Distressed debt fades from focus as Sprint dominates, traders say; Clear Channel keeps rising

By Stephanie N. Rotondo

Phoenix, Oct. 15 - Distressed debt got looked over Monday, as investors instead turned their attention toward Sprint Nextel Corp., a name that is no longer considered distressed, according to traders.

But in the day's distressed goings-on, Clear Channel Communications Inc.'s debt remained active and firm. On Friday, the company announced that it was seeking amendments to its bank debt that would allow for sub-par repurchases or exchanges, also lauding a $2 billion bank debt for new notes exchange. Though the bonds have headed higher on the news, some market watchers have their doubts.

As for the focus of the day, Sprint was in talks with Japanese company Softbank to take a major stake in the telecommunications provider. On Monday, word was that the investor planned to take a 70% stake, valued at over $20 billion.

"It was all Sprint, all the time," said one trader, who saw the bonds up as much as 4 points on the day.

Clear Channel extends gains

A trader said Clear Channel Communications' 10¾% and 11% notes due 2016 were inching higher, continuing Friday's gains into the new week.

He pegged the issues around 78. On Friday, the paper had hit highs around 80 before settling back in a 76-77 context on news of a debt exchange and bank debt amendment.

Another trader saw the 4.9% notes due 2015 rising 4 points to end around 88.

The San Antonio-based multimedia company wants to exchange bank debt for new 9% priority guarantee notes due 2019. The notes would first be callable in July 2015 and contain MFN protection designed to enable participants to exchange their notes for new notes that may be issued in future loan-for-bond exchanges.

In addition to allowing the exchange, the credit facility amendment would combine the term loan B and two delayed-draw term loans into one tranche that would keep the current pricing of Libor plus 365 bps, preserve revolver capacity if all revolver borrowings are repaid, eliminate certain restrictions on Clear Channel Outdoor Holdings Inc.'s ability to incur debt and gain more flexibility to prepay term loan A debt.

Also, after the repayment or extension of all of the term loan A, the company would be allowed to buy back term loans at a discount through Dutch auctions and repurchase up to $200 million of junior debt maturing before January 2016 with cash on hand.

Not everyone was overly enthusiastic about the plan.

Standard & Poor's, for one, affirmed its negative outlook for Clear Channel, noting that while maturities on the bank debt will be extended into 2019, that still leaves about $10 billion of debt maturities in 2016. S&P called the company's ability to service said obligations at that point.

S&P also noted that the new notes carry a higher interest rate than the term loan B it is seeking to refinance.

Kim Noland, an analyst with Gimme Credit LLC, said in a comment released Monday morning that the exchange and amendment provide "major flexibility" in dealing with its 2016 maturities, though she too noted the higher interest rate.

And, Noland also pointed out that while Gimme Credit has recommended buying the new 9% notes, risk for junior and unsecured paper remained high.

Broad market sees upside

Elsewhere in the distressed arena, a trader said ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 were unchanged at "+/-21."

Another trader saw Petróleos de Venezuela SA's 9¾% notes due 2035 at 841/2, up a point from Friday levels.

Eastman Kodak Co.'s 9¾% second-lien notes due 2018 were also inching up a point, according to a trader, to 65 bid, 66 offered.

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