Nov. 14 (Bloomberg) -- Realogy Corp. bonds tumbled after the owner of the Century 21 and Coldwell Banker brands said it's at risk of violating the terms of its bank loans and is offering to exchange about $1.1 billion of bonds at a discount for new debt.

Leon Black's buyout firm Apollo Management LP, which bought Realogy for $6.6 billion in April 2007, is trying to reduce debt by almost $600 million and stave off default at the Parsippany, New Jersey-based real-estate broker, according to a regulatory filing dated yesterday. Realogy's $1.7 billion of 10.5 percent notes due in 2014 fell 6.5 cents to 26.5 cents on the dollar, yielding 52 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

``It's kicking the default can further down the road,'' said Christopher Garman, chief executive officer of debt research firm Garman Research LLC in Orinda, California. ``All parties have an interest in keeping companies away from default.''

Realogy reported $209 million of losses in the last three quarters amid the worst housing crisis since the Great Depression. U.S. home prices tumbled the most in at least 17 years in August and foreclosures increased to the highest on record in the third quarter, according to reports last month from the Federal Housing Finance Agency and RealtyTrac, a seller of foreclosure data.

The drop in home sales and prices ``will negatively affect the quarterly calculation of our senior secured leverage ratio,'' Realogy said in the filing. ``There can be no assurance that we will not violate this or other covenants.''

Securities Swap

Realogy is giving its noteholders the option to swap their securities at a discount for as much as $500 million in principal amount of new second lien loans that will mature in 2014, according to a news release dated yesterday.

If the maximum amount of bondholders participate in the exchange, it would reduce Realogy's outstanding debt by $592 million, the filing said. The real estate broker had about $6.5 billion of long-term debt as of Sept. 30.

Realogy's loans require it to maintain a ratio of senior debt to earnings before interest, taxes, depreciation and amortization of 5.35 times, Anthony Hull, chief financial officer of Realogy said on the company's third-quarter earnings call. Realogy's ratio was 4.8 times at the end of September, the company said at the time. The ratio will tighten to 5 times by September 2009, according to Moody's Investors Service.

Exchange Terms

Holders of Realogy's $875 million of 12.375 percent senior subordinated notes due in 2015 can exchange their debt at a rate of as much as 36 cents on the dollar, according to a statement yesterday. Investors holding its 10.5 percent senior notes due in 2014 can exchange their securities for as much as 50 cents of new loans. Owners of Realogy's so-called pay-in-kind toggle notes maturing in 2014 can swap their debt at a rate of 47 cents on the dollar.

Standard & Poor's slashed Realogy's corporate credit rating to two grades to CC from CCC.

``Given our previously stated view that Realogy's ability to service its current capital structure over the intermediate term will be challenged, we view the exchanges as being tantamount to default,'' Emile Courtney, an analyst at S&P, said in a report today.

Mark Panus, spokesman for Realogy, declined to comment.

To contact the reporters on this story: Caroline Salas in New York at csalas1@bloomberg.net; Pierre Paulden in New York at ppaulden@bloomberg.net

Last Updated: November 14, 2008 16:45 EST