New issues, crossovers hurt distressed; Blockbuster takes a breather; ILFC new issue pops

By Stephanie N. Rotondo

Portland, Ore., March 18 - The distressed debt market had a positive tone overall during Thursday trading.

However, traders noted that another big new-issue day continued to take focus away from the distressed arena.

Blockbuster Inc., for example, saw trading in its bonds decline, even after being the most actively traded name on Wednesday. The bonds were maintaining their Wednesday levels, for the most part.

Meanwhile, International Lease Finance Corp. was among those issuing new debt on Thursday. The aircraft leasing company's new bonds traded up right from the start, though they settled back some by the end of the day.

MGM Mirage received an upgrade on its liquidity rating from Moody's Investors Service. But that had little effect on the bonds, which closed the session unchanged.

New issues, crossovers hurting distressed

Lately, it seems that a glut of new bond issuance has taken away focus from distressed debt, leaving distressed bond traders to lament the lack of activity in that arena.

Such was the case Thursday, as Sallie Mae, Ball Corp. et al, launched their new issues to an eagerly awaiting marketplace.

But it's not just new issues that are dominating but also what market players call "crossover" paper, typically five-B rated debt.

"The bulk of the volume was either crossover bonds or new issues," a trader said.

"It was definitely a huge new issue day," another source said. "That seems to really be driving [the market].

"All five-B stuff is really the flavor," the source added.

The source opined that the reason for that was simply a matter of "that's where all the liquidity is."

Another trader speculated that the new issue/crossover-focus was due to a "situation where the Fed has promised to keep rates low," which means that, in theory, issuers can issue new debt at better terms.

Market focus debated

However, the lack of distressed debt interest is not because no one is playing.

"Everything was distressed a year ago," said a source. That resulted in new players entering the distressed arena, simply because there was not enough going on in higher-grade debt to play with.

Though that group has likely decreased in size since the economy has turned, the players are still there and - in the opinion of one trader - still waiting for things to shake out.

"Some things are working themselves out," the trader said, pointing to cases like Blockbuster, where a potential bankruptcy seems imminent.

But what is driving the distressed market is news or credit changes, traders believe. In a day such as Thursday, where the news was all about new issues, there was little to move things around.

There is good news, at least according to one trader.

"There is a much wider variety of accounts getting involved in stuff," the trader said, meaning that when there is an impetus - i.e., news or a credit change - there are more people to move bonds around.

Still, as the "market is overvalued," in the words of another trader, many distressed players are sitting on the sidelines, keeping an eye fixed on the calendar.

Blockbuster takes a breather

Activity in Blockbuster's bonds dropped dramatically after being the most active distressed credit during Wednesday's session.

A trader saw "just some odd lots" trading in the 9% notes due 2012, while the 11¾% notes due 2014 slipped half a point from the previous trading day to 73¼ bid, 73¾ offered.

Another trader said that "scraps" of the debt traded, pegging the 9% notes at 19½ bid, 20½ offered and the 11¾% notes at 74½ bid, 75½ offered.

On Wednesday, Blockbuster bonds were buzzing as the company announced it was considering a debt-for-equity swap in an effort to maximize its cash. The Dallas-based movie rental chain noted that it was in discussions with noteholders, as well as preferred shareholders, regarding such a deal.

However, the company noted that, should those talks fail, it could be forced into bankruptcy. And, even if the negotiations are successful, a pre-packaged bankruptcy could still be possible.

Following that news, Standard & Poor's dropped Blockbuster's rating to CC from CCC.

ILFC new issue pops

International Lease Finance - the aircraft leasing unit of insurance giant American International Group Inc. - launched its new $2 billion two-part issue, and the bonds traded up "right from the get-go," a trader said.

The trader said the 8 5/8% notes due 2015 and the 8¾% notes due 2017 initially traded up 3 to 4 points. However, they gave back about a point, ending around par.

Another trader quoted the notes at par ½ bid, 101 offered.

Proceeds from the note sale will be used to repay existing debt.

Another trader saw AIG's other bonds "staying better, at the higher levels from [Wednesday]. International Leasing did that big deal and so that moved everything else up. The fact that they could do it made everybody feel better about the rest of the bonds."

AIG's 5.05% notes due 2015 were up 1½ points at 93½ bid.

Elsewhere in the financial sector, a trader said that MBIA Inc.'s 14% surplus bonds due 2033 were "up again this week," moving up "another point or so" to around 70 bid, 72 offered, after the Armonk, N.Y.-based bond insurer's paper had traded up through the 60s the prior week.

He also saw CIT Group Inc.'s bonds "holding higher," with the New York-based commercial lender's 7% notes due 2017 up nearly 2 points at the 90½ bid level and its 7% notes due 2015 up more than a point to the 91½ neighborhood.

MGM Mirage bonds steady

MGM Mirage debt ended the day unchanged, according to a trader.

The trader placed the 7½% notes due 2016 and the 7 5/8% notes due 2017 around 83. Shorter paper, such as the 8½% notes due 2010 and the 8 3/8% notes due 2011, held in at levels between par and 101.

The 13% notes due 2013 meanwhile ended at 116½ bid, 117 offered.

On Thursday, Moody's Investors Service upped MGM's liquidity rating to SGL-3 from SGL-4. However, it affirmed all other ratings on the company.

The upgrade was due to the Las Vegas casino operator's recent announcement that it had extended its credit facility. The company also recently launched a new issue.

But Moody's also noted that "MGM still faces significant debt maturities over the next two years. Moody's expects the 2010 maturities to be covered by revolver availability, but that this availability will not be sufficient, in the absence of capital market transactions, to refinance the 2011 maturities."

Autos mostly firm

The automotive arena had an overall firm tone to it, traders reported.

A trader said that Ford Motor Co.'s 7.45% notes due 2031 were active - about $25 million to $30 million changed hands - and better at 92¾ bid, 93½ offered.

At another desk, a trader called Visteon Corp.'s 8¼% notes due 2010 and its 7% notes due 2014 "better by a couple of points" at 86 bid, 87 offered.

But Cooper-Standard Automotive Inc.'s 7% notes due 2012 bucked the trend, ending weaker around 115.

MGM Studios loan trades down

Metro-Goldwyn-Mayer Inc. (MGM Studios) saw its term loan edge lower during Thursday's trading hours as rumors were floating around that some expected bidders for the company have dropped out, according to traders.

The term loan was quoted by one trader at 51 bid, 51¾ offered, down from 53 bid, 54 offered, and by a second trader at 50½ bid, 51½ offered.

The entities that were heard to have opted not to bid for the company are Liberty Media Corp. and Elliott Management Corp.

Bids for the company are due on Friday.

Metro-Goldwyn-Mayer is a Los Angeles-based motion picture, television, home video and theatrical production and distribution company.

Sara Rosenberg and Paul Deckelman contributed to this article

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