Lehman flops, AIG flips; Nortel bonds dive; Station Casinos quiet on downgrade, Isle of Capri steady

By Stephanie N. Rotondo

Portland, Ore., Sept. 17 - It was "another crazy day," a trader said, as the troubles in the financial sector continued to put pressure on the marketplace.

Lehman Brothers Holdings Inc. bonds took another nosedive, even as news of an asset sale hit the market. American International Group Inc.'s debt, however, rallied somewhat after the U.S. government agreed to rescue the country's top insurer.

Meanwhile, Nortel Networks Ltd. announced that it cut its revenue guidance for the year. As a result, the company's bonds fell as much as 13 points during Wednesday's session. The rest of the sector was also lower in response, though not nearly as much as Nortel.

Station Casinos got downgraded Wednesday, but trading in the gaming name was muted. Elsewhere in the sector, Isle of Capri Casinos' debt managed to hold steady, even with the broader market taking it on the chin.

Masonite International Inc. secured a forbearance agreement with its lenders on Tuesday. Come Wednesday, the company's term loan ended virtually unchanged, which a source attributed to the said agreement.

But overall, traders said that it was becoming more difficult to ascertain prices, given the amount of jockeying going on. As investors start to liquidate, "time is more urgent then money," a trader said.

"There is a lot of price volatility in some of these things," said another trader. "You don't know what is a real print and what is a forced sale. So it is hard to say where things should really be."

Lehman flops, AIG flips

Lehman bonds continued to flounder during mid-week trading, as the company announced its deal with Barclays to sell some of its operations.

One trader said Lehman senior debt hit a low of 14 bid, 15 offered before coming back to end at 17. The subordinated debt meanwhile fell to 1 bid, 1.5 offered.

Another trader called the 6 7/8% notes due 2018 the most active of Lehman's issues. He saw the bonds open at 22 and finish the day at 16.5 bid, 17.5 offered. He also saw the subs offered at 1.5.

Yet another source said the seniors dipped to 17 bid, 18 offered from 30 bid, 31 offered previously.

"They got shellacked," the trader said.

Barclays agreed to purchase Lehman's broker-dealer business for $1.75 billion. Talk is that Barclays is also considering buying some of the company's European assets as well. Barclays had previously backed away from a proposal to buy all of Lehman shortly before the investment bank was forced into bankruptcy.

But according to a Bloomberg report, Barclays is not the only interested party. Nomura Holdings Inc., a Japanese securities firm, is also reportedly interested in some of the European assets. Bain Capital LLC and Hellman & Friedman LLC have also expressed interest in Lehman's investment-management business.

Meanwhile, AIG paper got a boost after the Federal Reserve gave the go-ahead to give the insurer as much as $85 billion in loans.

A trader said the international finance business' bonds traded in the 80s, while corporate paper traded in the 50s.

In a statement, the central bank said, "The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance."

Under the terms of the loan, AIG's assets are put up as collateral. The 24-month term loan will incur interest at Libor plus 850 basis points. The loan is expected to be repaid from proceeds of the company's asset sales. The government will receive 79.9% equity in the company as well.

Still, shockwaves continue to be felt throughout the financial sector, a trader said.

"Even Morgan Stanley traded off," he said. He saw that firm's benchmark 6 7/8% notes due 2018 open in the mid-70s before falling to around 60.

Nortel dives on outlook

Nortel Networks lowered its fiscal outlook for the year, which sent the company's debt down by as much as 13 points on the day.

A trader said the 10 1/8% notes due 2013 traded at 80, leaving "a bunch for sale." He also saw the floating-rate notes due 2011 at 83 bid.

Another trader deemed the 10¾% notes due 2016 down 12 to 13 points at 77. He said the debt, which had been around 90 on Monday, opened at 87, fell to 84, then 81, then 79 before hitting the 77 mark.

Still, he said that not that much traded, opining that "given the backdrop to the market, it is hard to get people to react that quickly."

At another desk, a source placed the 10 1/8% notes at 80 bid, down 13 points.

The Toronto-based company said it expects full-year revenue to decline 2% to 4% from fiscal 2007. For the third quarter, the company anticipates revenue of $2.3 billion.

Also, Nortel said it was considering selling its Metro Ethernet Networks subsidiary.

In the rest of the tech sector, a trader said most names took a hit, though much more mild than that of Nortel. Freescale Semiconductors Inc.'s 8 7/8% notes due 2014 hit a low of 73 then rebounded somewhat to close at 74.25 bid, 75 offered, down from 75.5 bid, 76 offered previously. Another source deemed that issue down a deuce at 74.75 bid.

First Data Corp.'s 3.90% notes due 2009 finished weaker at 82.5 bid, 83 offered.

Station quiet, Isle holds own

Standard & Poor's slashed Station Casinos' credit rating due to the likelihood that a covenant violation will occur in the next few quarters.

But traders said there was not much trading in the name, with one source speculating "the market may have already gotten past the downgrade."

The trader said the 7¾% notes due 2016 traded at 67.5, while the 6 7/8% notes due 2016 were seen at 39.5 bid.

"It is only going to get worse," the trader said of Station's predicament. "They have a lot of projects in the air."

Last week, the casino operator announced that it would lay off more workers, adding to the 70 corporate-level employees terminated in April.

Meanwhile, Isle of Capri Casinos' paper "held pretty well," a trader said. "Everything else was blah."

He quoted the 7% notes due 2014 at 71.5 bid, 72 offered.

"They had been trading up last week," he said. On Friday, the bonds went out at 73.5 bid, 74 offered. Given the current market conditions, "that's a pretty good performance," he said.

MGM Mirage's 7 5/8% notes due 2017 and its 7½% notes due 2016 fell to 76.5 bid, 77.5 offered, while Harrah's Entertainment LLC's 5¾% notes due 2017 slipped 5.5 points to 30 bid.

Masonite steady on forbearance

Masonite International's term loan was actually unchanged on the day - a fairly significant event given that the rest of the cash market took a hit - with the loan firmness attributed to an announcement that a forbearance agreement was reached with lenders, according to a trader.

The term loan was seen trading around 83 and it ended the day with levels of 82 bid, 84 offered, same as on Tuesday, the trader said.

The trader went on to say that with the rest of the market down a whole bunch of points, Masonite being unchanged is a really good sign.

On Tuesday night, Masonite revealed that it entered into a forbearance agreement through Nov. 13 with its credit facility lenders.

The forbearance applies to non-compliance with covenants as of June 30 and, provisionally, any such non-compliance as of Sept. 30.

As previously announced, the company was not in compliance with its adjusted EBITDA and cash interest coverage ratio as of June 30. Masonite's ratio of net debt to trailing 12 months adjusted EBITDA was 8.25 times at June 30, compared to a covenant maximum of 7.00 times, and its cash interest coverage ratio was 1.51 times at June 30, compared to a covenant minimum of 1.65 times.

The company has been trying to negotiate an amendment and a waiver of the covenant non-compliance with its credit facility lenders for quite a while now.

By obtaining the forbearance, the company got more time and flexibility to negotiate a potential amendment to the facility.

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

Broad market continues fall

Movie Gallery Inc.'s term loan took a sizable fall on Wednesday just as a result of the rest of the cash market being down once again, according to a trader.

The Dothan, Ala.-based home entertainment specialty retailer's term loan was quoted at 68 bid, 70 offered, down from Tuesday's levels of 74 bid, 76 offered, the trader said.

In terms of the cash market in general, par names were down by at least another 2 points in a very choppy market, and distressed names were off by about 2 to 4 points on the day, with some down even more than that, traders remarked.

Some other names that retreated include General Motors Corp., Ford Motor Co. and Tribune Co.

General Motors, a Detroit-based automotive company, saw its term loan quoted at 73 bid, 75 offered, down about 2 points on the day, and, Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 73 bid, 75 offered, down from 76 bid, 78 offered, one trader said.

Meanwhile, Tribune, a Chicago-based media company, saw its term loan B quoted at 58.5 bid, 59.5 offered, down about a point on the day, another trader added.

On the bond side, Charter Communications Inc.'s 11% notes due 2015 continued to decline. One trader placed the debt at 67 bid, 68 offered, calling the issue "pretty active" in the finance-dominated market. Another trader also placed the bonds around 67. Yet another source saw the 8% notes due 2012 fall more than 3 points to 92.5 bid.

United Rentals Inc.'s 7% notes due 2014 ended softer at 72.

Tronox Worldwide LLC's 9½% notes due 2012 dipped from the low-40s to 37 after S&P downgraded the company.

Sara Rosenberg contributed to this article.

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