ResCap, Countrywide 'down, down, down'; Trader: What is Apollo doing?; Idearc bonds slip

By Stephanie N. Rotondo

Portland, Ore., May 5 - Residential Capital LLC (ResCap) and Countrywide Financial Corp. continued to dominate the distressed arena Monday, though trading overall was relatively light.

"It was very lackluster," a trader said.

ResCap reversed its direction - at least in the corporate debt - after the company said it might not be able to meet upcoming debt maturities if it is unable to raise $600 million by the end of June. Market sources reported that the bonds ended the session unchanged to down 3 points.

ResCap's bank debt, however, was buoyed by news that the company's plan is to pay off its loan, using monies from the recently announced financing plan.

Elsewhere in the sector, Countrywide remained on the decline. The name was further weighed down by two research reports in the marketplace that speculated Bank of America could renegotiate its already discounted purchase price to an even lower figure.

After filing for Chapter 11 protection on Friday, Linens n'Things Inc.'s debt was actively traded. Come Monday, however, trading was thin.

Still, the market is fraught with questions and concerns about what will happen next and if bondholders are going to be shafted in the restructuring.

As the market waited for Idearc Inc. to report its first-quarter numbers on Tuesday, traders saw the phonebook publisher's debt fall. One trader speculated the dip came as expectations were that the figures would be weak.

ResCap, Countrywide 'down, down, down'

Residential Capital's bonds deteriorated during Monday's session, despite its attempts to refinance some of its debt.

One trader said the 6 3/8% notes due 2010 ended the day unchanged at 53.5 bid, 54.5 offered, noting that "not enough traded to really change" the price.

Another source, however, saw the bonds take a beating after the company said it might not meet upcoming debt obligations if its tender and exchange offers do not go well. The source pegged the 8 7/8% notes due 2015 down 3 points at 52 bid.

Elsewhere, the floating-rate notes coming due in June slipped 1 point to 96 bid, 96.5 offered.

Another trader called the 6 1/8% bonds coming due in November down 3 points at 86 bid, 87 offered and the 6 7/8% notes due 2015 also down 3 points at 51 bid, 51.5 offered. He saw ResCap parent GMAC LLC's 8% bonds due 2031 down 1 point at 77,5 bid, 79 offered.

At another desk, a trader saw ResCap's 6½% notes due 2013 down about 4 points at 51 bid, 53 offered.

On Monday, ResCap said it needed to secure $600 million in funds to pay the upcoming maturities. In an effort to do so, the company is looking to exchange or buy back - at 80 cents on the dollar - $14 billion in debt, from the 2008 maturities on up to the 2015 paper. ResCap is also looking to its parent company to help fund the debt restructuring with a $3.5 billion credit line.

"There is a significant risk that we will not be able to meet our debt service obligations, be unable to meet certain financial covenants in our credit facilities, and be in a negative liquidity position in June 2008," the company said in a filing with Securities and Exchange Commission.

ResCap loan strengthens

On the other side of the company's debt structure, ResCap's term loan was once again trading up as the company confirmed peoples' suspicions that the loan would be repaid in connection with the recently announced financing plans, according to traders.

The term loan was quoted at 95½ bid, 97½ offered, up from 94 bid, 96 offered on Friday and from 90 bid, 92 offered on Thursday, traders said.

In the 8-K filed Monday, ResCap said that it will be repaying its term loan maturing in July and replacing its $875 million 364-day revolver and its $875 million three-year revolver.

The funds for the refinancing will come from a $3.5 billion first-lien revolving senior secured credit facility that is being negotiated with GMAC as the lender.

The revolver will also be used to fund the cash required for the note exchange and tender offers that were announced on Friday.

Pricing on the revolver is expected to be Libor plus 275 basis points, and the company is expected to pay an upfront fee of 50 bps, the filing said.

Covenants include a minimum cash balance and a minimum consolidated tangible net worth.

The company's recently announced proposed cash tender and exchange offers for any and all of its U.S. dollar equivalent $12.8 billion outstanding notes is a condition for obtaining the revolver.

In the offers, ResCap will offer to issue new 8.5% senior secured guaranteed notes due 2010 in exchange for existing 2008 and 2009 notes, and new 9.625% junior secured guaranteed notes due 2015 in exchange for existing 2010 through 2015 notes.

In addition, holders participating in the exchange offers will be able to elect to receive cash in place of the new notes that they would otherwise receive under a modified Dutch auction.

The company also plans on beginning a cash tender offer for any and all of its outstanding approximately $1.199 billion floating-rate notes due June 9.

The revolver will mature on the earlier of May 1, 2010 if the offers are completed in a manner satisfactory to the lender, otherwise March 31, 2009, and the date on which the maturity of the new notes issued in connection with the previously announced tender offers is accelerated due to an event of default.

When ResCap initially proposed the exchange last week, investors responded by pushing the bonds higher. Still, some where not as keen on the idea, which prompted Fitch Ratings, Moody's Investors Service and Standard & Poor's to downgrade the Bloomington, Minn.-based mortgage lender. Parent GMAC also saw its ratings cut as well, as its exposure to its floundering offspring continues to build up.

Meanwhile, Countrywide Financial's bonds went "down, down, down," as one trader put it. The bonds began to decline on Friday after Bank of America - which is planning on purchasing the largest U.S. mortgage lender at a significant discount - said it might not guarantee all of the company's debt. That disclosure led to Countrywide's rating being slashed to junk by S&P.

But the bonds remained shaky Monday after two equity analysts issued negative reports on the company, going so far as to say that Bank of America might renegotiate its already low purchase price.

A source saw the Calabasas, Calif.-based company's 3¼% notes coming due later this month fall about half a point to around 99, while the 6% notes due 2035 took an 8.5-point hit to close near 62.

A trader saw the 6¼% notes due 2016 trading down several points at 84 bid, 86 offered and saw the company's 3¼% notes at 98.5 bid, 99.5 offered, down from recent levels at 99 bid, par offered - but he said the latter issue was "probably bouncing right back" because everything looks good in terms of the Bank of America deal - and the fact that the bonds will likely mature before anything definitive happens anyway.

At another desk, a trader saw both series of bonds ending unchanged - the 3¼% notes at 99 bid, 99.75 offered and the 6¼% notes at 83 bid, 86 offered - after each having been lower in intra-day trading - the 3¼% notes by half a point and the 6¼% notes by 2 points - "so there was a little rebound in the afternoon for both of those."

On the equity side, Countrywide's stock slipped 62 cents, or 10.37%, to $5.36, up from its low of $4.95, but down from its high of $5.54.

Trader: What is Apollo doing?

After trading quite actively on Friday, there was very little follow through in Linens n'Things debt come Monday.

A trader said the floating-rate notes due 2014 were "very inactive, price wise," gaining half a point to 36 bid, 36.5 offered flat, though on "very few trades."

The trader said that now the big question is, "What is Apollo doing?"

Another source saw the notes at 36 bid, 37 offered, around the levels to which they fell Friday on the company's bankruptcy news.

In recent weeks, Linens' bonds have steadily moved up and some market players were speculating that Apollo Management - which purchased the retailer in a leveraged buyout in 2006 - was buying up as much of the company's debt as it could. Traders opined that Apollo wanted the bonds in an effort to have the upper hand in a restructuring.

And, as Linens is looking to borrow $700 million to pay off some of its older bank debt, there are some concerns that noteholders might get left out.

"If Apollo is buying all the bonds they can find, are they trying to screw the bondholders in favor of the equity?" a trader asked.

"It's a messy situation," he continued. "Nobody can figure out why these bonds are trading in the mid-30s."

Linens n'Things is a Clifton, N.J.-based home decor and accessories retailer.

Idearc bonds slip

Poor expectations regarding the upcoming first-quarter figures could be what drove Idearc's bonds lower, a trader said.

The trader quoted the 8% notes due 2015 at 64 bid, 65 offered, compared to 66 bid, 66.5 offered on Friday.

"It could be on expectations," he said, as the company is slated to release its financials on Tuesday. The trader also noted it could be on the back of an 8-K filed late Friday. "There was nothing fresh today that would have pushed them down."

Another source placed the bonds down 1.5 points to 64.5 bid. Yet another source pegged the bonds down 2 points at 64 bid, 66 offered.

Meanwhile, Idearc's term loan was a touch softer on the bid side. The term loan was quoted at 81¾ bid, 82¾ offered, compared to Friday's levels of 81 7/8 bid, 82 5/8 offered, the trader said.

Idearc held its annual stockholders meeting on Thursday. A conference call to discuss the first-quarter results will be held at 10 a.m. ET on Tuesday.

Idearc is a Dallas-based publisher on online and phonebook directories.

Elsewhere in the sector, Dex Media's 8% notes due 2013 fell half a point to 76 bid.

Star Tribune Co.'s first-lien term loan held steady after news emerged that the company hired an adviser, while denying rumors of a possible bankruptcy filing, according to a trader.

The first-lien term loan was quoted at 56 bid, 57 offered, unchanged from Friday's levels, the trader said.

Talk is that Star Tribune hired the Blackstone Group to evaluate its finances and that the company is saying that even with all its debt problems, it is not near bankruptcy, the trader said.

"It's not really new news that there's potential for bankruptcy," the trader added.

Star Tribune is a Minneapolis-based information provider and includes the Star Tribune newspaper, StarTribune.com and other print and digital products and services.

Broad market mixed

A trader said Harrah's Operating's 10¾% notes due 2016 "continue to ratchet up and hold their gains," in somewhat active trading. The trader quoted the bonds at 86.75 bid, 87 offered.

Another trader saw Hovnanian Enterprises Inc.'s bonds "up a couple of points" as the company released improved cash-flow guidance, quoting the 6¼% notes due 2016 and the 6 3/8% notes due 2014 each at 72 bid, 74 offered. Another market source saw the latter bonds at 73 bid, up 2.5 points, while the 61/4s were at 72.625, up 1 5/8 points.

He also saw Beazer Homes USA Inc.'s 8 5/8% notes due 2011 down 1 point at 88 while Standard Pacific Corp.'s 7% notes due 2015 were up 2 points at 75 bid, 77 offered.

Swift Transportation Co. Inc.'s 12½% notes due 2017 were up 3 points at 33 bid, 35 offered.

Sea Containers Ltd.'s notes were "up a couple of points," a trader said, at 49 bid, 51 offered, continuing to ride the momentum of last week's news of a settlement of Sea Containers' litigation with General Electric Capital Corp. over a joint cargo ship venture between the two companies. He thought there were "better buyers right at the end of the day."

Neff Corp.'s 10% notes due 2015 were little changed at 45 bid, 50 offered, while Quebecor World's bonds were likewise unchanged at 42 bid.

Sara Rosenberg and Paul Deckelman contributed to this article.

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