Hawker Beechcraft weakens as loan breach looms; ResCap boosted by possible Buffett investment

By Stephanie N. Rotondo

Portland, Ore., Dec. 9 - The distressed bond market was "trying to figure out what to do in the morning and then started to firm up," a trader said Friday.

Still, "nobody wanted to chase anything," he said, resulting in muted trading activity.

"It was on the quieter side," another trader said, though he noted that things were "getting done.

"The markets are just kind of hanging in there," he said.

Hawker Beechcraft Acquisition Co. LLC was seen trading more heavily than is usual for the aircraft manufacturer and reseller. The company's bonds have been trading downward all week as a loan covenant breach looms.

On the upside was Residential Capital LLC paper. Traders saw the notes rising as much as 5½ points on the day as investors reacted to news that Warren Buffet's Berkshire Hathaway Inc. might be playing a more central role in the company's restructuring.

AMR Corp. continued to trade actively and gained a bit of ground on no fresh news. Rite Aid Corp. was also busy, ending unchanged to modestly weaker.

Pain looms for Hawker

Hawker Beechcraft's debt has been under pressure all week as investors worry about a looming loan covenant breach.

The bonds fell about 5 points in Friday's session alone, traders reported.

One trader pegged the 8½% and 8 7/8% notes due 2015 in a 15 to 20 context, down from 22-25 previously. The 9¾% notes due 2017 meantime fell to 10 from the mid- to high-teens, he said.

Another trader also saw the paper losing ground, quoting the 2015 maturities at 18 bid, 22 offered.

"I guess that's on the cusp of going away to zero," he said.

A third market source saw the 8½% notes at 19¼ bid, down nearly 5 points.

But at another shop, a trader deemed the notes unchanged. He saw the 8½% notes at 19¼ and the 9¾% notes at 101/4.

The Wichita, Kan.-based aircraft manufacturer - which is partly owned by Goldman Sachs Group Inc. - is close to breaching a covenant on its loans that requires the company to grow its cash flow. A weakening economy has hurt demand for its products, which has in turn made it difficult to increase cash flow.

Though the current price of the debt indicates that the market sees a restructuring happening in the near future, the company has yet to hire advisors to consult on such an effort.

As of Sept. 30, Hawker had $2.14 billion in outstanding debt, including $630.6 million of unsecured notes and $1.4 billion of term loans.

The loans mature in 2014.

ResCap gets a boost

A trader said Residential Capital's 9 5/8% notes due 2015 were "up a few points" as investors reacted to news that Warren Buffett's Berkshire Hathaway - a large creditor of ResCap's parent, Ally Financial Inc. - could play a bigger role in the mortgage unit's restructuring effort.

The trader placed the issue around the 70 level.

Another trader called the notes up 5½ points to 701/2.

In a report published by Bloomberg, "people familiar with the talks" said that advisors to Ally and ResCap - as well as to the U.S. Treasury Department, which owns a 74% stake in Ally - have indicated Buffett could be approached to take an equity stake in the struggling offshoot. There is talk of putting ResCap into a prepackaged bankruptcy.

Advisors have also reportedly been scouting for potential bidders for the unit.

ResCap is based in Parsippany, N.J.

AMR busy, better

Bankrupt AMR remained a busy credit Friday, following a trend set last week when the parent of American Airlines filed for Chapter 11 protections.

One trader said the 10½% notes due 2012 were up slightly at 931/4. Another trader called the issue up half a point to a full point at 93 bid, 93½ offered.

A third trader said the 6¼% notes due 2014 - a benchmark convertibles issue, he said - were trading 22½ bid, 23 offered, "but just in odd lots."

There was no fresh news out on the Fort Worth, Texas-based company.

Rite Aid active

Rite Aid paper was also busy on no news, according to a trader.

He said the 9½% notes due 2017 fell nearly half a point to 89 5/8, while the 9 3/8% notes due 2015 lost half a point, ending at 941/4.

Another trader said the debt was "active, but unchanged," seeing the 9½% notes trading around 891/2.

Rite Aid is a Camp Hill, Pa.-based drugstore chain.

Broad market mixed

Elsewhere in the distressed realm, a trader said NewPage Corp.'s 11 3/8% first-lien notes due 2014 "continue to move up." He quoted the notes at 73½ bid, 74 offered.

General Maritime Corp.'s 12% notes due 2017 meanwhile "really weakened crazy," placing the issue at 4 bid, 5 offered.

Another trader said MF Global Holdings Ltd.'s 6¼% notes due 2016 were quiet and unchanged at 33½ bid, 34 offered.

Lehman Brothers Holdings Inc. was conversely active and steady at 26½ bid, 27 offered.

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