MGM tanks amid bankruptcy buzz; GM, Masonite regain ground; Freeport bonds better on China plan

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., March 4 - MGM Mirage's debt took it on the chin Wednesday, as the company warned it might breach covenants in the near term.

The company's debt has fallen for several straight sessions, stemming back to last Friday when MGM drew down the remaining balance of its revolving credit facility.

Meanwhile, both General Motors Corp. and Masonite International Corp.'s bank debt regained some ground lost in the previous session. Traders had no explanation for the gains, other than to say that the market was firmer overall.

The always-active Freeport-McMoRan Copper & Gold Inc. debt structure also moved up during trading. The company's equity was also better, which was attributed to higher commodity prices and hopes that China would announce new stimulus measures on Thursday.

MGM tanks amid bankruptcy buzz

It was a "helluva day" for MGM's debt, a trader said, as bankruptcy fears mounted.

"The shorter paper got killed early on," the trader continued. For example, the 6% notes due 2009 opened at 42 bid, 43 offered, down from Tuesday closing levels of 60 bid, 60.25 offered. But the debt gyrated some, ending the day at 47 bid, 57.5 offered.

The trader also quoted the 8½% notes due 2010 at 39.5 bid, 40.5 offered, compared with 42 bid, 44 offered previously.

The trader also saw the 8 3/8% notes due 2011 close around 9 bid, 10 offered, after closing the previous session around 20, and then opening around 12, moving down to 10 and back up to 15.

Among the longer issues, the 6 5/8% notes due 2015 fell to 30 bid, 31 offered, though they traded earlier in the day at 36 bid, 37 offered.

At another desk, a trader said MGM "got hammered and crushed," with the short paper bearing the brunt.

The trader called the 6% notes 12.5 points weaker at 47.5, with about $65 million trading. He added that the issue had dropped as much as 18 points, down to the 42 level, before coming back up.

About $25 million of the 8 3/8% notes traded "under 10," down more than 9 points on the day. The 6½% notes due 2009 dropped 13 points to 54.5, while the 7½% notes due 2016 slipped 3 points to 31.75.

MGM said late Tuesday that it would delay filing its 10-K and also warned that it was in danger of breaching covenants. The casino operator added that it was in talks with lenders to relax the terms, or to perhaps secure a waiver, but there was no guarantee that it would in fact be able to come to terms with lenders.

If the company is unable to compromise, then it could trigger defaults. That in turn could lead to a bankruptcy filing.

Elsewhere in the sector, Wynn Las Vegas LLC's 6 5/8% notes due 2014 slipped slightly to 68.5.

Harrah's Operating Co. Inc.'s bank debt was down on the day, with levels coming in even before Moody's Investors Service came out with its downgrade announcement, according to traders.

One trader had the term loan B-1 quoted at 56 bid, 56¾ offered, down from 56¾ bid, 57¾ offered, the term loan B-2 quoted at 56½ bid, 57¼ offered, down from 57¼ bid, 58¼ offered, and the term loan B-3 quoted at 56¼ bid, 57 offered, down from 57 bid, 58 offered.

Meanwhile, a second trader had the term loan B-2 quoted at 57 bid, 57½ offered, down from 57½ bid, 58 offered.

Both traders agreed that the bank debt had softened before the ratings cut surfaced, although there was no specific reason for the move prior to the news.

On Wednesday, Moody's said that it lowered Harrah's corporate family rating to Caa3 from Caa1 and senior secured bank debt to Caa1 from B1. The outlook is negative.

"The downgrade reflects the high probability of default given the continuing decline in gaming demand across HET's largest markets [Las Vegas and Atlantic City] that is eroding the company's liquidity cushion," Peggy Holloway, Moody's senior credit officer, said in the rating release.

In addition, Moody's believes there is a risk that Harrah's may need to seek covenant relief in 2009 under its credit facility.

Harrah's is a Las Vegas-based casino company.

GM regains ground

General Motors' term loan strengthened a little on Wednesday to gain back what it lost during the previous day's activity when February sales numbers were announced, according to a trader.

The term loan was quoted at 35 bid, 39 offered, up from 34 bid, 38 offered, the trader said.

On Tuesday, General Motors' term loan had dropped a point as the company revealed that, for the month of February, total sales were down 52.9% to 127,296 from 270,423 in February 2007.

The company's total car sales were 53,813, down 50% from 107,592, and total truck sales were 73,483, down 54.9% from 162,831.

General Motors is a Detroit-based automotive company.

Masonite moves up

Masonite International's term loan was trading at better levels after falling off by a few points on Tuesday after news of a proposed pre-packaged bankruptcy emerged, according to a trader.

The term loan was quoted at 37½ bid, 39½ offered, up from 37 bid, 39 offered, the trader said, adding that it was a "firmer day generally." Prior to the reorganization announcement, the term loan was being quoted in the area of 42 bid, 46 offered.

On Tuesday, Masonite said that it reached an agreement in principle with members of a steering committee representing senior secured lenders and representatives of an ad-hoc committee for holders of its senior subordinated notes due 2015 on a restructuring.

The company plans on filing for Chapter 11 if the requisite number of lenders and bondholders approve the pre-negotiated restructuring plan that would reduce total funded debt by almost $2 billion and create a better capital structure.

As was previously reported, under the terms of the agreement in principle, Masonite's existing senior secured obligations would be converted on a pro rata basis, subject to the election of each existing holder, into debt and/or equity.

Senior secured lenders will be offered a new senior secured term loan of up to $200 million, a new second-lien pay-in-kind loan of up to $100 million and/or 97.5% of the common equity of the company, subject to dilution for warrants issued to the senior subordinated noteholders and management equity and/or options.

Senior subordinated notes would be converted to 2.5% of the common equity plus warrants for 17.5% of the common stock of the company, subject to dilution for management equity and/or options.

Masonite is a Mississauga, Ont.-based manufacturer of residential and commercial doors.

Freeport gains on China plan

Freeport-McMoRan's bonds gained some during trading as China readied to announce a new stimulus package and commodity prices ended higher.

A trader called the floating-rate notes due 2015 1.5 points better at 71, while the 8 3/8% notes due 2017 gained 2 points to 85. He added that $38 million and $25 million, respectively, traded.

Another market player quoted the 8¼% notes due 2015 at 87 bid, 88 offered, about half a point higher.

The market is expecting China to announce new stimulus measures on Thursday, as the country's government tries to revive the economy.

Freeport is a Phoenix, Ariz.-based copper and gold mining company.

Broad market mixed

Standard Pacific Corp.'s 6½% notes due 2010 closed at 81, a trader said.

Charter Communications Inc.'s debt finished the session weaker, according to another trader. He quoted the 8¾% notes due 2013 at 71 bid, 72 offered, down from 75 bid, 76 offered.

United Rentals Inc.'s 6½% notes due 2012 were "kind of sideways," a trader said, at 77.75 bid, 78.5 offered. The 7¾% notes due 2013, however, were a little lower at 54.

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