MGM bonds slip on news; Nortel notes improve post-numbers; WaMu paper returns some prior gains

By Stephanie N. Rotondo

Portland, Ore., March 15 - Distressed debt was "slightly" softer during Monday trading, according to a trader.

While lower, it was "not like stuff was flying out of the woodwork," he added.

MGM Mirage's bonds fell in trading as investors reacted to bad news that came out before the weekend. MGM said on Friday that it had agreed to sell its stake in its Atlantic City joint venture, as well as that it had been served a claim relating to its CityCenter project.

Bucking the downward trend, Nortel Networks Ltd.'s notes gained some ground following the release of the company's improved fourth-quarter results. However, trades noted that activity was light in the name.

Washington Mutual Inc.'s senior paper dropped some weight after gaining ground in Friday's session. The bonds had previously moved up on word of a settlement between the bankrupt Seattle thrift's new parent company and the Federal Deposit Insurance Corp.

MGM bonds slip on news

Negative news abounded for casino operator MGM Mirage during Monday's session, resulting in as much as a 2-point loss for the company's bonds.

A trader called the 5 7/8% notes due 2014 down a deuce at 833/4.

Another trader pegged the issue at 83½ bid, 83¾ offered, though he called that down 1 point. He also saw the 6¾% notes due 2012 falling to 93½ bid, 94 offered. That compared with levels around "95-ish towards the end of last week."

And, the trader said the 7 5/8% notes due 2017 were quoted wide at 81 bid, 83 offered, down from bids around "83-ish."

Yet another source saw the 6 5/8% notes due 2015 declining about a point to end at 821/2.

Late Friday, MGM announced that is had reached a settlement agreement with the New Jersey Division of Gaming Enforcement to sell off its 50% in the Borgata Hotel Casino & Spa and related leased land in Atlantic City.

MGM joint venture partner

The Division of Gaming Enforcement had previously recommended to New Jersey's Casino Control Commission that MGM's "joint venture partner [Pansy Ho] in Macau be found unsuitable and the company be directed to disengage itself from any business association with this partner," MGM said in a press release. The DGE asserted this claim as Ho's father, Stanley Ho, was linked to Asian organized crime. However, neither Ho nor her father has ever been charged with such crimes.

"We have the utmost respect for the DGE but disagree with its assessment of our partner in Macau," said Jim Murren, chairman and chief executive officer, in the release. "Regulators in other jurisdictions in which we operate casinos have thoroughly considered this matter and all of them have either determined that the relationship is appropriate or have decided that further action is not necessary."

"Since the DGE takes a different view, we believe that the best course of action for our company and its shareholders is to settle this matter and move forward with the compelling growth opportunities we have in Macau."

Murren also noted that the Borgata - which is also owned by Boyd Gaming Corp. - "is the most successful property in the Atlantic City marketplace, and we expect there will be strong interest in this valuable asset."

CityCenter claim

In addition to the Borgata divesture, MGM also said late Friday that it had received a claim against its CityCenter project in Las Vegas from an unnamed contractor.

According to a regulatory filing, the main contractor of the project is filing a lien against MGM and its joint venture partner, Dubai World. The contractor is alleging the partners have failed to pay $492 million in construction bills.

"I imagine they would be [served a claim]," quipped one trader.

"CityCenter believes that it has significant claims against the general contractor related to its role in connection with the Harmon Hotel construction, which construction was halted by local building inspectors due to construction defects," MGM said in an 8-K filed Friday.

"While CityCenter's investigation into the general contractor's potential liability regarding the Harmon Hotel is continuing, and there can be no assurance at this point as to the ultimate outcome of any action CityCenter may undertake, CityCenter believes that the amount of its claim against the general contractor may exceed the amount of CityCenter's estimated remaining liability to the general contractor."

Also in the gaming sector, Harrah's Operating Co. Inc.'s 10% notes due 2018 improved by about a point, a trader said, to end around 81.

Nortel notes improve post-numbers

Nortel Networks also had news out late Friday, as the Toronto-based company released its fourth-quarter results.

A trader said the company's bonds were "definitely better," seeing the 10 1/8% notes due 2013 and the 10¾% notes due 2016 "probably up half a point" around 791/2.

Another trader echoed the 79½ level, but deemed that better for the 10¾% notes and unchanged for the 10 1/8% notes.

Due to asset sales - of which there were many - Nortel swung to a profit of $1.78 billion, or $3.34 per share, in the fourth quarter of 2009. That compared to a net loss of $2.14 billion, or $1.02 per share, for the same quarter of 2008.

Revenue, however, fell to $794 million from $2.07 billion in the year-ago period.

WaMu paper returns some gains

Washington Mutual's paper gave back some gains it incurred Friday on news that the company had reached a settlement with its new owner, JPMorgan Chase & Co, and the FDIC.

One trader said the bank's senior paper - such as the 5.55% notes due 2010 - fell 1½ to 2 points during the session, closing around 431/2. Another trader pegged the seniors at 43 bid, 44 offered, "maybe a point lower" on the day.

WaMu, JPMorgan and the Federal Deposit Insurance Corp. came to terms on Friday regarding a dispute over several billion in assets. Under the terms of the settlement, JPMorgan will return $4 billion in disputed deposits to WaMu, in exchange for over $6 billion in other assets. The FDIC will receive $1.5 billion in federal tax refunds.

WaMu intends to use the funds to repay creditors.

Additionally, WaMu has agreed to drop a lawsuit regarding the role played by JPMorgan and the FDIC in its demise. Debtholders, however, still have the option of pursuing a case, which is already underway.

Seattle-based WaMu went under in September 2008. JPMorgan came to its rescue, paying $1.9 billion for the company's branches and deposits.

In the rest of the financial services space, Lehman Brothers Holdings Inc.'s benchmark 6 7/8% notes due 2018 were "pretty much in line" with Friday levels at 25 bid, 25½ offered, according to a trader. That steadiness came despite news over the weekend regarding an examiner's report regarding the demise of the company.

Lyondell launches loan

Lyondell Chemical Co. held a bank meeting on Monday with a 10:30 a.m. ET start time to kick off syndication on a proposed $2.75 billion credit facility, and in connection with the launch, price talk was announced, according to sources.

The $1 billion six-year senior secured term loan B is being talked in the Libor plus 425 basis points area with a 2% Libor floor, one source remarked, adding that the original issue discount is still to be determined.

And, the $1.75 billion ABL revolver is being talked at Libor plus 375 bps, a second source said.

Covenants under the term loan B include a maximum first-lien leverage ratio and a minimum interest coverage ratio.

UBS, Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, JPMorgan, Morgan Stanley and Wells Fargo are the joint bookrunners on the term loan B, and are asking for commitments by late in the week of March 22. Citigroup is the left lead on the ABL revolver.

Lyondell to repay debt

Proceeds from Lyondell's credit facility, $2.25 billion of 71/2-year senior secured notes, a new European securitization facility and a $2.8 billion rights offering will be used to repay and replace existing debt, including the company's debtor-in-possession facilities and an existing European securitization facility and to make related payments, when the company exits bankruptcy.

The company has entered into an equity commitment agreement with Apollo Management VII LP, Access Industries and Ares Corporate Opportunities Fund III LP to backstop the equity rights offering by purchasing any shares of common stock left over by senior creditors.

The hearing to confirm the company's plan of reorganization will begin on April 23.

Meanwhile, Lyondell's existing CAM was essentially unchanged at 72½ bid, 74 offered.

Lyondell is a U.S. subsidiary of LyondellBasell Industries AF SCA, a Netherlands-based polymer, petrochemicals and fuels company.

Sara Rosenberg and Paul Deckelman contributed to this article

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