6 7/8% notes due 2011 at 64.75 bid, 65.75 offered and the 6 7/8% notes due 2012 at 58.5 bids, 59.5 offered. He called the mortgage lender's debt up 1 to 1.5 points across the board.

Another market source placed GMAC's 6 7/8% notes due 2012 up nearly a point to 58.5 bid.

Meanwhile, ResCap's 9 5/8% notes due 2015 closed at 34 bid, 35 offered, while the 8 3/8% notes due 2010 ended at 30 bid, 32 offered. The 8½% notes due 2013 finished the day at 25 bid, 26 offered.

Moody's cut ResCap's senior secured debt to Ca from Caa2 and its junior secured paper to Ca from Caa3. Unsecured senior and subordinate debt were affirmed at Ca and C, respectively. The rating agency attributed its downgrade to ResCap's continued poor operating performance, as well as its declining liquidity position.

ResCap has lost $7.2 billion in the last seven consecutive quarters. Despite GMAC's best efforts, the subsidiary has failed to turn around its business, which was hurt by its subprime mortgage exposure. To that end, GMAC announced last week that it would cut about 5,000 jobs at ResCap, cutting the company's workforce in half.

Gaming sector mixed

Casinos ended the session mixed after a monthly revenue report from Atlantic City showed continued losses.

A trader said Trump Entertainment's 8 ½% notes due 2015 traded around 46, which he deemed unchanged. Tropicana's 9 5/8% notes due 2014 moved for the first time in three weeks, he added, trading around 31.5.

They have been quoted at 31 bid, 33 offered for awhile now, he said. He added that the company's bank debt also moved lower, as the ex-owners of the establishment have decided to make a play to get the casino back.

Elsewhere, Harrah's Entertainment's 5¾% notes due 2017 were quoted wide at 36.5 bid, 37.75 offered.

"Those were a little lower than I would have thought," the trader said. The 10¾% notes due 2016 hit a low of 64.75 before rebounding to 65.25 bid, 65.75 offered.

Isle of Capri Casinos' 7% notes due 2014 have remained steady at 74.5 bid, 74.75 offered, where they have been since running up on earnings last week.

Another source called Harrah's 5¾% notes due 2017 down almost 2 points at 37.75 bid and MGM Mirage's 6 5/8% notes due 2015 a quarter-point weaker at 87.75 bid.

For the month of August, casinos of the Jersey Shore as a whole saw revenues gain a meager 0.7%. The month included an extra weekend, which was cited as reason for the slight increase.

Revenues for the month came in at $468.3 million, with slots revenue totaling $323.4 million and table games comprising the remaining $145 million. Separately, slot revenue was unchanged, while table games increased 2.3%.

Masonite loan rebounds

Masonite International's term loan gained quite a bit of ground during Wednesday's trading session, although there was no particular news seen behind the momentum, according to a trader.

The term loan was quoted at 83¼ bid, 83¾ offered, up from Tuesday's levels of 82 bid, 83 offered, the trader said.

"I think [there are] some better buyers at these levels," the trader said in explanation of why the paper moved up.

On Tuesday, the term loan had weakened by half a point as the company held a lender call to discuss its situation.

Sources had said that the expectation is that Masonite is heading toward bankruptcy because of all the obstacles it is facing, such as a bond coupon due Oct. 15 and being unable to get a loan forbearance agreement.

Another hint toward bankruptcy, sources said, is that the company hired a financial advisor.

As has been previously reported, the company has been negotiating an amendment and a waiver of non-compliance with its adjusted EBITDA and interest coverage ratios with its credit facility lenders for a while.

The company's ratio of net debt to trailing 12 months adjusted EBITDA was 8.25 times at June 30, compared with a covenant maximum of 7.00 times and its cash interest coverage ratio was 1.51 times at June 30, compared with a covenant minimum of 1.65 times.

Masonite is a Tampa, Fla.-based manufacturer of residential and commercial doors.

Idearc gives up gains

Idearc paper, as well as that of sector peer R.H. Donnelley, continues to wobble back and forth, losing some ground in Wednesday's session after gaining Tuesday.

A trader called Idearc's 8% notes due 2016 down about three-quarters of a point at 45.25 bid, 46, while another quoted the debt at 44 bid, 46 offered. Another source placed the bonds at 45.5 bid, off nearly a point.

R.H. Donnelley's 8 7/8% notes due 2016 slipped as much as half a point to 50.25 bid, 51.25 offered.

Both phonebook publishers have seen their financials fall as advertisers move away from so-called traditional media to the digital world. Some have also attributed the current state of the economy to the companies' troubles. But Idearc's management has stated that it will not accept the excuse of a flailing economy as reason for its struggles.

Still, there is no way of knowing how much of the declines are due to economy and how much are because of lost advertisers, according to Gimme Credit analyst Shelly Lombard. And, in the end, what the bonds would be worth in the event of a bankruptcy is hard to pinpoint.

Lombard asserts that Idearc's debt could be worth 65 to 70, calling the recovery "decent but not amazing." Near term, she expects that results will continue to be weak.

Broad market mixed

Six Flags Inc. finished the day a "mixed bag," a trader said. He deemed the 9 5/8% notes due 2014 and the 9¾% notes due 2013 up a quarter point at 63.5 bid, 64 offered and 64.5 bid, respectively. He called the 12¼% notes due 2016 about unchanged at 95.25 bid, 96.25 offered.

Duane Reade Inc.'s floating-rate notes due 2010 closed around 95.5.

A trader speculated that "some people are short" in WCI Communities Inc.'s debt. He pegged the 6 5/8% notes due 2015 at 42, adding that "all the bonds are in the low-40s."

"There are definitely some buyers around," he said, "especially the big guys, like Bank of America." He also said that he heard Credit Suisse was also one trying to cover shorts.

Spectrum Brands Inc.'s 11% toggle notes due 2013 ended at 70 bid, 71 offered.

Metaldyne Inc.'s 10% senior notes due 2013 "finally" traded at 17, a trader said, down from around 35 last.

"There's more to go there too," he said.

Charter Communications Inc.'s 11% notes due 2015 were quoted at 75 bid, 76 offered.

Sara Rosenberg contributed to this article.

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