CIT announces plan to cut debt, bankruptcy still possible; Morris notes gain momentum

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., Oct. 2 - CIT Group Inc. was once again the nom du jour Friday, as the company formally announced its restructuring plan.

As was expected, the plan includes a debt exchange and, should that exchange fail, a pre-packaged bankruptcy. The bonds reacted by falling as much as 5 points on the day.

Meanwhile, Morris Publishing Co.'s debt continued to gain ground. The notes had moved up from the single digits earlier in the week after the company said it was working with bondholders on a restructuring plan.

Cash bonds were headed out at the end of Friday's session lower by ½ point, after being down by as much as a point earlier in the session, according to a trader on the U.S. East Coast.

"Thursday was weak," the source recounted, just before the close.

"Today was weak in the morning, and now it's rallying a little."

Secured deals trade well

Of deals recently priced, "traditional high-yield" unsecured notes have tended to underperform, according to the trader.

The new Cincinnati Bell, Inc. 8¼% senior notes due 2017 (Ba3/B+), which priced Wednesday in a $500 million issue at 98.562 to yield 8½%, were 2 points below issue price at the Friday close, the trader said.

"The traditional deals just haven't left a lot on the table, so they haven't had much steam," the source remarked.

On the other hand, secured notes issued for the purpose of repaying debt have outperformed, sources told Prospect News.

The new ACCO Brands Corp. 10 5/8% senior secured notes due 2015, which priced Sept. 21 in a $460 million issue at 98.502 to yield 11%, were at 104½ bid on Friday, according to the trader.

In a similar vein, the Global Crossing Ltd. 12% senior secured notes due 2015 which priced on Sept. 11 in a $750 million issue at 97.944 to yield 12½%, were trading in a 104 bid, 105 offered-context on Friday, the trader said.

"The secured deals that have come to take out bank debt have done pretty well," the trader said. "They price them cheap because the company really needs to get it done, so they are less opportunistic.

"And people like the security and the high coupon."

TransDigm, an all-dividend deal

Elsewhere, TransDigm Group Inc.'s new 7¾% senior subordinated notes due July 15, 2014 (B3/B-/), which priced Wednesday in a $425 million add-on at 97.125 to yield 8½%, were at 99 bid, 99½ offered on Friday, the trader said. That was up from the 98 7/8 bid, 99 offered given mid-morning Thursday by a Boston-based asset manager.

Proceeds will be used to pay a dividend in the range of $7.50 to $7.70 per share and to make equivalent payments to certain holders of its options to purchase common stock under the 2006 stock incentive plan dividend equivalent plan.

This use of proceeds prompted one midwestern asset manager to say: "Thanks, but no thanks," to TransDigm.

"It was an all-dividend deal," the buy-sider remarked.

"I didn't want to go to my management and tell them that I just financed a dividend."

Also, the investor said, TransDigm's dividend financing had all the earmarks of a hot-market deal.

"I'm not sure the market is there yet," the buy-sider said.

"But it's like PIK toggles, all over again."

Meanwhile, among other recently priced issues, the new Renault euro-denominated 6% notes due 2014 which priced Tuesday in a €750 million issue at 99.475 to yield 6 1/8% were seen at 98.24 bid, 98.57 offered, during the afternoon session in Europe.

Venoco prices $150 million

The primary market news flow remained thin on Friday.

Venoco, Inc. priced a $150 million issue of 11½% eight-year senior notes (Caa2/CCC+) at 95.03 to yield 12½%.

The yield printed 37.5 basis points beyond the wide end of the 12% area price talk.

UBS Investment Bank was the left bookrunner. BMO Nesbitt Burns, Credit Suisse Securities and RBS Securities Inc. were joint bookrunners.

Proceeds will be used to redeem the Denver-based oil and gas exploration and development company's existing 8¾% senior notes due 2011.

The Veneco deal took the week's new issue total to just under $2.73 billion proceeds in eight junk-rated dollar-denominated tranches.

It extended year-to-date issuance to slightly more than $104.3 billion in 241 tranches, according to Prospect News data.

The week ahead

The first full week of October gets underway with just two deals on the active forward calendar.

Deluxe Entertainment Services plans to price $600 million of eight-year senior secured first-lien notes (B2/B) late in the week following a full roadshow.

Credit Suisse Securities and J.P. Morgan Securities Inc. are joint bookrunners for the debt refinancing from the Hollywood, Calif.-based digital cinema services company.

Also Alon Refining Krotz Springs, Inc. is roadshowing a $205 million offering of five-year senior secured notes (/expected BB/) which are expected to price on Friday.

Jefferies & Co. is the bookrunner for the Louisiana-based refiner's debt refinancing and general corporate purposes deal.

Market indicators mixed

Away from new issues, market indexes gave a mixed review of the day's high-yield market. According to one market source, the CDX Series 12 High Yield Index improved a point to 91¼ bid, 91¾ offered. But the KDP High Yield Index showed weakness, ending at 68.51 to yield 8.56%, compared to Thursday's level of 68.83, with a yield of 8.46%.

CIT's debt-cut plan

CIT Group's bonds traded actively and lower following news late Thursday of details of its planned restructuring.

A trader said about $300 million to $400 million in total of the company's debt traded, with the 6.10% hybrid notes due 2067 being the most active. The trader also noted that the issue was "probably off the most" at 101/2, down from 15 previously.

The trader said that about $50 million of the floating-rate notes due 2010 moved down a point to around 69, while the 4¼% notes due 2010 - which he called the name's "bellwether issue" - slipped to around 69 on $50 million to $60 million traded. He added that the 4.65% notes due 2010 were also trading with a 69 handle, with about $25 million changing hands.

"They don't have a lot of options," the trader said of the news CIT was to conduct a debt swap and also solicit votes on a pre-packaged bankruptcy plan. "I think you're kind of damned if you do, damned if you don't. I don't know of anyone who gave them better than a 50/50 chance on this one."

At another desk, a trader said the bonds were down as much as 5 points on the day. He saw the 6.10% notes around 10, compared to 13 bid, 17 offered previously.

"So those are down 7 to 8 points on the week," he said.

The 4¼% notes were meanwhile pegged around 68, compared to levels around 71 on Thursday, "so they are down like 3 points." He noted that the issue had been trading around 77 on Monday.

Another source mentioned that several bid-wanted lists - with CIT prominently featured - were circulating.

CIT is hoping to cut its debt load by at least $5.7 billion via a debt exchange for "certain unsecured notes," according to a press release published late Thursday.

"If the company does not achieve the objectives of the exchange offers, it may decide to initiate a voluntary filing under Chapter 11 of the U.S. Bankruptcy Code," the release continued. "Therefore, the company is concurrently soliciting bondholders and other holders of CIT debt to approve a prepackaged plan of reorganization. The company has been informed by advisors to the steering committee that, subject to review of the offering memorandum, approximately $10 billion of outstanding unsecured indebtedness have already indicated their intention to participate in the exchange offer or vote for the prepackaged plan of reorganization."

"Over the last several months, CIT's management, together with its board of directors and outside advisors, has developed a comprehensive plan to position CIT for future success," said Jeffrey M. Peek, chairman and chief executive, in the release. "We believe this plan maximizes franchise value and can be executed quickly and effectively through a series of voluntary debt exchange offers or an expedited in-court restructuring process. Upon completion of either alternative, CIT will be a well-funded bank holding company with a strong capital position and market leading franchises.

CIT Group is a New York-based lender to small businesses and middle-market companies.

Morris notes moving upward

Morris Publishing's 7% notes due 2013 continued to gain ground, a trader said.

The trader explained that the bonds had been in the single digits early on in the week. But on Sept. 28, the company announced that it was working with its bondholders regarding an out-of-court restructuring plan. Just a few days later on Sept. 30, the bonds jumped to around 25.

Come Friday, the bonds were seen ending around 27.

The trader noted that before the trades this week, the bonds had last traded in July at 8.

Morris Publishing is an Augusta, Ga.-based newspaper publisher.

DirecTV trades actively

A trader saw about $70 million of DirecTV Holdings LLC's 7 5/8% notes due 2010 trading around the 107 mark, which he said was "basically right where it was."

The trader said there was no news to cause such heavy trading, but opined that some might be trading the bonds against the credit default swaps.

"That's the vehicle, as opposed to any news," he said.

Blockbuster bonds slip

Blockbuster Inc.'s 9% notes due 2012 "traded lower again," a trader said, hitting a recent low around 59.

The trader noted that the issue had been in the 70s just barely over a week ago.

The slip came even as Moody's Investors Service upgraded the Dallas-based movie rental chain to Caa1 from Caa2.

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