SemGroup loan, bonds plummet; downgrade hurts Harrah's, OK for Station; Six Flags' firms

By Stephanie N. Rotondo

Portland, Ore., July 17 - There was no explanation for the hefty losses SemGroup Energy Partners LP racked up Thursday.

But even without rock-solid reasoning, it was still exciting news. The company's bank debt tumbled about 20 points on the day, while the bonds took a 60-plus point dive.

Rumor has it that a private lender call held Tuesday was the source of all the trouble, but market sources were unable to say what occurred during the meeting.

Away from that, traders reported that the distressed bond market was slightly better, though off of the day's highs.

"It was a bit better across the board," said one trader, who called the marketplace half a point to a point firmer generally speaking.

Harrah's Entertainment, however, could not hold on to the gains it incurred early in the session. Both the bank debt and corporate debt lost weight after a downgrade, traders said. On the other hand, Station Casinos' paper was unfazed by a rating cut.

After losing ground over the last few sessions - for unexplained reasons - Six Flags Inc.'s debt recouped some of its losses Thursday. The company said it expects to be free cash flow positive for the first time in its history. The amusement park operator is scheduled to release its second-quarter results on Aug. 4.

SemGroup loan, bonds plummet

SemGroup Energy's term loan plunged as the market continued to react to a private lender call that was held this past Tuesday, the contents of which are not publicly available, a trader said.

The term loan was quoted at 45 bid, 55 offered, down from Wednesday's closing levels of 65 bid, 75 offered, the trader said.

Prior to the private call, the term loan was being quoted around 96¾ bid, 97¾ offered, the trader continued.

There was not a ton of activity in the name during the Thursday session, just a few small block trades, the trader added.

But it was the company's corporate debt that really hit the skids. Several traders reported that the 8¾% notes due 2015 fell to 30 bid, compared to previous levels in the mid-90s. Late in the day, one trader saw the bonds falling even more, into the 20s.

"Nobody really knows," a trader said when asked what had caused the dive. Like other market players, he had heard rumors of a bank meeting.

"Obviously some negative stuff came out of that," he said.

Speculation is that there are problems with bank covenants, or potentially some issues at one of the company's affiliates.

Whatever the reason for the declines, Moody's Investors Service downgraded the Tulsa, Okla.-based company. The probability-of-default rating slipped to B2 from Ba3, while its senior unsecured rating fell to Caa1 from B1 and its first secured bank facilities to B1 from Ba2. Moody's said the new ratings were under review for further downgrade.

In its downgrade report, Moody's also noted that there was concern regarding whether the company will be able to meet bank covenants.

Downgrades hurt Harrah's, OK for Station

Harrah's Entertainment's term loan B-2 and B-3 moved lower in trading after Moody's downgraded the debt, according to a trader.

The term loan B-2 and B-3 were quoted at 86¾ bid, 87¼ offered, down from previous levels of 87 bid, 87½ offered, the trader said.

On the corporate debt side, a trader said Harrah's 10¾% notes due 2016 "started stronger, then gave it right back," ending the day at 75.5 bid, 76 offered. Another trader echoed that market, calling that down a point "after trading up intraday."

On Thursday, Moody's said that it cut, among other things, Harrah's corporate family rating to B3 from B2 and bank debt to Ba3 from Ba2. The bonds were also lowered, including the senior unsecured guaranteed notes to Caa1 from B3, the senior unsecured debt to Caa2 from Caa1 and the senior subordinated notes to Caa2 from Caa1.

Moody's said that the downgrade resulted from the expectation that, given the material softness in the Las Vegas and Atlantic City gaming markets, the company's credit metrics will deteriorate from already weak levels.

Station Casinos also saw its rating slashed, though a trader said there was "not a lot of reaction" to the cut. Still, he saw the bonds ending about a point better on the day, with the 6 7/8% notes due 2016 at 48 bid, 49 offered and the 6% notes due 2012 around 78.

Another trader called the bonds "not hugely different" from the previous session, with the 6% notes at 77.75 bid, 78.25 offered and the 7¾% notes due 2016 at 75.75 bid, 76.25 offered.

Another source saw the 6% notes up 1.5 points to 79.

In its downgrade, Moody's placed Station's corporate family and probability-of-default ratings at B3 from B2, its senior unsecured notes at B3 from B2 and senior subordinated notes at Caa2 from Caa1.

Elsewhere in the gaming sector, Tropicana Entertainment LLC's 9 5/8% notes due 2014 ended around 36, about a point better.

Six Flags debt improves

After several sessions of unexplained losses, Six Flags' bonds regained some ground as the company announced it expects to be free cash flow positive.

A trader said he saw the 9 5/8% notes due 2014 at 49.5 bid, up from 43 bid in the morning. At another desk, a trader said he "saw a couple buyers in he morning in the 9 5/8% notes and the 9¾% notes [due 2013], but mostly in the 9 5/8%." He said the 9 5/8% notes moved from 47 bid to 49 bid by the close of business.

Another trader said the bonds "moved up a good bit," with the 9 5/8% notes ending at 49 from 45 previously. Yet another market source deemed the issue up 4.5 points to 49 bid.

Along with the positive liquidity announcement, Six Flags said its customer approval rating remains at record levels. The New York-based amusement park operator has banked on the tanking economy and rising energy prices to keep customers coming to its parks. The company has also lowered admission prices to entice thrifty consumers.

Broad market mixed

A trader called United Rentals Inc.'s bonds up about a point after the company said its tender offer for its equity was oversubscribed. He pegged the 6½% notes due 2012 at 89.5 bid, 90 offered.

Another source placed the 7% notes due 2014 at 76.75 bid, up nearly 2 points.

Masonite International Inc.'s 11% notes due 2015 "continued to slide," a trader said, quoting the bonds at 42 bid, 42.5 offered, another point softer.

Ply Gem Industries Inc.'s debt moved up 2 to 3 points early in the session, the trader said, but drifted back toward the close. After the market closed, the bonds continued to lose ground. He placed the 9% notes due 2012 at 52.5 bid, 53 offered and the 11¾% notes due 2013 at 89.5 bid, 90 offered.

Meanwhile, AMR Corp.'s convertible notes headed higher just one day after the company reported better-than-expected earnings. A trader quoted the 4½% convertibles notes due 2024 at 82 and the 4¼% convertibles notes due 2023 at 97.

Sara Rosenberg contributed to this article.

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