Harrah's Entertainment debt ends mixed; Smithfield bonds holding steady; Capmark treads water

By Stephanie N. Rotondo

Portland, Ore., Sept. 8 - The distressed debt market "definitely felt firmer" Tuesday, according to one trader, as players began returning from the holiday weekend.

Still, the day was characterized as "lackluster."

"It was the first day back from vacation," noted one source. "Nobody wanted to work that hard."

However, the source added that the day "started out like gangbusters," given a resurgence of new issues into the market. But by day's end, things had quieted down considerably.

Harrah's Entertainment Inc.'s capital structure finished the day mixed, as the company announced a new debt issue. The bonds closed mostly unchanged, but its bank debt was seen moving higher.

Meanwhile, a wider quarterly loss did little to upset Smithfield Foods Inc.'s notes. Traders reported the debt was holding steady, though trading was thin.

Capmark Financial Group Inc. also continued to tread water, despite a new downgrade. The company received downgrades in the previous week after announcing an asset put agreement.

Harrah's debt ends mixed

Harrah's Entertainment's bonds traded actively, according to traders, but there was little movement seen in the way of price.

A trader quoted the 10¾% notes due 2016 at 65 bid, 65.5 offered, versus levels earlier in the month around 64. The 5 5/8% notes due 2015 were seen trading around the 48 mark, but it was unclear if that was much changed.

"There was not much trading [in that issue] last week, so I'm not sure how that stacks up," the trader said, though he noted the last round-lot trades were in the low- to mid-40s.

The trader also saw the 10% notes due 2018 at 68.75 bid, 70.5 offered, which he called "about unchanged."

At another desk, the 5 5/8% notes were deemed unchanged at 47.5 bid, 48 offered. The trader called the 10¾% notes better by abut a point around 66, while the 5¾% notes due 2017 were "kind of where they were last week" at 44 bid, 45 offered.

"They were all active, they just weren't really moving [pricewise]," the trader remarked.

However, the casino operator's term loans gained some ground during the trading session as the company revealed that it will repay a portion of its term loan and revolving credit facility borrowings with proceeds from a bond offering, according to traders.

One trader had the term loan B-3 quoted at 81¾ bid, 82½ offered, up from Friday's levels of 79¾ bid, 80¾ offered.

And, a second trader had all of the company's term loan B's quoted at 81½ bid, 82½ offered, up from 80 bid, 80½ offered on Friday.

Harrah's said on Tuesday morning that it will issue $720 million of senior secured notes due 2017 in a private offering, and all proceeds will go toward the paydown of loans.

The notes will be issued under the same indenture governing the 11¼% senior secured notes due 2017 that were issued on June 10.

Harrah's is a Las Vegas-based provider of branded casino entertainment.

Smithfield holds its ground

Smithfield Foods' bonds were largely unchanged following the company's release of its first-quarter results.

A trader said the debt was "basically unchanged" and that "a very small amount traded." He pegged the 7% notes due 2011 at 94 bid, 95 offered.

"They were quoted lower at the start, but they didn't trade lower," he said.

The 7¾% notes due 2013 were "maybe 1 point lower" at 81 bid, 82 offered and the 7¾% notes due 2017 remained in the low-70s.

For its first quarter of fiscal 2010, Smithfield posted a wider loss of $107.7 million, or $0.75 per share, compared with a loss of $29.1 million, or $0.22 per share, the year before.

The loss was due in part to pre-tax impairment charges of $34.1 million and pre-tax debt extinguishment charges of $7.4 million.

Revenues dropped almost 14% to $2.72 billion from $3.14 billion. The decline in revenue was attributed to a decrease in volumes, lower pork prices and currency fluctuations.

"This first quarter loss reflects the continuing adverse business environment in the hog production segment of the company's operations," said C. Larry Pope, president and chief executive officer, in the earnings release.

"While raising costs have continued to decline and the pork processing segment continues to deliver strong profits, they were not sufficient to offset the negative impact of low hog prices on the hog production business. The sharply lower hog prices reflect the impact of the A(H1N1) outbreak at the end of the prior quarter and softer export demand."

"On the financing front, a new $1 billion asset backed lending credit facility, together with a new $200 million term loan and our July and August notes offerings, totaling $850 million, have positioned us to retire all near term debt maturities, repay our revolving credit facilities and further reduce our exposure to financial covenant risks, while maintaining ample liquidity," Pope added.

"These steps have strengthened our balance sheet and helped position us to better weather the current economic environment."

Capmark treading water

Capmark Financial Group's bonds remained steady after Fitch Ratings cut the financial services company to C from B-.

One trader said the bonds were "still around 20, it looks unchanged." Another market source also placed the debt at 20.

Like Standard & Poor's and Moody's Investors Service - which had downgraded Capmark last week - Fitch said the rating slash was due to the company's recent $1.6 billion loss, as well as Capmark's newly inked asset put agreement with a Berkshire Hathaway Inc. subsidiary.

Elsewhere in the financial arena, a trader said American International Group Inc.'s 8.175% bonds due 2058 "traded several times today," but were lower than those previous levels, apparently ignoring potential good news - a possible buyer for AIG's Taiwan unit reportedly put in a larger-than-expected bid for that division - to instead follow its shares lower, after they were downgraded by Credit Suisse.

He saw the bonds get as good as 45.5 before going out around 44, while last week, "they were a little higher, actually," reaching 46.75 bid on Thursday before going out that session at 46.25, "so today, they were a little weaker, despite that news."

He noted that that the company's New York Stock Exchange-traded shares, which had closed on Friday at $40.05, opened Tuesday at 39 and then "traded down all day after that," falling "relatively quickly" to the $36.50 range on news that Credit Suisse had cut the shares to "underperform" from "neutral previously" and finally going out at $35.85, down $4.20, or 10.49%. Volume of 40.7 million shares was about one-third greater than the usual turnover.

Sara Rosenberg and Paul Deckelman contributed to this article.

© 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.