Nortel bonds drop; Freescale slips on cost cuts; retail, casino sectors fall; Masonite debt lower

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Jan. 14 - Nortel Networks Corp. was the "big news" Wednesday, in the words of one market player, as the company's bankruptcy filing resulted in at least a 3-point drop in its bonds.

The debt traded in high volume, traders reported. Despite the negative reaction to the news, many market sources were not entirely shocked by the filing. Still, questions remain about whether the company will be able to sell some assets.

Meanwhile, Freescale Semiconductors Inc. announced another round of cost-saving measures, including salary and hour cuts. As a result, the company's debt declined about 3 points, though traders remarked that activity was not heavy.

A negative market tone coupled with new retail data put pressure on consumer-linked sectors. OSI Restaurant Partners LLC, Claire's Stores Inc. and Michael's Stores Inc. all saw their term loans lose ground, while Neiman Marcus Group Inc.'s bonds dropped anywhere from 1 point to 3 points. Casinos were also generally heavier following the Census Bureau's report.

Masonite International Inc.'s bank debt reacted negatively to a lender call held Tuesday, sources said. The loan ended about 6 points weaker.

Nortel files, bonds drop

Nortel Networks' Chapter 11 filing was the "big news," a trader said, sending the company's debt down as much as 5 points on the day.

The trader quoted the floating-rate notes due 2011 and the 10 1/8% notes due 2013 at 19 bid, 20 offered, down 3 to 4 points. He noted that the bonds had recovered from their lows around "15-ish."

Another trader called Nortel the day's "big trader." He saw about $70 million of the floating-rate notes trade around 19, calling that 3½ points lower. The 10¾% notes due 2016 dropped the most of the issues, falling about 5 points also to around 19, with $35 million changing hands. About $30 million of the 10 1/8% notes traded around the 19 mark.

The trader also noted that the bonds were trading flat.

Nortel and most of its subsidiaries filed for bankruptcy Wednesday, just one day before a $100 million interest payment came due. Market players have been speculating for weeks that the telephone equipment manufacturer would be forced into Chapter 11 if it was unable to make its coupon.

"Nortel filed for bankruptcy in Delaware, answering the question of whether it would make $100 million of coupon payments due tomorrow," Gimme Credit analyst Kim Noland wrote in an afternoon comment. "We had predicted that the company might decide to preserve its remaining cash to assist in a restructuring given its seeming inability to sell its Metro Ethernet subsidiary for a good price."

The Toronto-based company attributed its decision to file to a credit crunch and declining sales. According to court papers, Nortel has about $6.3 billion in debt and more than 25,000 creditors as of Sept. 20.

"The global financial crisis and recession have compounded Nortel's financial challenges," the company said in a statement. "This process will allow Nortel to deal decisively with its cost and debt burden, to effectively restructure its operations and to narrow its strategic focus in an effective and timely manner."

Now, the market is waiting to see if Nortel will indeed be able to sell some assets as it goes through the restructuring process.

On the news, Standard & Poor's cut Nortel's credit rating to D from B-.

Freescale paper slips

Elsewhere in the world of Technology, Freescale Semiconductors announced that it would cut executive salaries and employee hours as it also struggles with a decrease in demand.

The news resulted in about a 3-point loss in the company's debt, though traders said the bonds were not particularly active.

A trader placed the 8 7/8% notes due 2014 around 40, calling it 4 points weaker, while another saw the bonds only 3 points softer at 40 bid, 41 offered.

The Austin, Texas-based chipmaker will give workers five unpaid days of time off in the first and second quarters, along with its salary cuts for executives. The company also plans to freeze salary increases and promotions and will temporarily stop matching 401(k) contributions.

The recent cuts are on top of a 10% global workforce reduction Freescale announced in October 2008. Those cuts are expected to include about 2,400 jobs and a $400 million decrease in annual spending.

Retail, casino sectors fall

The cash market in general was weaker on Wednesday, helped along by poor December retail results, and with the heaviness, names like OSI Restaurant Partners, Claire's Stores and Michael's Stores all came under pressure, according to a trader.

OSI Restaurant, a Tampa, Fla., casual dining restaurant company, saw its term loan quoted at 45 bid, 46 offered, down a point on the day, the trader said.

Claire's, a Pembroke Pines, Fla.-based specialty retailer offering value-priced jewelry and accessories, saw its term loan quoted at 38½ bid, 39 offered, also down a point, the trader continued.

And, Michaels, an Irving, Texas, specialty retailer of arts, crafts, framing, floral, wall decor and seasonal merchandise for the hobbyist and do-it-yourself home decorator, saw its term loan quoted at 58½ bid, 59½ offered, down about a point as well.

There "has been some pressure in retail names. Hard to say whether it's specific to that sector versus a general fade today. More general market malaise again, but [retail results] is definitely part of the bearishness," the trader remarked.

Meanwhile, retail bonds also came under pressure.

A trader said Neiman Marcus' 10 3/8% notes due 2015 fell to 47 bid, 48 offered, a point lower than Tuesday. But another trader deemed that 3 points lower.

Bon-Ton Stores Inc.'s 10¼% notes due 2014 "didn't really trade but were quoted lower," a trader said, at 17 bid, 18 offered. Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2015, also not very active, dropped to 34 bid, 35 offered from around 38 previously. Rite Aid Corp.'s 8 5/8% notes due 2015 were seen down nearly 3 points to 37 bid.

Sbarro Inc.'s 10 3/8% notes due 2015, however, gained 5 points to close around 61 bid.

But retailers were not the only ones hurt by the dismal sales data. One trader speculated that the report also weighed on the gaming sector.

The trader saw Wynn Las Vegas LLC's 6 5/8% notes due 2014 slip more than 2 points to around 76, while MGM Mirage's 8½% notes due 2010 fell 1.5 points to 85. MGM's 7 5/8% notes due 2017 were also lighter - by about 3 points - at 64.

On Wednesday, the U.S. Census Bureau announced advance estimates of U.S. retail and food services sales for December, which came out worse than was expected.

For the month of December, U.S. retail and food services sales were $343.2 billion, a decrease of 2.7% from the previous month and 9.8% below December 2007.

Total sales for the 12 months of 2008 were down 0.1% from 2007.

And, total sales for the October through December 2008 period were down 7.7% from the same period a year ago.

Masonite loan declines

Masonite International's term loan lost some ground in trading as investors reacted to a lender call that the company participated in during the previous session, according to a trader.

The term loan was quoted at 38 bid, 39 offered, down from previous levels of 44 bid, 45 offered, the trader said.

The trader explained that the lender call was held to discuss future cash need and projections, and the topic of how much debtor-in-possession financing the company would need should it file for bankruptcy projection also came up.

Currently, Masonite is operating under a forbearance agreement with its credit facility lenders, but that agreement is set to expire on Jan. 15.

The forbearance agreement applies to the non-compliance of covenants related to EBITDA metrics as of June 30 and Sept. 30.

In addition, the company has a forbearance agreement regarding a default for failing to make an Oct. 15 interest payment on its senior subordinated notes due 2015 that expires on Jan. 31.

During the forbearance periods, the company is trying to develop an appropriate capital structure to support its long-term strategic plan and business objectives.

Masonite is a Mississauga, Ont.-based manufacturer of residential and commercial doors.

Broad market retreats

General Motors Corp. and Ford Motor Co. both continued to slide lower during Wednesday's trading session, also in sympathy with the general cash market, according to a trader.

General Motors' term loan was quoted at 45 bid, 50 offered, down from 47 bid, 52 offered on Tuesday, the trader said.

And, Ford's term loan was quoted at 36 bid, 39 offered, down from 38 bid, 40 offered, the trader continued.

Elsewhere, Freeport-McMoRan Copper & Gold Inc.'s 8 3/8% notes due 2017 dipped 2 to 3 points to 79 bid, 80 offered.

Washington Mutual Inc.'s bonds were "a smidge weaker, but not too much," a trader said. He saw the bank seniors, such as the floating-rate notes coming due May 1, recovering some after losing in the previous session, ending at 23 bid, 24 offered. However, the holding company seniors, like the 4% notes due Thursday, fell slightly to 73 bid, 73.5 offered.

First Data Corp.'s 9 7/8% notes due 2015 ended down a deuce at 60.

One trader said he saw few names moving upward during the session. Realogy Corp. and Dynegy Inc., however, managed to buck the overall market trend, he noted. Realogy's 10½% notes due 2014 finished half a point better at 21.5, while Dynegy's 7¾% notes due 2019 gained 1¼ points to close at 79.25.

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