Distressed debt market starts weaker, ends mixed; Harrah's up on IPO news; Sbarro lower

By Stephanie N. Rotondo

Portland, Ore., Oct. 18 - Monday's distressed debt market "started out softer, but sort of came back with the equity markets," a trader reported.

Still, traders characterized the day as mixed at best, and volumes were "a little lighter than I would have expected," according to another market source.

News of a planned initial public offering for up to $575 million helped Harrah's Entertainment Inc.'s debt erase losses incurred on Friday. The casino operator is reportedly planning to use proceeds to fund its current projects.

With no news out, however, Sbarro Inc.'s bonds dropped 5 points or more on the day. One source speculated that someone was selling the debt and that perhaps buyers were only interested at the lower levels.

There was also no news out about Clear Channel Communications Inc., but the company's notes were among the more active traders. Still, the debt ended the day in line with the market trend.

IPO news boosts Harrah's

Harrah's Entertainment's debt "stopped going down," a trader said, on news the company was planning an IPO.

"They started trading off a bit on Friday, but this kind of revived it," the trader said. He saw the 10% notes due 2018 closing around 861/2, which compared to Friday's market of 84½ bid, 85 offered.

The 10¾% notes due 2016 meantime gained about 1½ points, closing around the 89 level.

Another source pegged the 10% notes at 85¾ bid, though another source also saw the paper around that 86½ mark.

The Las Vegas-based casino operator filed an IPO plan that allowed for the sale of as much as $575 million in stock. The company would use proceeds from the IPO to fund projects in Las Vegas and Ohio, including the completion of its 660-room Octavius Tower at Caesars Las Vegas.

Harrah's was taken private in January 2008 by Leon Black'sApollo Management LP and David Bonderman's TPG Inc. Shares currently owned by John Paulson's Paulson & Co. - bought in June in exchange for debt the firm held - would be included as part of the IPO.

Sbarro drops weight

Among other consumer-related credits, fast food eatery Sbarro saw its bonds falling 5 points or more on no news.

A trader quoted the 10 3/8% notes due 2015 at 42 bid, 42½ offered, which he said was down from previous levels in the high-50s. Another market source placed the notes at 55 bid, down 5½ points on the day.

The first trader called the movement "interesting," and speculated that it "looks like somebody needed to sell them and found a place where they could trade."

He added that Sbarro debt does not trade often, though there were a few round lot trades on Monday.

Yet another trader said that he didn't see anything happening in the Melville, N.Y.-based Italian-style fast food restaurant operator's paper on Monday - there was no fresh news out on them - but he said that on Friday, those bonds began the session being quoted offered at 61 and looking for a bid. They ended up trading way down around the 42 bid level due to one trade very late in the day.

"It could have been one of those 'show me a bid' things," he said, immediately followed by that low bid getting hit.

He noted that looking only at round-lot transactions, back in August, the company's bonds were being quoted at 77 bid; then, by the end of September, they were down around the 60 level.

"Then, the next [large-sized] trade was on Friday, at 42," he said. "Those were good-sized trades - $1 million-plus, and they're going to multiple sellers, multiple buyers, all happening at that price."

Clear Channel steady to softer

San Antonio-based multimedia company Clear Channel Communications' debt finished up the session unchanged to "a touch weaker," according to traders.

One trader said the 10¾% notes due 2016 were virtually unmoved at 77½ bid, 78 offered.

Another trader, however, said the notes were on the lighter side at 77 bid, 77½ offered.

The second trader also saw the 11% notes due 2016 "around 75."

Another trader said that the name "had a lot of activity today," seeing the 11% senior PIK toggle notes around 75 bid, while its 10¾% cash-pay seniors were around 77.

He said that "there was good size in those things trading today," pegging the company's bonds between a half- and 1 full point lower versus Friday's levels.

Clear Channel Communications, he said, "seemed to be the most active" among the names in the distressed sector.

Late last week, Clear Channel's outdoor advertising division announced it had sold its majority interest in Clear Channel Branded Cities to the Ellman Cos., its joint venture partner. The venture "maintains unique outdoor signage in Phoenix, Denver and Las Vegas," according to a press release issued Friday.

General Growth cancels loan

General Growth Properties Inc. said in an S-11/A filed late Friday with the Securities and Exchange Commission that it no longer intends to get a $1.5 billion five-year secured term loan to help fund it exit from Chapter 11.

The company explained that the term loan commitment was obtained in case the Bankruptcy Court determined that reinstatement of the notes issued by its Rouse subsidiary was not permitted.

But, since the objection deadline has passed without objection to reinstatement, there is no longer a need for the proposed term loan.

The Rouse notes include $400 million 7.2% notes dues 2012, $450 million 5.375% notes due 2013 and $800 million 6¾% notes due 2013.

Under the plan, $1.041 billion of the Rouse notes will be reinstated and holders of $608.7 million Rouse notes elected to receive new five-year notes priced at 6¾%.

General Growth Properties still anticipates getting a new $300 million three-year revolving credit facility in connection with its bankruptcy emergence, the filing said.

However, none of the revolver commitments are expected to be used to consummate the reorganization plan.

Deutsche Bank, Wells Fargo and RBC are the joint lead arrangers on the revolver, with Deutsche the administrative agent.

The company previously disclosed that pricing on the revolver would be Libor plus 450 basis points.

Covenants include a maximum net debt to value ratio, a maximum leverage ratio and a minimum net cast interest coverage ratio.

General Growth Properties is a Chicago-based real estate investment trust that owns shopping malls, community developments and commercial office buildings.

Broad market mixed

In the rest of the distressed marketplace, NewPage Corp.'s 10% notes due 2012 saw "a lot of action," a trader said.

He quoted the bonds at 60 bid, 60½ offered, up a tad from Friday's levels around 59.

Meanwhile, Washington Mutual Inc.'s senior bank paper was "on the quiet side," a trader said, even as the company disclosure statement was approved. He said the notes - such as the 5.55% notes due 2010 - were "still wrapped around 40."

Paul Deckelman contributed to this article

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