WCI sinks on bankruptcy filing; Six Flags trades at 50; Advanced Medical off lows; Smithfield adds

By Rebecca Melvin

New York, Aug. 4 - WCI Communities Inc. plunged along with its underlying shares Monday after the homebuilder filed for bankruptcy protection and announced a debt restructuring plan that didn't appear at the outset to be very favorable to holders.

Six Flags Inc. was pressured into trade in the middle of its previously existing bid, ask range after the theme park operator reported that it swung to a second-quarter profit but park attendance dipped.

Advanced Medical Optics Inc. dropped about 3 points early in the session but came back to end only a point lower in tandem with a bounce in its underlying shares. The Santa Ana, Calif.-based eye medical device maker posted lower-than-expected quarterly earnings and cut its full-year profit forecast.

Chesapeake Energy Corp., which has seen its stock under pressure for the last five or six weeks, since hitting a multi-year peak in June, saw its convertibles indicated lower, but the name wasn't especially active, market participants said.

Smithfield Foods Inc. was an upside exception Monday, adding at least 3 points to north of 120. The Smithfield 4% convertible senior notes due 2013 have been creeping up steadily since they were issued July 3, sources said.

Meanwhile, Countrywide Financial Corp. convertibles didn't respond to reports that the holders of the series B convertibles have filed a complaint against Bank of America Corp. in the Delaware Chancery Court for failure to inform investors of their rights regarding the paper after the acquisition July 1.

In general financials and airlines were quiet in convertibles Monday, when one would have thought they would have been active, a New York-based sellside trader said.

WCI plummets on bankruptcy

WCI 4% convertibles due 2023 fell to 29 bid, to 29.5 offered from a previous price in the middle 60s and after trading at 82.5 bid, 83 offered in early July.

The 35-point tumble hit the Bonita Springs, Fla.-based builder after it filed for bankruptcy Monday following recent failed attempts to refinance and obtain financing.

"I only had one trade, but a lot of calls," a New York-based sellside trader said, adding that his recovery analysis "isn't good."

The trader sees maybe 20 cents on the dollar recovery for the subordinated debt.

"The fundamentals are not holding this up. It's a technical factor and it's actually artificially up a little," the trader said.

The filing officially terminates an offer to exchange the $125 million of contingent convertible senior subordinated notes. Holders rejected first an exchange offer for 16% coupon straight debt and then an offer for 17% straight debt, and they were to have been paid in cash in full on Tuesday, a Connecticut-based sellside trader said.

The company, which has been struggling with losses related to the downturn in the housing market and overall economy, said that it has reached an agreement with its secured lenders on terms to have access to $50 million of cash to continue to operate its business on an interim basis. It also has a proposal from some senior lenders to provide an additional $100 million of excess liquidity through a debtor-in-possession financing.

Shares of WCI (NYSE: WCI) closed at $0.66, down 60 cents, or 48%.

WCI's business is mostly in Florida, but it also builds in New York and Washington, D.C.

"There have been a lot of guys short and a lot of guys long. Their put was coming tomorrow on the converts and the exchange offer that would have made them pari - they were subs - is no longer happening," a New York-based sellsider said.

"I can see Icahn walking," he said, regarding chairman Carl Icahn, who had tried to buy the company at $22 per share a year ago but was rebuffed.

Independent research firm Gimme Credit said, "We think the blame for WCI's downfall has a long track record that can be traced right to the top. We remember questioning the wisdom of the board last year when it summarily refused an offer from Mr. Carl Icahn to buy the company at $22 per share, especially since we had become concerned by the alarming rate of decline in WCI's operating performance and asset value."

"We also remember that the board carefully constructed its reorganization last year to bypass change-of-control protection that would have been afforded to bondholders. A year later, WCI's stock is worthless and our work shows that most of the value underlying the bonds is gone," Gimme Credit said.

"The company seemed to blame holders of the 4% notes for the downfall, since those bondholders wanted to get paid in cash on August 5 as promised under the bond indenture. It seems petty to imply that WCI's lenders are greedy for simply wanting to be paid as agreed. Every moment the lenders wait for payment accelerates the severity of WCI's decline," Gimme Credit said.

Six Flags trades at midpoint

Six Flags 4.5% convertible senior notes due 2015 traded at about 50 late in the session, with at least one trade at 53 versus a share price of $1.40.

For the longest time there was a bid of 40 and an ask of 60 and no trades, a New York-based sellside trader said. "It came in the middle of the market. But it hadn't traded in so long, I kind of forgot that this thing existed."

Shares of the New York-based theme park operator (NYSE: SIX) closed down 8%, or 9 cents, at $1.03.

Six Flags said total attendance fell 3% to 8.6 million during the second quarter due to the fact that Easter fell early in the first quarter this year. But for the first half of 2008, attendance was unchanged at 10.1 million.

Adjusted EBITDA for the quarter improved to $87.6 million, compared to $57.5 million for the prior-year quarter. And president and chief executive Mark Shapiro said in a release: "The track we're on through July positions us to be free cash flow positive this year for the first time in the company's history."

Initially shares jumped 13%, but enthusiasm faded quickly, and in its wake paved a steady path downward for the shares through the session.

EYE edges up from lows

Advanced Medical, commonly referred to as EYE by traders, said its 3.25% convertibles due 2026 traded at 65 and was seen closing at 65 bid, 65.5 offered versus a share price of $18.07.

The EYE 2.5% convertible senior subordinated notes due 2024 were seen trading at 91.

Shares of EYE (NYSE: EYE) dropped initially on earnings news but then steadily came back to close up 87 cents, or 5%.

"The bonds were down 3 points on consumer earnings and they took down their guidance, but they improved as the day went on, and at the end of the day, they were down a point," a New York-based sellside trader said.

"The stock began performing better when oil went lower," the trader said, referring to the company's Lasik business, which stands to suffer if consumers are putting all their extra cash in their gas tanks.

Chesapeake drags lower

Chesapeake Energy's 2.25% convertible due 2038 (Cusip: 165167CB1) was seen closing at 90 versus a share price of $45.25 on Monday, compared to 93.9 versus a share price of $49.22 on Friday.

That bond price compared to a level at around 115 in early July.

Shares of the Oklahoma City-based natural gas company (NYSE: CHK) lost 8% on Monday.

"Chesapeake was pretty quiet, but it's been a little heavy with the stock under pressure. The credit has moved out a little because people got a little aggressive outright and they were unwinding," a sellside trader said. "On swap it's had great vol events, it's just outright selling. There was nothing specific today."

Smithfield rises

Smithfield Foods 4% convertible senior notes due 2013 closed at 120.1 versus a share price of $22.28 on Monday, compared with 116.7 versus a share price of $21.29 on Friday.

Shares of the Smithfield, Va.-based company (NYSE: SFD) closed up 5%.

Sources said that it has improved slowly and steadily on outright and swap interest in the food play and it gets good vol.

One trader credited at least part of the climb in the securities to interest in China, which is heading into the Olympics and which could spur use of the meat in celebrations surrounding the games in that country.

The stock had been at $30 at the end of May, the trader noted, adding that there are "disappointments that they are working through. Nevertheless, people more positive on the equity outright."

Countrywide lawsuit seen as noise

Countrywide series A convertibles due April 2037, which pay a coupon of Libor minus 350 basis points, was seen at 97.25 on Monday, while the series B convertible due May 2037, which pays a coupon of Libor minus 225 bps, was seen at 94.25, which were called unchanged from Friday and up about 0.25 point from a week ago. The series B issue was in the 93.75 bid, 94 offered range midsession.

The series A convertible may be put on Oct. 15, 2008, while the B series may be put on May 15, 2009.

Bank of New York Mellon Corp., trustee for the holders of the notes, has filed a complaint against Bank of America Corp.'s Countrywide Financial Corp. seeking repayment for $2 billion in notes for what it called Countrywide's failure to inform holders of the series B floating-rate convertible notes that its acquisition by Bank of America gave holders the option to keep the notes or cash them in. Countrywide was required to mail notices explaining the changes by July 16, according to the complaint.

The suit was "not unexpected," according to one Connecticut-based sellside trader. "A bondholder group formed a couple of weeks ago."

Bank of America has not assumed or guaranteed the liabilities of Countrywide, including the liabilities owed by Countrywide under the indenture, and in fact has stated that it will not do so, Bank of New York Mellon stated in the complaint filed in the Delaware Chancery Court in Wilmington.

A Boston-based sellsider suggested that the lawsuit brought by the series B convertible holders trustee "was very interesting" because Bank of America put the stock of Countrywide into a subsidiary and with its obligations may find itself needing to raise more funds.

But others disagreed. And one source said that he didn't anticipate that any lawsuit would be resolved before the put dates roll around.

A third source said, "If I owned them and thought I could stick them back to Bank of America earlier I would not be offering, nor would I be bidding up on the mere chance of this occurring."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.