Plains Exploration, BWAY price deals; GM, Hertz skid; MGM seen in CenterCity talks, leads gaming higher

By Paul Deckelman and Paul A. Harris

New York, Apr. 1 - April Fool's Day came and went Wednesday, with nary an untoward incident worth mentioning. The much-feared Conficker computer worm - which by some accounts was supposed to rise up and seize control of systems worldwide - ended up having about as much punch to it as Y2K did - although some of the more cautious computer experts refused to take a victory lap just yet, choosing to warily remain on guard. There were a few internet pranks rolled out, including the 188-year-old British newspaper The Guardian saying it would get in the vanguard of the 21st century and become a "Twitter-only publication," but nothing to match last year's much-publicized mass "Rickrolling," when all the featured items on You Tube and a number of other sites turned out to link to the ubiquitous music video for Rick Astley's 1980s disco hit "Never Gonna Give You Up." The junk bond market did pull its own minor switcheroo, though, surprising some participants by not trading up in tandem with equities, which kicked off the year's second quarter with a powerful stock surge.

One of the names towing Junkbondland lower was General Motors Corp., whose bonds were seen continuing to erode down to levels between 10 and 12 amid widespread media speculation on what form the underperforming auto company's now widely-expected bankruptcy filing will take, even though the White House was denying a Bloomberg news report saying president Barack Obama believes that a pre-packaged bankruptcy is the most likely way for GM to return to being a competitive carmaker.

Another loser - for the first time in almost two weeks - was Hertz Corp., whose continued advance was halted after Standard & Poor's downgraded the Parsippany, N.J.-based car-rental leader's ratings, citing a weakening in the company's financial profile that the agency thinks will continue through at least late this year.

On the upside, gaming names looked like a winning bet, led by the recently beleaguered MGM Mirage, which said that it should be able to make the required payments on its massive CityCenter development project - and which was reported by The Wall Street Journal late in the day to be in talks with real estate operator Colony Capital LLC on the latter possibly making an investment to save that troubled project.

In the primary arena, Plains Exploration & Development Co. successfully brought a $200 million tranche of seven-year notes to market on Wednesday, as an add-on to the issue which the Houston-based independent oil and gas exploration and production company sold about a month ago. Later in the session, BWAY Corp. priced an upsized offering of five-year notes - making Wednesday the first day since early March that as many as two deals got priced in the same session. Both issues priced at steep discounts to par; the new Plains Exploration bonds firmed modestly in the aftermarket.

BWAY comes tight to talk

BWAY Corp. raised $200 million by pricing an issue of 10% five-year senior subordinated notes (B3/B-) at 87.513 to yield 13½% on Wednesday.

The coupon was priced on top of the coupon talk, while the yield was priced at the tight end of the 13½% to 13¾% yield talk.

A lot of the investors who played the deal were already involved in the name, informed sources conceded.

However new investors came into the book late in the marketing process, according to a syndicate source who spotted the notes trading at 89 bid, versus the 87.513 issue price, shortly after the deal cleared for trading.

Deutsche Bank Securities and Goldman Sachs were joint bookrunners.

Proceeds will be used to redeem $200 million of the Atlanta-based can-maker's 10% senior subordinated notes due Oct. 15, 2010.

Plains prices club-style

Elsewhere Wednesday Plains Exploration & Production priced a $200 million add-on to its recently minted 10% senior notes due March 1, 2016 (B1/BB).

The add-on notes priced at 92.969 to yield 11½%

The deal, which was led by bookrunner Morgan Stanley, came on top of the 11½% price talk.

The add-on was done club-style, with a handful of accounts taking down the notes, an informed source said, adding that reverse inquiry was a factor.

On March 3 the company priced the original $365 million issue at 92.373 to yield 11 5/8%. That deal, which was led by JP Morgan, was downsized from $500 million, so it was no surprise that the company was looking for capital, the source added.

The add-on notes are fungible with the existing issue. However the yield on the notes priced Wednesday represents 12.5 basis points of interest rate savings relative to the original issue.

Proceeds from Wednesday's deal will be used for general corporate purposes, including future capital expenditures.

Odebrecht slated for Thursday

BWAY and Plains Exploration generated the highest amount of deal volume the new issue market has seen since March 6, when Digicel Group, Ltd. and Anixter International Inc. both priced junk issues (the last day on which the primary saw a greater amount of volume was Feb. 11: HCA Inc., Forest Oil Corp. and Chesapeake Energy Corp.).

In the wake of BWAY and Plains, no U.S. issuers are formally marketing deals, sources said on Wednesday.

However, Brazilian construction firm Odebrecht Finance Ltd. is expected to price $150 million of dollar-denominated Rule 144A five-year bonds (/BB/BB+) on Thursday, according to an investor who manages an emerging markets bond portfolio.

No price talk was available as Prospect News went to press.

Plains Exploration bonds firmer

When the new Plains Exploration 10% notes due 2016 were freed for secondary dealings, a trader saw them having moved up to 94 bid, 95 offered from the 92.969 price at which the company had priced those bonds earlier in the session. Another saw them bid in a 94-94.25 context.

That put them on a par with the existing $365 million of the notes, which had priced at 92.373 back on March 3, to yield 11 5/8%. A trader saw those existing bonds at 94 bid, off from 94.25 on Tuesday, with $6 million of the bonds traded.

The new BWAY 10% senior subordinated notes due 2014 came too late in the session for any aftermarket dealings.

Among other recently priced issues, a trader saw Arlington, Va.-based global electric producer AES Corp.'s 9¾% notes due 2016 at 94 bid, 94.5 offered, about the same level that the $535 million of the bonds - upsized from the originally planned $350 million - had held since pricing Monday at 93.98, to yield 11%.

Market indicators seen mostly easing

Back among established bonds, a trader saw the widely followed CDX Series 12 High Yield index of junk bond performance - which gained 1/8 point on Tuesday - unchanged on Wednesday at 70 5/8 bid, 71 offered.

The KDP High Yield Daily Index meantime declined by 13 bps to 53.03, although its yield decreased by 1 bp to 13.43%.

In the broader market, advancing issues fell back against decliners, trailing them by a five-to-four margin.

Overall market activity, measured by dollar-volume totals, fell 8% from the levels seen in Tuesday's session.

A trader said that he was surprised that Wednesday's market would have a downside bias on a day when equities were putting the troubles of the volatile first quarter behind them and starting the new second quarter off with a bang. The bellwether Dow Jones Industrial Average jumped 152.68 points, or 2.01%, to end at 7,761.60, while the S&P 500 index gained 1.66% and the broader Nasdaq composite market measure rose 1.51%

He said that the junk market was "very quiet, but yet on the heels of equities turning positive and moving into triple-digits [for gains], we should have a firm tone - but not based on the barometers."

Indeed, he saw Community Health Systems Inc.'s $3 billion of 8 7/8% notes due 2015 at 94.25 bid, off slightly from 94.5 offered on Tuesday, adding that he "never would have guessed that it would be lower - you'd think it would be unchanged to up a little." Some $37 million of the Franklin, Tenn.-based hospital operator's bonds changed hands, the most busily traded junk issue of the day.

He also saw other large, normally well-traded benchmark issues on the downside, including First Data Corp.'s $2 billion-plus of 9 7/8% notes due 2015, which dropped ¾ point to end at 58, on $13 million traded, while Aramark Corp.'s $1.25 billion of 8½% notes due 2015, down about ¼ point to 92.25, on $16 million traded.

Confirming the diagnosis of a less than robust market, the always busily traded Freeport-McMoRan Copper & Gold Corp. 8 3/8% notes due 2017 were about unchanged at 93.25 bid on $29 million traded - "a lot of bonds trading with no change."

And he saw GM's benchmark 8 3/8% notes due 2033 drop to 11.25 bid from 12.875 on Tuesday, on $30 million traded, making it the second most active bond issue after Community Health.

"So based on these most actives," he said, "we were lower - quietly lower."

GM deterioration continues

A second trader saw "a lot of activity" in General Motors, with "all of them converging to around 11-12," including the 8 3/8s.

GM, A third trader said, "was down a lot," pegging the '33s at 10.5 bid, 12.5 offered, well down from Tuesday's levels around 13 bid, 15 offered.

GM's shorter bonds were also falling victim, and the whole capital structure seemed to be coming together in that low-teens neighborhood. A trader saw the 8 3/8s and the company's 7.20% notes due 2011 "all trading around the same area," 10-13, which he saw as a 3-point loss.

A market source saw the GM 7 1/8% notes due 2013 down a full 4 points on the day at the 12 level, while its 8¼% notes due 2023 lost more than 2 points to end just under 11 bid.

The GM bonds - which had been trading above 20 bid on the benchmarks just a few days ago - continued to erode amid mounting speculation that the company will sooner or later find itself parked in bankruptcy court. Even though president Obama has given the troubled Detroit giant 60 days, or until June 1, to come up with a revised Viability Plan incorporating steeper cuts in both its labor costs and the amount of debt the company is lugging around than its original, rejected plan had called for, published reports indicate that government officials are leaning toward a pre-packaged Chapter 11 filing for the company. Bloomberg News was reporting late Tuesday that this was Obama's preferred option, although the White House was denying this on Wednesday, calling the report inaccurate and still keeping alive the possibility of restructuring without a filing.

Other reports said that Washington - was leaning towards an effective breakup of the world's largest vehicle maker, with the relatively profitable operations like Cadillac and Chevrolet to be put into a "good" GM that would restructure relatively quickly and then emerge from bankruptcy better able to compete, while unprofitable operations, like its Hummer division, and other difficult assets, would remain sequestered in bankruptcy while they were sold, or failing that, wound down and ultimately closed.

However, skeptics were raising the alarm on Wednesday that with so many contending parties, including the holders of $27 billion of bonds and GM's labor unions, each balking at taking what it sees as too big a haircut to get the company back on its feet, the hoped-for "quick and surgical" controlled bankruptcy being talked about is likely to be anything but.

A more looming problem for GM, news reports said, is what to do about the $1 billion of 1½% convertible notes coming due on June 1, since the White House is said to have indicated that the government will not front GM the money to pay off those bonds. The possibility that the issue would not be paid off caused those bonds to fall $2.77 to $6.48, in Wednesday dealings.

GM investors were further discomfited by the news that the company's sales fell 45% in March from a year earlier.

Autos seen generally lower

With GM leading the way, a trader said, "all of the autos appeared to have dropped." He saw GM domestic arch-rival Ford Motor Co.'s 7.45% notes due 2031 down 2 points at 28 bid, 30 offered - a break from the pattern seen over the last few days, when the Ford bonds managed to remain unchanged to even higher on investor perceptions that the Number-Two carmaker is far more likely to survive without a bankruptcy filing than GM. Ford was seen also faltering on Wednesday on poor March sales numbers - down 41% from year-earlier levels.

Another trader saw Ford's 7.45s "really unchanged" around a 30-32 context, seeing "some" activity right around 30. He also saw its 7 3/8% notes coming due on Oct. 1 at 89 bid, 90 offered, "maybe one point lower, on not that much activity."

GMAC LLC's bonds were "a little lower," a trader said, and although he saw no activity in the oft-quoted GMAC 8% bonds due 2031, he did see more dealings in the GM auto-financing arm's shorter paper. He said the GMAC 7¾% notes due 2010 was "an active one," down a point on the day at 78 bid, 79 offered.

Among the parts makers, a trader said that Visteon Corp.'s bonds continued to trade "way in the low single-digits," with its 7% notes due 2014 in a range between 3 and 7, and its 8¼% notes due 2010 around 5 bid, "pretty much where they were."

The Van Buren Township, Mich.-based company filed its 10-K report late Tuesday, which included a "going concern" warning. Visteon said that its lenders had given it a temporary waiver on credit facility defaults, while it continues to negotiate with those creditors, as well as with its customers, including Detroit's traditional "Big Three" and some of the "transplant" manufacturers

Another market source saw the 81/4s fall to about the 5 mark from Tuesday's close around 10, although he noted that before those late trades lifted the bonds to that Tuesday close, they had already been around the 5 level. The source saw no dealings in the 7s, quoting them last traded around 8 and last traded in size around 5.

Hertz hurt by ratings downgrade

A trader saw Hertz Corp.'s 8 7/8% notes due 2014 "giving up some of their recent gains," with the bonds falling to a round-lot level of 60 from 61 previously, on a busy $25 million of turnover.

Another trader called Hertz "down a touch" at 58 bid, 60 offered, which he called a 1½ point fall. Still another said that there was "a lot of volume" in the issue, which he saw ending at 59 bid, 60 offered, down a deuce, "with decent size traded."

The Hertz bonds had been gradually moving up to around the 60 level from the upper 40s for over a week, helped by indications the company is laying the groundwork for a $500 million term loan debt repurchase.

However, that upside ride came to an abrupt halt Wednesday after S&P lowered its long-term corporate credit rating on the company to B from BB- previously, with a negative outlook. The agency also cut its issue-level rating on the company's unsecured notes to CCC+ from B + before.

"We expect the company's earnings and cash flow to remain under pressure in 2009 as a result of reduced demand and the effect of a weak (albeit recently somewhat improved) used car market, which will likely result in continued higher-than-expected depreciation expense," Standard & Poor's credit analyst Betsy Snyder wrote in the downgrade announcement.

"In addition, we are concerned about the company's ability to refinance a significant portion of its $6 billion of debt that matures through 2010. If it appears that the company will be unsuccessful, we would likely lower the ratings further," Snyder added.

MGM moves up

One of the few notable upsiders on Wednesday was MGM Mirage, with the Las Vegas-based casino giant's 6 5/8% notes due 2015 seen a point better on the day at 36.5 bid.

A market source at another desk located MGM's 6% notes coming due on Oct. 1 at 56 bid, up 2 points on the day. A second source saw them improve to 56.5 bid.

However, a trader saw its 13% secured notes due 2013 unchanged at 75 bid, 78 offered.

MGM's New York Stock Exchange-traded shares meantime rose 30 cents, or 12.88% to $2.63%, on volume of 7 million shares, about 20% more than usual.

The bonds had gotten battered around on investor fears for the viability of MGM's gigantic and costly CityCenter development joint-venture project on the Las Vegas Strip - there were even fears that the project could be plunged into bankruptcy over funding problems, which proved unfounded, at least for the moment, after MGM made a scheduled loan payment.

But they appeared to gain some footing Wednesday, along with the shares, as a company executive was quoted in news stories saying that MGM is "ready, willing and able to make the payments that are required of us" under the company's agreement with 50-50 partner Dubai World. The latter last week sued MGM, claiming the company's shaky financial status was endangering CityCenter's viability.

The funding problems for the nearly $10 billion, 67-acre development of casino resorts, residential buildings and retail space could be solved if reported talks between MGM and Dubai World, on the one hand, and Colony Capital LLC on the other, bear fruit. The Wall Street Journal reported late Wednesday that Los Angeles-based Colony - which already has gaming and hotel interests in Las Vegas, Atlantic City and Mississippi -- was in talks with the MGM and Dubai World on possibly taking a stake in the project. The Journal quoted a source as characterizing the discussions as "sporadic, but fairly recent [and] wide-ranging," and further said that Colony was also interested in "just brokering a strained relationship" between Dubai World and MGM Mirage.

Macy's, Penney mixed after downgrade

A trader saw Macy's Inc,. and J.C. Penney Co.'s bonds mixed after Moody's Investors Service cut the bonds of both department store operators to junk status.

He quoted Penney's 8% notes due 2010 at par bid, up from 99.625, on $9 million traded, while its 6 3/8% bonds due 2036 dipped to 62 bid from 64 previously, on $6 million of volume.

Moody's dropped the Plano, Tex.-based retailer's notes to Ba1 from Baa3 previously. Noting the fact that Penney had been a high yield issue several years ago before it was raised to high-grade status on better performance, he sardonically noted: "Welcome back."

Meanwhile, Cincinnati-based Macy's 5.35% notes due 2012 eased to 78.375 bid from 78.875, on $15 million traded, while its 5.90% notes due 2016 firmed to 64 bid from 63.5, with $10 million traded. Macy's 7 7/8% notes due 2015 gained 2 points to 76 bid, on $6 million of volume.

WaMu continues to ease

Among the financials, a trader said that Washington Mutual Inc.'s senior holding company notes, like its 5¼% notes due 2017, were "pretty much unchanged' at 80 bid, 82 offered.

"The big one that's been falling over the last couple of days," he said, has been the junior holding company notes such as the 8¼% notes due 2010, which have fallen to the high 40s - around 47-49 - from levels in the 50s "just two days ago," and from the 60s a week ago.

He said the failed Seattle-based thrift operator's junior holdco paper was sliding on investor fears about "new possible litigation costs" stemming from JP Morgan Chase & Co.'s recently initiated lawsuit against WaMu and the Federal Deposit Insurance Corp., seeking to hang on to the assets JP Morgan acquired last year with the collapse of WaMu, as well as "the idea that it might take longer to pay off the bonds."

Another trader saw the senior holdco paper at 78-79, with the subordinated junior holdco paper at 51-53 and the senior bonds of its Washington Mutual Bank unit, like the floating-rate notes coming due on May 1, in a 26-28 context. He said that those levels "sound like where they've been," and added that there's been "not a lot of volume."

A trader saw "no activity" in Thornburg Mortgage Inc.'s 8% notes due 2013, mired in the low single-digits, as investors pretty much ignored news the Santa Fe, N.M.-based jumbo mortgage provider plans to file for Chapter 11 and ultimately, to wind down its business.

However, he warned that "we're going to see more filings, like Thornburg's - how can we not see more, with all that is going on?"

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