Six Flags down on Chapter 11 filing; Alliance Data bounces back; McMoRan to price

By Rebecca Melvin

New York, June 15 - Six Flags Inc. convertibles were lower Monday after the regional theme park company based in New York filed for Chapter 11 bankruptcy over the weekend.

Alliance Data Systems Corp. were up about a point on a dollar-neutral basis, bouncing up a little after coming in last week amid no particular news, a New York-based sellside trader said.

United States Steel Corp.'s convertibles slipped again along with their underlying shares, although the paper is still well in the money.

From the same metals sector, Allegheny Technologies Inc., which also priced an issue of convertibles this spring, is also well in the money, trading on Monday at 119.5.

Overall the stock and credit markets were weaker Monday. Commodities and the materials sector were feeling the brunt of weakness on concerns about economic recovery.

"Credit was a little wide this morning," a sellsider said.

The Dow Jones Industrial Average fell 187.13 points, or 2.1%, to 8.612.13; the S&P 500 Index dropped 22.49 points, or 2.4%, to 923.72; and the Nasdaq Stock Market fell 42.42 points, or 2.3%, to 1.816.28.

Although the weaker markets were expected to be a deterrent to the primary market on Monday, with issuers seen likely to want to wait for better stock prices, there was one launch after the close.

McMoRan Exploration Co. planned to price $50 million of convertible perpetual preferred stock after the market close Tuesday. The deal was talked at a yield of 7.5% to 8%, with an initial conversion premium of 18% to 22%.

McMoRan has two existing convertible issues: 5.25% convertibles due 2011 and 6.75% mandatory convertible preferred stock due 2010.

In Europe, Paris-based cable maker Nexans launched and later priced €190 million of six-and-a-half-year convertible bonds in the Oceane structure within talk to yield 4% with an initial conversion premium of 30%.

Six Flags convertible bonds at 10.50

Six Flags 4.5% convertibles due 2015 fell a couple of points on Monday to 10.5 bid, 11 offered, according to sources. One trader put the range at 10.5 bid, 12 offered.

Six Flags' 7.25% convertible preferred income equity redeemable securities due 2009, which have a $25 par, weren't seen in trade, but were seen as worth next to nothing.

"Looks like they are trading around 20 cents - which is 20 cents too much," a Connecticut-based sellside trader said. "Those preferreds are dust."

But a chunk of Six Flags' bank debt rose, according to one sellsider.

Six Flags and several of its subsidiaries made a pre-packaged bankruptcy filing Saturday in the U.S. Bankruptcy Court for the District of Delaware.

According to a company news release, the company's pre-packaged plan of reorganization has the unanimous support of a lenders' steering committee and the administrative agent for its $1.1 billion senior secured credit facility.

According to an 8-K filed with the Securities and Exchange Commission, steering committee lenders JPMorgan, Beach Point Capital, Davidson Kempner Capital Management LLC, Eaton Vance Management, Sankaty Advisors LLC, Taconic Capital Advisors and Silver Point Capital, LP and administrative agent JPMorgan Chase Bank, NA signed an agreement on June 13 to support the plan.

The support agreement can be terminated if the company does not file a plan and related disclosure statement that is acceptable to participating lenders holding more than 60% of the lender claims by Aug. 15; if the disclosure statement is not approved by Oct. 15; if the plan is not confirmed by Dec. 31, 2009; and if the plan does not take effect by Feb. 15, 2010.

CreditSights analysts said that the combination of the PIERS and 2010 maturities and high financial and operating risk profiles forced the bankruptcy filing

The expected reorganization plan under bankruptcy, which offers unsecured bondholders, including the Six Flags Operations bondholders, only 10% of the new company and is likely to be met with resistance by the unsecured lenders, CreditSight said.

The CreditSights analysts, Chris Snow and Frank Lee, suggested that more could be available.

"We project more value for the unsecured SFO [Six Flags Operations] bondholders in all but the most dire operating conditions. That is, unless SIX's adjusted Ebitda were to fall below $200 million, the company should have adequate asset coverage to offer the SFO bondholders a larger stake in the capital structure beyond what is currently being proposed. We have been less comfortable with the SFI Unsecured debt given their structurally junior claim to the company's assets."

The theme park industry is usually in a defensive market position regarding the safety of its rides, and the bankruptcy filing by Six Flags brings new operational risks for the company on the public relations front, CreditSights said.

Six Flags was supposed to make $6 million semiannual interest payment on its $280 million of 4.5% convertible senior notes due 2015 this spring and a $300 million cash payment on its preferred stock in August

An attempted exchange offer failed due to lack of interest.

Alliance Data up a point

Alliance Data Systems' 1.75% convertibles due 2013 were up a point on a dollar-neutral basis from last week. The current market was 76.125 bid, 77.125 offered, versus a $45.50 stock price, according to a sellsider.

The paper was coming in last week, so it came back today, which was an interesting move given that credit in general was a little wider overall, he said.

The company had issued a press release which provided updated information on one of its businesses. But that was not "overly meaningful," the sellsider said.

McMoRan to price preferreds

McMoRan plans to price $50 million of convertible preferreds with an additional $7.5 million greenshoe.

Concurrently the New Orleans-based oil and gas driller plans to price a public offering of about 11 million shares of common stock. There is a greenshoe of an additional 1.65 million shares.

JP Morgan is bookrunning manager for the offering.

The new convertible issue looked cheap, according to one sellside analyst.

McMoRan's shares, which were flat during the session, dropped 8% in the aftermarket following the announcement of the offerings.

McMoRan has an existing 6.75% mandatory convertible and 5.75% convertible bonds. The bonds have been at a level of about 87. There are about $75 million outstanding out of a $140 million original size, and they haven't been that liquid, the sellside analyst said.

This is a speculative name, the sellsider said.

"I wouldn't be surprised if they pulled the deal," the analyst said, given where the markets were today. "Equity holders are going to have a ride."

Mentioned in this article:

Allegheny Technologies Inc. NYSE: ATI

Alliance Data Systems Inc. NYSE ADS

McMoRan Exploration Co. NYSE: MMR

Six Flags Inc. NYSE: SIXF

United States Steel Corp. NYSE: X

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