Las Vegas Sands jumps on financing plan, despite ratings cut; Nortel, Sprint fall again; autos continue skid

By Paul Deckelman and Paul A. Harris

New York, Nov. 12 - Las Vegas Sands Corp.'s bonds jumped about 10 points in active trading Wednesday as the market digested the news announced on Tuesday when the fixed-income markets were closed for Veterans' Day that the embattled company will raise $2.14 billion from the sale of common stock, preferred shares and warrants; investors apparently ignored a ratings cut from Moody's Investors Service as well as the latest depressing gaming statistics from Nevada. Other gaming credits were seen mixed.

Telecommunications credits continued to be hard hit, with declines seen in the bonds of nationwide wireless operator Sprint Nextel Corp. and equipment provider Nortel Networks Corp. following bad quarterly numbers those companies released on Friday and Monday, respectively.

Amid continued investor angst over whether the federal government will bail out Detroit's beleaguered Big Three, there was more downside for General Motors Corp. paper, that of its 49%-owned automotive financing arm, GMAC LLC, and of domestic arch-rival Ford Motor Co., which is being hurt by the same industry dynamics which have brought the once-mighty GM down to its current humbled state.

Primary activity was again nil, other than Las Vegas Sands doing a perpetual preferred stock issue as part of its financing package.

Market indicators lower

The widely followed CDX High Yield 11 index of junk bond performance, which had gained 3/16 point on Monday, fell by 1¼ point on Wednesday, a trader said, quoting it at 79 3/8 bid, 79 5/8 offered. The KDP High Yield Daily Index meantime plunged by 83 basis points to 53.32, while its yield jumped out by 22 bps to 15.82%.

In the broader market, advancing issues trailed decliners by a more than two-to-one margin. Overall market activity, reflected in dollar volumes, was more than double Tuesday's truncated pre-holiday pace.

A trader called Wednesday's session "kind of a mushy day," but said that volume, as people came back from Tuesday's holiday, "was better than I had anticipated."

That having been said, though, he added that the market had "a weird feeling - it's tough to really put a pulse on things. I think a lot of people were back, just getting their feet wet again. A lot of people" - here he included himself -- "took Monday off and made it a four-day weekend, so we were all just getting back and getting squared away." While there were some more earnings coming out, he said, generally, "it felt like a Monday on Wednesday."

He said that "GM, GMAC and Ford seemed to be a lot of the focus." He said all three were lower, while the broader market was at least "a touch lower."

Credit default swaps and cash bonds were both down 1 to 1½ points, according to a high-yield syndicate official who said that trading was active in CDS from the automotive and gaming sectors.

"Bad news in the auto sector" became something of a refrain during the Wednesday session.

Residential Capital, LLC's 8½% notes due 2013 were off 3 or 4 points, according to a syndicate source, who added that Wednesday was a pretty negative day.

"We're just looking at price action," the official said, adding that junk was down right from the open on Wednesday.

In addition to the bad news in the automotive sector, the stock of Sprint Nextel Corp. fell nearly 23% to below $2 per share, the source pointed out.

"Today felt pretty soft," said the syndicate official, adding that players were keeping a weather eye on mutual fund portfolios with respect to their exposures on some of these sectors.

Auto bonds still in the breakdown lane

While the shares of both GM and Ford were modestly higher on Wednesday on investor expectations - or, at least, their hopes - that some kind of a Washington compromise could be worked out to bail out those companies and smaller sector peer Chrysler LLC, bond investors were nowhere nearly as sanguine.

On the increasingly gloomy outlook for the domestic auto industry, underscored by the big losses and intense cash-burn rates which both GM and Ford reported Friday, a trader saw GM's benchmark 8 3/8% bonds due 2033 down 1½ points at 23.5 bid, 25 offered, and saw Ford Motor Co.'s 7.45% bonds due 2031 also down 1½ points at 25 bid, 26.5 offered.

A second trader saw the GM long bonds unchanged at 23 bid, 25 offered, but said that GMAC's bonds "got beat up and moved around every which way" before ending lower, with the 8% bonds due 2031 at 36 bid, down 2½ points. He also saw GMAC's troubled wholly-owned mortgage unit Residential Capital LLC's 8½% notes due 2010 at 30 bid, 32 offered, "down a few points," although he said there was "not much trading" in the credit. Noting that parent GMAC's bonds were lower, he opined that "as GMAC goes, so ResCap goes."

Yet another trader called the GM benchmark bonds down 1 point at 22 bid, 24 offered, with the GMAC '31s off 1½ points at 36 bid, 38 offered and the Ford '31s off a point at 25 bid, 27 offered.

A market source at another desk meantime quoted Ford's 9.98% long bonds due 2047 at the 29 level, up more than a point. But its Ford Motor Credit Co. auto-finance unit's 5.80% notes coming due in January were down a point at 88 bid. The source also saw GM's 7 1/8% notes due 2013 falling 3 points to the 25 level and its 7.20% notes due 2011 down more than 2 points at under 33 bid, while GMAC's 6 7/8% notes due 2012 were 4 points lower at 43 bid.

Las Vegas Sands a winner

A trader saw Las Vegas Sands' 6 3/8% notes due 2015 "very active today," with well over $30 million having changed hands by early afternoon, far outdistancing the next most active bonds by almost $10 million. He saw the bonds get as good as 61 bid.

Another trader asked rhetorically "wouldn't you love to be the guy who bought $1 million of the bonds late Monday at 51?" noting that they were up around 9 points from Monday's close to 60 bid, 62 offered; however, he also said that after having opened at that higher level, they were pretty much unchanged on the day, even after having risen to 62 bid during the session and then falling back.

A market source saw the bonds having opened at just over 60, some 9 points above where they went home on Monday, and 11 points up from their last previous round-lot price last week. After that, the bonds bounced around within a 2-point range, hitting a high of 62, in very active dealings, mostly in large-block transactions, before going out at 61.25, the source said, calling that a gain of more than 10 points.

On the other hand, the company's New York Stock Exchange-traded shares, which had surrendered fully one-third of their rapidly eroding value on Tuesday, continued to retreat Wednesday, although at a less dramatic rate, falling as much as 9% before finally closing down 24 cents, or 4.49%, to $5.10, on volume of 40.6 million shares, almost 4 times the norm.

The equity investors were dismayed - although debtholders were encouraged - by the company's plans, announced on Tuesday, to raise fresh capital by issuing new equity that will ultimately more than double the amount of its currently outstanding shares. That drastic step was made necessary by the company's warning last week that it is in danger of breaching the maximum leverage ratio covenant in its debt agreements for the fourth quarter which ends on Dec. 31, which could lead to a default on $5.2 billion of credit facilities secured by its Las Vegas operations.

Sands - which operates the Venetian and Palazzo casino resorts on the Las Vegas Strip and the Venetian Macao and Sands Macao casino resorts in Macau - also announced at that time that it might have to suspend work on projects it has under way in Macau, Singapore, Las Vegas and Pennsylvania to conserve cash, in addition to raising new capital.

Sands subsequently said that it will temporarily shelve all of the development projects, except for the Marina Bay Sands in Singapore, which it is committed to finishing in 2009, although it has sought permission to open its resort there in stages as it is completed, rather than all at once. Sands agreed to invest about $500 million in additional equity to ensure the $5 billion Singapore project is completed.

The financing game plan announced on Tuesday calls for the company to raise $1 billion by selling 181.8 million new shares at $5.50 apiece, and to garner another $519.6 million in the form of new 10% preferred stock at $100 each.

On top of that, the company's founder, chairman, chief executive officer and principal stockholder, billionaire Sheldon G. Adelson and his wife Miriam - who pumped $475 million of their own money into the company in September by purchasing new 6.5% convertible notes due 2013 - will buy another $525 million in the 10% preferred shares, and will convert the 6.5% notes into common at the $5.50 price.

Investors in the preferred shares, including the Adelsons, received with each share a five-year option to buy another 16.7 common shares at $6 - which could raise a total of another $1.04 billion.

The massive dilution of the shares envisioned under the capital-raising plan is illustrated by the fact that even after having exercised all options to convert those convertible notes into common or buy more common, the Adelsons' stake in the company will fall to about 51% from around 68% earlier this year. At the same time, the shares have lost nearly all of their value - their current price represents just about 5% of their peak value of $145.57, reached in October 2007.

The junk market shrugged off the news Wednesday that Moody's Investors Service had lowered Las Vegas Sands' corporate family rating, its probability of default rating and the rating on its $250 million of 2015 bonds by two notches to B2 from Ba3 previously, and will continue to scrutinize those ratings for a possible further downgrade.

The ratings agency said that the downgrade reflects the casino company's "considerable leverage, the continuation of significant negative trends in Las Vegas, and expectation that these trends will continue in the foreseeable future. The downgrade also considers recent visitation restrictions in Macao, China that will likely slow Las Vegas Sands' rate of growth in that market, at least until the Chinese government decides to relax these travel restrictions."

While Moody's acknowledged the company's announcement delaying the development projects other than Singapore as well as its capital-raising program, it cautioned that "[f]ailure to successfully raise adequate new capital, even with the significant reduction in capital spending plans, would likely result in a covenant default and could jeopardize the company's ability to continue as a going concern. If this were to occur, the ratings could be lowered several notches."

Other gaming issues are mixed

With the troubled Las Vegas Sands breaking to the upside, some of the other bonds in the sector - one of the biggest victims of the ongoing credit crunch as travelers curb their discretionary leisure-time spending - also seemed to catch a bid, despite more bad news for the gaming business; Nevada gaming authorities announced that gross winnings by the casinos on the Las Vegas Strip and statewide fell for the 9th consecutive month in September.

The 41 casinos on the Strip reported a total gross win of $525.1 million, down 5.1% from a year ago, while statewide gaming revenue fell 5.4% to $1 billion, before expenses and taxes.

That also decreased the state's take; it took in $63.5 million in gaming tax revenue in September - $10 million less than the previous year.

Despite that latest negative news, MGM Mirage's 7 5/8% notes due 2017 were seen up more than 4 points at 61 bid, in active trading, while Isle of Capri Casinos Inc.'s 7% notes due 2014 were up 1½ points at 49.

However, a trader saw Harrah's Entertainment Inc.'s 6½% notes due 2016 down 1 point at 14 bid, 16 offered, while Station Casinos Inc.'s 6% notes due 2012 were off about 3 points to about the 35 level.

The trader also saw Wynn Las Vegas LLC's 6 5/8% notes due 2014 at 73.5 bid, 74.5 offered, which he called down ½ to ¾ point from Monday's levels, but still up a point from where they had been trading about a week ago. Another source pegged the bonds just over 74, down nearly a point.

Telecom names a wrong number for market

Investors in both the junk bond market and the equity market continued to hang up on names like Sprint Nextel and Nortel Networks, both of which reported bad quarterly numbers.

Sprint Nextel's 6% notes due 2016 were seen by a market source to be down more than 3 points at just under 66 bid. At another desk, the bonds were quoted at 67, down 4 points from recent levels.

Sprint Nextel's NYSE-traded shares were seen down as much as 30% at one point during the session, before finishing a $1.95, off 58 cents, or 22.92%, on volume of about 100 million shares, almost triple the norm.

On Friday, the Overland Park, Kan.-based wireless telecommunications company - formed by the 2005 acquisition of the former Nextel Communications Inc. by the company then known as Sprint Corp. - reported a swing into the red in the third quarter, and more subscriber losses.

Number-Three U.S. wireless operator Sprint Nextel lost $326 million, or 11 cents per share in the third quarter, versus its year-ago earnings of $64 million, or 2 cents per share.

Sprint Nextel also reported that its subscriber base fell by 1.3 million in the quarter, as customers abandoned the carrier for bigger rivals like AT&T/Cingular and Verizon Wireless. That figure includes 1.1 million valuable "postpaid" customers who have regular monthly contracts.

Another telecom-related name not doing so very well is Nortel Networks, whose bonds and shares fell on Monday after it released poor quarterly numbers, and which are down again. The company's 10¾% notes due 2016, which fell some 10 points on Monday, dropped another nearly 6 points on Wednesday to close under 35 bid. Its 10 1/8% notes due 2013, which also dropped some 10 points on Monday after the numbers, surrendered another 8 points on Wednesday to also nose below 35.

The company's NYSE-traded shares slid nearly 40% at one point during Wednesday's session, but recovered a little from that low to end down 31.40%, or 27 cents, at 59 cents. Volume of 17.7 million shares was over twice the usual activity level.

On Monday, Toronto-based telecom equipment producer Nortel reported a third-quarter loss of $3.41 billion, a sharp deterioration from its year-ago $27 million profit. The latest loss included a non-cash charge of $3.21 billion, consisting of a goodwill writedown and deferred tax assets. Revenue declined 14% to $2.32 billion.

Elsewhere in the sector, Qwest Communications International Inc.'s 7¼% notes due 2011 were down a deuce at 79. But Level 3 Communications Inc.'s bonds were seen mixed, with one market source quoting its 9¼% notes due 2014 down 1½ points around the 59 level, but another seeing the Broomfield, Colo.-based wholesale telecom carrier's 12¼% notes due 2013 up nearly 2 points at 66.5

Rouse is routed

Elsewhere, a trader saw Rouse Co.'s bonds lower as its corporate parent, General Growth Properties Inc., warned it might not be able to continue as a going concern, although he saw "not much activity" in them.

He quoted its 7.20% notes due 2012 at 25 bid, "down a few points, with maybe a little more activity [than its other issues] but not a lot of volume." The bonds, he said are "thin traders - they're not around every day."

A market source at another desk also saw those bonds at 25 bid, down from 31 late last week. The source also saw its 5 3/8% notes due 2013 open at 28 and then trade around a 30-31 context in light activity - but that was still down several points from levels around 34 at which the bonds had traded at the end of October, the last time they had traded previously, and well down from levels around the 50 mark seen in mid-October.

Rouse's 3 5/8% notes slated to mature this coming March, had recently also been around the 50 mark. But after opening several points lower Wednesday, they were seen having slide below the 30 mark on a couple of large late trades.

While the bonds were stumbling, General Growth's NYSE-traded shares were tumbling, plunging as much as 50% at one point, before finally ending at 35 cents, down 13.9 cents, or 28.43% on the day. Volume of 74.4 million shares was seven times the norm.

The bonds and shares swooned after the struggling Chicago-based shopping mall owner warned that it may need to file for bankruptcy. It said in a Securities and Exchange Commission filing that it has about $1 billion of debt coming due very soon, including $900 million in secured mortgage debt due Nov. 28 on two of its Las Vegas shopping centers and $58 million of corporate debt due on Dec. 1. After that, there's another $3 billion of debt coming due next year.

General Growth warned that should it be unable to extend or refinance its debt or obtain additional capital on a timely basis and on acceptable terms, "we will be required to take further steps to acquire the funds necessary to satisfy our short-term cash needs, including seeking legal protection from our creditors."

The REIT further cautioned that its potential inability to address its 2008 or 2009 debt maturities "in a satisfactory fashion raises substantial doubts as to our ability to continue as a going concern."

Waiting for the end (of the year)

Overall, a trader said, "people were watching stocks," which fell for a third consecutive session Wednesday, which were pushed lower by more dismal corporate reports - department store giant Macy's Inc. suffered a large quarterly loss and electronics retailer Best Buy Co. cut its 2009 guidance - and the news that the federal government will not be buying banks' soured mortgage assets after all. He said he had talked to "an equity friend, and he said that everyone he talks to is just hoping to make it through the rest of the year and turn the calendar page to '09."

The trader noted that "a lot of hedge funds are in a survival mode, and I would think some sell-side traders are as well - they're just trying to make it [to the end] and turn the calendar and start with a fresh slate.

"I know it's still only early November and we still have a lot of time ahead of us [before that happens], but I think people are really trying to just digest where things are going from here." In the interim, he warned there will probably be "more [fund] redemptions to come, more things to be unwound, and more pain that needs to be taken." Against that kind of a gloomy backdrop, "any kind of strength we see - things will be running and you'll want to hang on - the minute things kind of flatten out or turn negative, everyone's looking for the low bids.

" Everyone wants to sell into strength, but then they think they don't want to sell too soon - if things start running, they want to let them run - but then as soon as [an upside move] runs out of gas, it just gets flushed right back. It's a see-saw."

`Quiet in the primary

The Wednesday session failed to produce any news in the new issue market.

PNM Resources, Inc. continues to remarket its $100 million of 6 5/8% senior notes due Nov. 16, 2010 (Ba2/BB-/BB), sources said.

Citigroup is leading the deal which is being run off the high-grade desk.

The company would like to get the deal done around 15%, an informed source said.

PNM announced that it could take down $90 million of the $100 million deal, ostensibly leaving just $10 million to place. However PNM would like to build a $100 million book, a source told Prospect News.

Elsewhere, with Ashland Inc. continuing to market its $1.75 billion senior secured credit facility (Ba1/BBB-) there could be news on its $750 million of senior unsecured notes (Ba3/BB-) before the end of the week, according to a source familiar with the deal.

Banc of America Securities and Scotia Capital are leading both the bank and bond deals.

Ashland, a Covington, Ky.-based chemical company, is raising money to help fund its acquisition of Hercules Inc. That acquisition becomes effective on Thursday.

The senior unsecured bridge loan backing the $750 million of bonds is capped at 12%, a market source said on Wednesday.

Finally, Standard & Poor's issued a BB- rating on ION Geophysical Corp.'s proposed $175 million senior unsecured notes.

In a mid-September 8-K filing with the Securities and Exchange Commission, ION said it may attempt to raise funds through an issue of high-yield notes, with proceeds going to repay debt related to the acquisition of Aram Systems Ltd. and Canadian Seismic Rentals Inc.

The company disclosed that it has a commitment from Jefferies Finance LLC for a $150 million senior bridge loan facility and said the facility would be drawn down if its attempts to raise other long-term debt, including high-yield notes, are not successful.

No further information was immediately available on a possible offering.

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