Rite Aid bonds rise on refi efforts, which may include new bonds; Berry new issue firms again

By Paul Deckelman and Paul A. Harris

New York, May 26 - Rite Aid Corp.'s bonds firmed solidly across the board on Tuesday, given a lift on the news that the Camp Hill, Pa.-based drugstore chain operator is proceeding with its refinancing efforts, which include a new term loan, and which may at some point also include issuance of new junk bonds.

Berry Petroleum Co.'s new bond issue, which came to market last Thursday and has been moving up since then, continued to firm.

Back among the established issues, Hertz Corp.'s bonds continued to strengthen, riding the momentum generated on last week's news that the car-rental giant would raise nearly $1 billion to shore up its balance sheet.

General Motors Corp.'s bonds were seen gyrating around as time ran out on the beleaguered carmaker's ill-fated debt-exchange offer, which had been pretty much written off as dead on arrival almost from the moment it was unveiled - a development which brings a possible bankruptcy filing that much closer.

But bonds of GM's former financing arm, GMAC LLC, continued to firm, helped by last week's news of a big government cash infusion as well as Standard & Poor's revision of its outlook on the lender's debt and that of its Residential Capital LLC unit.

Market participants meantime saw a restrained tone in Tuesday's dealings as Junkbondland went back to work after the Memorial Day holiday break, which included Monday's off day.

Market indicators push higher

A market source saw the CDX Series 12 High Yield index - which had been little changed on Friday - perhaps 1/8 point better on Tuesday at 79 7/8.

The KDP High Yield Daily Index, which had risen by 24 basis points on Friday, gained another 14 bps to close Tuesday at 60.97, while its yield tightened by 5 bps to 11.08%.

Advancing issues - which led decliners all of last week - continued their domination Tuesday, although by a relatively narrow 12-to-11 margin.

Overall market activity, measured by dollar-volume totals, more than doubled from Friday's anemic pre-holiday levels, which had reflected a shortened trading day and the generally laid-back approach by market participants heading into the three-day holiday break.

Although the statistics would indicate a rise in activity Tuesday, a trader said it still seemed to him like "a vacation day - or a pre-holiday half-day."

Although he allowed that "a few bonds did trade, there's no question about it," he pointed out that normally actively traded market bellwether bonds like Community Health Systems Inc.'s 8 7/8% notes due 2015, First Data Corp.'s 9 /8% notes due 2015 and Aramark Corp.'s 8½% notes due 2015 all; saw "pretty light levels" for those kind of big, liquid, widely held credits - just $6 million for Community Health, $7 million for First Data and $4 million for Aramark.

Two out of the three were up on the day - an indicator of what he called "a definitely better tone, a positive bias." The Community Health bonds gained 5/8 to end at 98½ bid and the First Datas were ¾ point better at 663/4, although the Aramark paper was off ¼ point to 941/4.

Junk started the post-Memorial Day week a little softer, but then followed equities up during the afternoon, according to a money manager from a high-yield mutual fund.

"Investment grade bonds are a little better bid, and the high-yield market is open to selective names," the buy-sider added.

A trader marked junk 1/8 to ¼ point higher shortly after the Tuesday close.

Rite Aid rises on refinance moves

Refinancing efforts proved to be a good remedy for Rite Aid, whose bonds rose across the board, apparently helped by the news that the company is seeking to enter a new $400 million six-year term loan under its existing senior secured credit facility, as well as by indications that consumers now feel more confidence in the recovering economy.

A trader said that Rite Aid's bonds "have been up a little bit. There's been a good deal of buyers out there."

He saw its 6 7/8% notes due 2013 at 55 bid, 60 offered, which he called up a point on the day.

"They're trying to refinance some stuff," he said.

Looking to the longer end of the curve, he saw the company's 7.70% bonds due 2027 at 37 bid, 39 offered, "maybe up 11/2." The bonds, he said, were "showing a little bit of strength right now."

He opined that the latest consumer confidence numbers from the Conference Board, which unexpectedly showed the highest level of consumer confidence since September, "helps everything today, especially retail names" like Rite Aid.

Another trader saw Rite Aid's 9½% notes due 2017 among the most actively traded high yield issues, seeing them going out at 64½ bid, up from 60¾ on Thursday, on volume of $26 million. He also saw its 8 5/8% notes due 2015 likewise at 64, from 60 on Friday, on $6 million traded.

Rite Aid said that it expects to use the proceeds from the new term loan will be used to refinance a $145 million outstanding term loan slated to come due in 2010, as well as to repay and cancel a portion of the commitments outstanding under its existing revolving credit facility, and for fees and other expenses.

Rite Aid said the new term loan is part of "a comprehensive plan" to refinance the company's September 2010 debt maturities, including its accounts receivable securitization programs.

It said the refinancing could take the form of some combination of various options open to the company, including a new revolving credit facility, new term loans, entry into a new securitization program - or the issuance of new high yield notes. Rite Aid said that such junk bonds, should they be issued, may be secured on a first- or second-priority basis or they may be unsecured.

Rite Aid mulls high-yield

As a first step, the company is pursuing amendments to its existing credit facility in order to be able to go forward with its refinancing plans, according to market sources.

On Tuesday Rite Aid held a conference call at to launch a proposed $400 million Libor plus 650 basis points term loan due 2015 (B3/B+), sources added.

Citigroup, Bank of America, Wells Fargo and GE Capital are the joint lead arrangers on the deal. Citigroup is the left lead.

A dealer characterized the refinancing as an "incremental positive," especially with respect to the Camp Hill, Pa.-based drugstore chain's near-term maturities.

Rite Aid's 6 7/8% notes due 2013 traded at 58½ on Tuesday, according to a money manager from a high-yield mutual fund.

Although Rite Aid's name circulated in mid-April as a potential issuer, the manager said that presently the primary market appears open to non-distressed names, a set that would not appear to include Rite Aid.

AMC launches $300 million

Meanwhile no issues were priced in the new issue market on Tuesday.

That failed to surprise syndicate officials who explained that players were returning to their seats after the three-day weekend.

Wednesday will definitely be different, one source said, implying that the session will be rife with deal announcements.

AMC Entertainment Inc. plans to price a $300 million offering of 10-year senior notes (B1/B-) on Wednesday morning.

Credit Suisse, Citigroup, Deutsche Bank Securities and JP Morgan are joint bookrunners.

A portion of the proceeds will be used to fund a tender for AMC's $250 million of 8 5/8% senior notes due 2012 and for general corporate purposes, which may include the retirement of any of the 2012 notes not purchased in the tender, or portions of other existing debt of the company and of the parent companies through open market purchases or by other means. Any retirement of parent debt may involve the payment as a dividend of proceeds to the parent companies.

And Tokyo-based telecommunications firm, SoftBank Corp. announced on Tuesday that it will offer 60 billion yen (approximately $632 million) of 5.1% two-year unsecured bonds.

The notes will be offered beginning Wednesday through June 9. Settlement is expected on June 11.

Mizuho Securities Co., Ltd., Daiwa Securities SMBC Co. Ltd. and SBI Securities Co., Ltd. are the underwriters.

Those subscribing to the bond deal will receive a Fukuoka Softbank Hawks eco bag, and will qualify for a prize drawing in which 20 couples will win a pair of tickets and one night's hotel accommodation for the Hawks' 2010 season home opener, according to the press release.

Proceeds from the bonds will be used to repay debt.

Moody's Investors Service assigns its Ba2 senior unsecured debt rating to SoftBank Corp. Standard & Poor's assigns its BB senior unsecured debt rating to the company.

The Japan Credit Rating Agency, Ltd. assigns its BBB rating to the deal.

The bond covenants include a negative pledge clause, a clause for transformation from unsecured to secured status, and a net worth maintenance clause.

New Berry bonds continue rise

Among recently issued bonds, a trader saw Berry Petroleum's new 10 ¼% notes due 2014 trading at 96 3/8 bid, up from 95½ on Friday, with some $9 million of the bonds traded.

At another desk, a trader saw the Denver-based oil and gas exploration and development company's new issue at 96 bid, 96½ offered.

Berry priced $325 million of the bonds, upsized from an originally planned $300 million, at 93.546 on Thursday, to yield 12%. The new bonds were seen having pushed up 1½ points on the break, going home later Thursday at 95, and then rising further during Friday's abbreviated session, to levels approaching the 96 mark.

In contrast, Gibson Energy UL/GEP Midstream Finance Corp.'s new 11¾% notes due 2014 were not seen trading around on Monday. The Calgary, Alta.-based natural gas company priced $560 million of the bonds on Thursday, upsized from $545 million originally, at 97.2706, to yield 12%. However, unlike the Berry bonds, which became a hot aftermarket item, the Gibson bonds went nowhere and in fact were said to be struggling just to stay at their issue price.

Little appreciation in Apria

Another deal which has also been treading water, market participants said, has been Apria Healthcare Group Inc.'s new $700 million issue of 11¼% senior secured notes due 2014. On Thursday, the Lake Forest, Calif.-based home healthcare services company priced those bonds - upsized from the originally planned $600 million - at 97.05, to yield 12%. A trader on Tuesday saw the bonds at 96¾ bid, 97¼ offered. A second trader saw no trace of the new issue in the market.

Also on the new-deal front, a trader quoted Ameristar Casinos Inc.'s new 9¼% notes due 2014 at 101¼ bid, 101¾ offered, around the levels at which they were seen last week.

The Las Vegas-based operator of regional gaming establishments priced a $150 million add-on tranche to its existing 91/4s on Thursday. The add-on priced at par, but was heard to have moved up to around 101 bid, 101½ offered.

GM gyrations continue as bankruptcy beckons

Back among the established issues, a trader saw several General Motors issues up from recent round-lot levels, pegging its benchmark 8 3/8% bonds due 2033 at 6½ bid, versus 4¾ on Friday, on volume of some $11 million.

He also saw the GM 7.20% notes due 2011 having moved up to 7 bid from 5 previously, on volume of $6 million.

At another desk, GM's 7 1/8% notes due 2013 were seen be a market source a touch easier at 6½ bid, although the long bonds were pegged up more than a point at 6½ bid.

However, another trader said that GM "generically is down" about 1½ points to a 6-7 area. He said that "at the end of last week, some of them [i.e. GM bonds] were as high as 8 or 9, and they've come back down to earth just because the [end of] the exchange [offer] is coming up, and it doesn't look like there's any reason really to go with this exchange, just because you're getting so very little out of it. So, I think that's driving everything down - there's no demand for it right now."

The embattled automaker was facing a midnight ET deadline on its ambitious debt-for-equity exchange offer - which the company had hoped would result in a giant reduction in its $27 billion of outstanding bond obligations.

But while GM had hoped to get holders of at least 90% of its bonds to agree to swap their debt for a 10% equity stake in the restructured GM that would emerge, most of them were seen by Tuesday night as having rejected that offer, claiming they would be forced to take a giant haircut, while GM's unions would have to give up far less. Rejection of the debt-swap offer is said to make a bankruptcy filing for the troubled Detroit giant - once a mighty symbol of American industrial muscle - all but certain. A failure by GM to restructure its debt and other obligations out of the courts is expected to goad the federal government into pushing it into a Chapter 11 restructuring by June 1, or possibly before.

GMAC gains continue

But while GM's troubles continued to mount, a trader saw former GM loan financing unit GMAC LLC's bonds - which showed strength last week as the lender got $7.5 billion in new government assistance - continuing to firm.

He quoted its 8% bonds due 2031 at a round-lot level of 78 bid, up a point from Friday's dealings, although he noted that this came on trading of just $1 million.

Another trader observed that GMAC was 'doing pretty well." He said its 6 7/8% notes due 2011 were trading in the mid-90s, which he said was up a point.

"The further out on the curve you move, maybe [the size of the gain] goes down a little bit, but most of those [credits] continue to trade strong."

A market source at another shop saw GMAC's 7¾% notes due 2010 trading above 97, up more than a point on the day.

GMAC's wholly owned Residential Capital mortgage lending unit's 8 7/8% notes due 2015 meantime gained 2 points to end at 71.5 bid.

GMAC and ResCap, already riding high on last week's news of the big capital infusion from Washington, got a further boost Tuesday when S&P raised its ratings outlook on both parent GMAC and its mortgage subsidiary to "developing" from "negative" previously.

S&P analyst John K. Bartko said in his outlook revision announcement that "during the next two years, we might consider raising our ratings" on GMAC and ResCap "if the capital and liquidity positions they currently enjoy as a result of various U.S. government actions were to combine with a resurgent auto finance sector and a return to full financial health for General Motors Corp. and Chrysler LLC," since GMAC provides customer financing for buyers of both GM and now, Chrysler cars, and also loans money to dealers looking to increase their vehicle inventories.

Elsewhere in the automotive arena, a trader saw GM domestic arch-rival Ford Motor Co.'s flagship 7.45% bonds due 2031 off ½ point from Friday's levels, going out at 541/2, although he said it was only on $1 million of bonds traded.

However, he saw Ford Motor Credit Co.'s 7 3/8% notes coming due this Oct. 28 at 98¼ bid, for an 11% yield to maturity, up from 97 5/8 on Friday.

Hertz holders in the driver's seat

A trader said Hertz Corp.'s 8 7/8% notes due 2014 continued to cruise higher, quoting them at 90½ bid, up from 89 on Friday, on volume of $9 million.

He also saw the Park Ridge, N.J.-based car-rental kingpin's 10½% notes due 2016 jump to 87 bid from 84 7/8 on Friday, with $4 million traded.

With no fresh news out on the company, a market source attributed the gains to continued investor optimism about Hertz's prospects in the wake of last week's announcement that it had priced separate public offerings of its common stock and convertible senior notes. Total gross proceeds from those offerings and the substantially concurrent private placement to investment funds associated with Hertz principal stockholders Clayton, Dubilier & Rice, Inc. and Carlyle Group will be approximately $949 million.

Hertz plans to use the proceeds from the offerings to increase its liquidity and for general corporate purposes, including the repayment of consolidated debt.

Qwest ahead on equity upgrade

A trader saw Qwest Communications International Inc.'s bonds better, in line with its higher stock price after JP Morgan Chase & Co. upgraded the Denver-based telecommunications company's equity to an "overweight" recommendation from "neutral previously."

He saw Qwest's "equity and bonds up a little," with its 7¼% notes due 2011 better by ½ point at 97½ bid, 98½ offered.

The company's New York Stock Exchange-traded shares rose 32 cents, or 7.98%, to $4.93, on volume of 40.8 million, nearly double the norm, after JP Morgan issued its improved recommendation.

In upping his opinion about Qwest, JP Morgan telecom analyst Michael McCormack noted that while its sector peers were seeing downturns in their business-oriented services, "Qwest has grown business markets revenue through the economic weakness," although he allowed that this was partly due to Qwest being a smaller player and not having over-extended itself.

He noted that company officials had been conservative in offering their full-year 2009 EBITDA projections of $4.2 billion to $4.4 billion, and suggested that its recent corporate belt-tightening moves like job cuts and call center consolidations, "combined with higher-margin sales and potentially better revenue growth," especially in areas like data and internet service, which have offset declines in traditional voice service revenue, "could induce management to raise guidance later this year."

Also among the communications issues, a trader saw Cricket Communications Inc.'s 9 3/8% notes due 2014 firm to par bid from 99½ on Friday, on busy volume of $14 million. There was no fresh news out on the San Diego-based wireless telecom company, a unit of Leap Wireless International Inc.

And the trader saw a "big drop" in DirecTV Inc.'s 7 5/8% notes due 2016, which slid to 96¾ bid from 98¼ on Friday, on volume of $12 million. He saw no fresh news out on the El Segundo, Calif.-based satellite TV broadcaster that might explain that drop.

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