Select Medical dips on investigation; MGM launches new issue; Neiman Marcus better on numbers

By Stephanie N. Rotondo

Portland, Ore., March 9 - The distressed debt market was "doing more of the same" on Tuesday, a trader said. "It's a little bit better every day."

But while there was definite market firmness, not all credits under the distressed umbrella ended the day strong.

Select Medical Corp. saw its bonds losing ground following news that the Senate Finance Committee was investigating the company. The investigation follows a news article out last month that claimed there had been some questionable incidents resulting in deaths at the company's hospitals.

Elsewhere, MGM Mirage bonds were somewhat quiet, though better, ahead of the launch of a new issue. As the new notes broke for trading late Tuesday, they headed above the issue price. The bank debt, however, was relatively steady.

Neiman Marcus Group Inc. reported its second-quarter results Tuesday. The improved figures helped the company's debt structure head higher in trading.

Also, General Growth Properties Inc. announced it had entered into an equity financing agreement with investors for nearly $4 billion. That news helped the shopping mall operator's bonds and revolver gain in strength by the end of the session.

American International Group Inc.'s bonds remained on an upward path, as well. The bonds had started to gain ground on Monday after the company announced an asset sale and were further fueled by speculation of more sales.

Despite all the activity in the distressed world, a trader noted that there was "still a lot of focus on the new issue calendar."

Select Medical dips on investigation

Select Medical saw its bonds dipping in active trading following word that the Senate Finance Committee was investigating the company.

A trader said about $50 million of the 7 5/8% notes due 2015 changed hands, trading at 91 bid, 92 offered. Another trader also placed the issue around that level.

On Monday, Select Medical received a letter from the committee regarding its intention to investigate what a Feb. 10 New York Times article called "a number of disturbing incidents at Select Medical (long-term care hospitals) that allegedly resulted in patients deaths," according to a letter written to the company by senators Max Baucus and Charles Grassley.

The company had previously railed against the Times calling the article a "false impression." After receiving the letter from the senate committee, Select Medical once again responded.

"We will cooperate fully and quickly with this inquiry because we are eager to demonstrate that the recent New York Times article that prompted the committee's questions is inaccurate, misleading and sensationalistic," the response said. "We look forward to providing the committee with accurate facts - untainted by plaintiffs' lawyers' pleadings - that make plain that Select Medical provides high-quality care to thousands of high-risk and fragile patients each year."

Select Medical is based in Mechanicsburg, Pa.

MGM new issue launches

MGM Mirage's non-extended term loan was pretty flat on the day on news of a partial repayment as investors were already expecting this event to take place, according to traders.

The non-extended term loan was quoted by one trader at 97¼ bid, 97¾ offered, versus Monday's levels of 97 1/8 bid, 97¾ offered, and by a second trader at 96¾ bid, 97¾ offered, unchanged on the day.

On Tuesday morning, the company said that it plans to repay a portion of the outstanding debt under its senior credit facility using proceeds from an $845 million senior secured notes offering.

This news came as no surprise to lenders. Last month, the company received approval to amend and extend its credit facility, and under that amendment permission was given to raise up to $850 million through the issuance of secured debt to fund all or a portion of loan prepayments that lenders were promised.

The new issue - a 9% 10-year note priced at par - launched after the market closed Tuesday. However, traders saw little action in the Las Vegas-based casino operator's bonds ahead of the launch.

The new issue was seen at several desks as having risen to above original pricing to around 102.

In the "old" notes, a trader said the bonds were "unchanged in the morning," but moved up a tad by the end of business. He saw the 6¾% notes due 2012 trading with a 95 handle, up nearly a point on the day.

But he said the 7½% senior subordinated notes due 2016 were unchanged at 83½ bid, 84½ offered.

On the news of the new issue and the previous amend and extend, Moody's Investors Service upped its rating on MGM to Caa1 from Caa2. Standard & poor's assigned the new notes a B rating.

Also in the casino space, Harrah's Operating Co. Inc.'s bonds were "suspiciously quiet after that run-up [Monday]," a trader said

Another trader deemed the 10% notes due 2016 unchanged at 80½ bid, 81 offered.

Neiman better post-numbers

Neiman Marcus Group's year-over-year improvement in its second-quarter results gave the Dallas-based retailer's debt a boost, according to traders.

A trader said he saw "better bids" for the bonds, placing the 10 3/8% notes due 2015 at 104 bid, 105 offered. That compared with 103¼ bid, 104 offered on Monday.

Another trader said there was "definitely a little bit of activity" in the name, pegging the 10 3/8% notes around 104 and the 9% notes due 2015 around 1031/2.

Neiman's term loan B also gained some ground post-numbers.

The term loan B was quoted by one trader at 92 7/8 bid, 93 7/8 offered, up from 91¼ bid, 92¼ offered, and by a second trader at 92 7/8 bid, 93 3/8 offered, up from 92 bid, 92½ offered..

For the second quarter of fiscal year 2010, Neiman reported net earnings of $4 million, compared with a net loss of $509.2 million in the prior year.

Total revenues for the quarter were $1.1 billion, compared with $1.08 billion in the 2009 fiscal year second quarter.

And, adjusted EBITDA for the quarter was $119.9 million, compared with adjusted EBITDA of $24.6 million in the previous year.

GGP gains on equity infusion

General Growth Properties' debt headed higher after the company revealed that it has received a proposal from Fairholme Capital Management LLC and Pershing Square Capital Management under which the firms would provide equity.

In the bonds, a trader said the 8% notes that were to have matured last year were "still" in that 110½ bid, 111½ offered range.

Another source called that issue up a point at 111 bid, 111½ offered. The 5 3/8% notes due 2013 were also a point better at 108 bid, 108½ offered, while the 7.20% notes due 2012 were only marginally higher at 113½ bid, 114½ offered.

In the bank debt, the company's revolver was quoted at 102 1/8 bid, 103 5/8 offered, up from 101 5/8 bid, 103 1/8 offered, and the term loan A was quoted at 102¼ bid, 103¾ offered, up from 101¾ bid, 103¼ offered, a trader said.

Deal terms

Under the proposal, Fairholme and Pershing are offering $3.925 billion of new equity capital at a value of $15.00 per share to facilitate General Growth's emergence from bankruptcy.

Together with the previously announced $2.625 billion proposal from Brookfield Asset Management Inc., this proposal, if accepted, would provide the company with more than $6.5 billion of committed equity capital.

The proposal remains subject to approval by the board of directors, approval by the bankruptcy court of proposed fees in the form of warrants and higher and better offers.

Under the terms of the Fairholme and Pershing proposal, $3.8 billion would be used to purchase shares of General Growth stock at $10.00 per share, and $125 million would be used to backstop the remaining portion of a $250 million rights offering by General Growth Opportunities, a new company that will own certain non-core assets, at a price of $5.00 per share.

Furthermore, the company would have the right to reduce the $3.8 billion by $1.9 billion to the extent it is able to raise equity capital on more attractive terms.

The company believes that this combined equity capital along with its anticipated new $1.5 billion debt issuance - or the reinstatement of a comparable amount of existing debt - would deliver substantially all of the cash required to fulfill its capital needs in connection with its emergence from bankruptcy and provide unsecured creditors with par plus accrued interest in cash.

"The proposal from Fairholme and Pershing Square builds on the significant momentum we have created to return GGP to a strong financial foundation for the future," said Adam Metz, chief executive officer of Chicago-based GGP, in a press release.

"Our goal is to raise capital in the most cost-efficient way to maximize value for all of our stakeholders. We are pleased with the support shown by one of our largest unsecured debt holders and one of our largest equity holders."

AIG asset sales help bonds

American International Group's bonds "continued to tick up a little bit," a trader said, though he noted that there was "not much action."

He quoted the 5¾% notes due 2016 at 75 bid, 75½ offered.

Another trader said the bonds were "up a point or so," the 5¾% notes at 75 bid, 75¼ offered, compared to 74 bid, 74½ offered on Monday. He also saw the 5.60% notes due 2016 around 891/2, though he deemed that unchanged.

The New York-based insurance giant saw its bonds trading actively and better on Monday after it was announced that AIG would sell its Alico unit to MetLife for more than $15 billion in a cash and stock offer.

The asset sale followed a long line of asset sales the company has undertaken since it needed a government bailout. The funds from the sales are expected to be used to repay those bailout funds.

Broad market still strong

Also going on in distressed debt land, General Motors Corp.'s benchmark 8 3/8% notes due 2033 were active again at 321/2, a trader said.

Clear Channel Communications Inc.'s 11% notes due 2016 were also among the day's busier credits, according to another market source. He said about $25 million of the paper traded at 731/2, slightly better than Monday levels.

"Some people are putting swaps up," he noted.

Meanwhile, Opti Canada Inc.'s 8¼% notes due 2014 traded in decent size - about $20 million changed hands - at 91 bid, 92 offered.

NewPage Corp.'s 11 3/8% notes due 2014 closed the day at 98½ bid, 99½ offered, a source said. He added that about "$40-odd million" of the issue traded.

Also, a "good hunk" of U.S. Concrete Inc.'s 8 3/8% notes due 2014 moved to "up and down" 591/2. A trader noted that the bonds - which had been trading flat, or without accrued interest - "are now trading with accrued, but you just have to pay attention to what the bids and offers are."

Sara Rosenberg contributed to this article

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