Pathmark Stores firms; James River sinks; Airlines crash, burn; Movie Gallery down

By Stephanie N. Rotondo

Portland, Ore., Feb. 27 - In a day of losses across the board, Pathmark Stores Inc.'s bonds gained modestly on Tuesday amid news that the company is in talks to be acquired.

The company announced that it had begun discussions with The Great Atlantic & Pacific Tea Co. Inc. The gain in its bonds echoes four months of small improvements.

On slightly lower ground, James River Coal Co. dropped a significant 5 points during trading, though the company closed on its new credit facility. Monday saw gains for the company, in anticipation of the new deal.

Elsewhere, bankrupt airlines Delta Air Lines Inc. and Northwest Airlines Corp. were "getting smoked," according to one distressed trader. Investor nervousness and rising oil prices were deemed the culprit for the losses in those companies' bonds.

Movie Gallery Inc. continued the day's losing streak. The company's bonds dropped only slightly, as Blockbuster Inc. announced its fourth-quarter profits.

A trader said the day was "all basically equities," as the stock market got shoved down.

"Equity is absolutely nuts," he said.

"Everyone was keeping an eye on the equity markets," a trader in distressed paper said, noting the sharp stock market slide, which also helped to push the overall junk bond market lower. But he said, "this does not exactly affect distressed" very much.

He allowed that "the tone is a little lower - maybe you get some sellers in because they CAN sell bonds easier than some of the stocks they have."

He said the fixed-income flight to quality probably resulted in a lot of bank debt paper being bought, reasoning that "when you see Treasuries [going up], what's the next thing you do? You buy the bank debt. You can buy a whole package of it, because it trades in good size."

While the distressed market was not hit as hard as equity, traders are looking to the future.

"Volatility is back, at least for the moment," a trader said. As many market participants and investors look to the Asian and European markets, "it's probably not going to be pretty."

"It should be interesting," he said.

A market insider noted there were "a lot of angry people" during the trading day. Still, "hopefully this will shake things up," he said.

Pathmark Stores better

Over the last four months, Pathmark Stores has seen an improvement in its notes. A trader said the regional supermarket chain has increased 4 points in that time.

The trader quoted the 8¾% notes due 2012 at 102 during the trading day, up slightly from last week where the notes traded around 101.

The move coincided with the announcement that the Carteret, N.J.-based company was in talks with The Great Atlantic & Pacific Tea. According to a press release issued by Pathmark, the stores are considering being acquired, at a possible price of $12.50 a share to be paid in cash and A&P stock.

The release also noted the talks were not a firm agreement and there was "no assurance that any such agreement will be reached."

James River sinks

As its new $135 million senior secured credit facility closed, James River Coal bonds lost almost 5 points, according to one trader.

The 9 3/8% bonds due 2012 came in at 84.75 bid, 85.5 offered, the trader said, down from the previous day's levels of 89.5 bid, 90 offered. Another trader placed the notes at 85 bid, 85.5 offered.

The new facility will include a $60 million synthetic letter-of-credit facility, a $40 million six-year term loan B and a $35 million five-year revolver. Proceeds from the deal, completed on Feb. 26, were used to refinance existing secured debt and replace existing letters of credit, to provide for working capital and for other general purposes.

James River Coal is a Richmond, Va., producer of steam and industrial-grade coal.

Delta heavy

Overall investor nervousness and rising oil prices prompted a heavy day in Delta's debt. A distressed trader said the paper saw a lot of activity, with the 8.3% notes due 2029 closing the day at 58 bid, 59 offered. The trader added that the bonds started the morning trading at 62.25 bid, 62.75 offered, then fell from there.

At another desk, a market insider placed the notes starting at 61 bid, 62 offered, with a closing bid of 59.75.

In a day where equity saw a sharp drop, traders are indicating the nervousness is extending into the distressed debt market. However, the Atlanta-based airline's stock saw slight gains, rising 10.5 cents, or 19.09%, to $0.655.

Oil prices are also affecting the airline sector's overall debt. Light, sweet crude oil has been hovering over the psychological $60 mark for the last few weeks. Tuesday's trades were volatile, as prices fell by more than $1 per barrel to $60.06 and then climbed to a 2007 high at $62.25. The commodity settled for a 7 cent increase over Monday to $61.46 a barrel on the New York Mercantile Exchange.

Northwest Airlines sinks

In other bankrupt airline paper, Northwest Airlines notes dropped 3 points, according to one trader, despite news that the company had received approval to buy one of its feeder carriers.

The Eagan, Minn.-based airline's 10% notes due 2009 were spotted at 94.5 bid, 95.5 offered, down from the morning trades of 97.5 bid, 98.5 offered. One trader pegged the 7 7/8% notes due 2008 at 93, down 4 points.

A market insider said the news that the airline had received approval to purchase Mesaba Aviation Inc. "did bring some activity early in the day."

Mesaba, a unit of MAIR Holdings Inc., has operated as a feeder airline with Northwest as its only customer. Under the approved terms of the plan, Northwest will acquire the smaller airline in exchange for a $145 million unsecured claim in Northwest's bankruptcy case. Mesaba will then become a subsidiary of Northwest.

Both airlines are in bankruptcy, with Northwest expecting to emerge from Chapter 11 by the end of June. The buyout is part of Mesaba's reorganization plan, which still needs approval by its bankruptcy judge in Minneapolis and the company's creditors.

Still, the insider said Northwest's dip was significant.

"Three points tends to get people's attention," he said.

Movie Gallery weaker

Dothan, Ala.-based Movie Gallery dipped slightly, which coincided with rival Blockbuster Inc. posting a drop in fourth-quarter profits.

The movie rental chain's 11% notes due 2012 were seen offered at 90.25, down half a point from the previous day at 90.75.

One market participant noted the notes last traded at 88. He said it was possible the low price was due to the large sale, but he could not be sure if that was the case.

Meanwhile, Blockbuster reported a net income of $12.9 million, down from $18 million during the same quarter a year ago.

Delphi steady

A trader said Delphi Corp.'s bonds really did not react much to the news that the bankrupt Troy, Mich.-based automotive parts supplier had lost $4.8 billion in 2006 on an operating basis, mostly due to the impact of $3 billion in buyout costs aimed at getting rid of highly paid hourly employees as Delphi tries to cut its cost structure.

"I cannot even remember seeing anything with Delphi," he said, adding that he had seen perhaps 10 messages on it during the day - out of the several hundred messages he gets - so it was "not a big deal."

He saw the Delphi 7 1/8% notes due 2029 at 110.5 bid, 111 offered, which he allowed was "maybe a half-point change." He said there was "not much volume," and it "doesn't look like [the numbers] were a big event for the bonds."

He said there weren't a lot of quotes, and not much in the way of actual trading volume. "I really didn't see much change in Delphi," he concluded.

Federal-Mogul stagnant

Elsewhere in the automotive area, a trader saw Federal-Mogul's bonds remaining in a mid-80s context, quoted at 85 bid, 87 offered.

"It's been there for days, or probably weeks," he said.

The bankrupt Southfield, Mich.-based parts maker's bonds apparently were not much moved by the news that the company had lined up $3.5 billion in exit financing to help it come out of bankruptcy, an event which is supposed to take place this spring. The company has been in bankruptcy since late 2001.

Auto loan paper down

Auto names, such as Visteon Corp., General Motors Corp. and Ford Motor Co., were lower on Tuesday by about 3/8 of a point across the board as the market in general felt softer, affected by the big drop in the Shanghai Composite, according to a trader.

Visteon, a Van Buren Township, Mich., automotive parts supplier, saw its term loan close the day at 101 bid, 101½ offered, the trader said.

General Motors, a Detroit-based automaker, saw its term loan end the day at par ¾ bid, 101 offered.

And, Ford, a Dearborn, Mich.-based automaker, saw its term loan end the day at par 7/8 bid, 101 1/8 offered, the trader continued.

"It's just because everything is down. News coming out of China is driving the global markets weaker," the trader added in explanation of the autos' performances.

Sara Rosenberg and Paul Deckelman contributed to this article.

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