Buyout talks buoy Countrywide; Retailers better; Buffets quiet; Tropicana bonds boosted

By Stephanie N. Rotondo

Portland, Ore., Jan. 10 - Thursday brought hefty gains to the distressed arena following steep declines a day earlier.

Reports that indicated the Federal Reserve was looking to make more interest rate cuts in the near term seemed to lighten investors' spirits. But that was nothing compared to the news that Countrywide Financial Corp. was discussing a potential buyout with Bank of America.

The news came out mid-afternoon, sparking a flurry of activity throughout the market.

"Everything caught a bid late," a trader said.

Countrywide's debt went on a ride as the bonds gained nearly 40 points - in some cases. Practically doubling its value from the previous session - as the market turned hopeful at the potential of another bailout - Residential Capital LLC's bonds also gained, riding the coattails of its rival.

But the news was positive outside the sector, as well. Retailers by and large gained 3 to 4 points during the session, even as poor December sales numbers started to trickle out.

Bon-Ton Stores Inc., which has been declining of late, moved up as much as 5 points, despite lowering their 2007 guidance. Other stores that have been on a losing streak lately, such as Linens n'Things and Claire's Stores Inc., were also firmer.

Buffets Inc. announced that it had obtained a forbearance agreement from its bank lenders, which will restrict the company from paying the coupon on its 12½% notes due 2014. Still, the bonds were relatively quiet.

A buyer has expressed interest in the struggling casino owned by Tropicana Entertainment LLC. That prompted the bonds to be actively traded, though the debt closed relatively unchanged.

With all the activity throughout the week, traders are wondering what to expect Friday.

"It will be interesting to see if there is follow-through tomorrow," a trader said. "Hopefully it will be interesting and not the typical dead Friday."

Buyout talk sends Countrywide flying

The market was "certainly believing" reports that Countrywide Financial was in "advanced talks" with Bank of America regarding a possible buyout, sources said. The news - and possibly some short covering - nearly doubled the previously declining bonds.

Just before the close of business, a trader placed the company's debt up as much as 20 points, its 3¼% notes due 2008 at 95.5 and its 6¼% notes due 2016 at 66 bid, 68 offered.

But within a short time frame, the bonds jumped almost 20 points again, and another trader quoted the 6¼% notes near 80, up from the low-40s, and the 5.8% notes due 2012 up to 85 from 59.

"That stuff is just screaming," the trader said.

At another desk, a trader said the mortgage lender's "bonds are up big, big, big." The 3¼% notes, considered the most active short issue, moved up 12 points to 93 bid, 95 offered, while the 6¼% notes, called the most active longer dated paper, gained 35 points to 77.5 bid, 78.5 offered. The 5.8% were deemed 22 points better at 82 bid, 84 offered.

The positive feeling continued throughout the sector: ResCap paper was up 3 to 5 points, the floating-rate notes due 2008 closing at around 83.5, up from opening levels at 80.

"There was positive momentum in the market, coupled with another financial company getting a possible bailout," a trader said.

While the news seemed to quell any bankruptcy buzz, the potential buyout is not without complications.

"Obviously a purchase of Countrywide by Bank of America would solve the company's funding and liquidity problems with a stroke of the pen, and make the bankruptcy concerns moot," Kathleen Shanley, analyst with Gimme Credit LLC, wrote in an afternoon report. "The big issue is whether Bank of America can get comfortable enough with the credit quality issues to move forward without any commitments of support from bank regulators."

One trader noted that while the company has a lot of debt on its balance sheet, "Countrywide has got a lot of value."

"They have got rid of most of their subprime exposure and have securitized most, if not all, of their other loans," he said. In the end, Countrywide remains a "big name in an industry that everyone knows will have major consolidation."

"This is just the first step," he opined.

Retailers up despite poor holiday numbers

The retail sector has started to report its sales figures for December - and they are not good. Several major retailers reported sales results for the holiday season, and the disappointing figures prompted many stores to lower their fourth-quarter expectations.

However, late in the day, news broke that Countrywide Financial might be facing a Bank of America buyout, and gleeful investors shook off concerns, propelling the retail and restaurant sectors upward.

"Retailers rebounded some," a trader said. "Even though December retail sales numbers were negative, people were expecting that."

With the negative out of the way, he added, investors took a breath.

"Some people probably figured we hit the bottom," he said.

Bon-Ton, one of the stores to cut its full-year guidance, saw its bonds get caught in the positive wave. A trader said the 10¼% notes due 2014 were "up a bit" at 69 bid.

Another trader called the bonds up 5 points, also to 69. He added that the debt traded actively.

Yet another source said the notes were "up a little" at 68 bid, 70 offered.

Bon-Ton will report fourth-quarter and fiscal 2007 results on March 12.

Elsewhere in the sector, Linens n'Things floating-rate notes due 2014 were "a touch higher, but not much," a trader said. He pegged the bonds at 46.5.

The trader also saw Claire's Stores' debt rally, its 9 5/8% toggle notes due 2015 at 68 bid, 69 offered and its 10½% note due 2017 at 47.5 bid, 48.5 offered. Blockbuster Inc.'s 9% notes due 2012 also moved up to around 82 from the 81 area.

Michael's Stores Inc.'s 11 3/8% notes due 2016 were "up good," a trader said, at around 87, while Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2014 closed higher at 75 bid, 76 offered.

But despite the positive day in the sector, some are still hesitant to believe that 2008 will bring better sales numbers and are weary of taking the risk.

"Folks just don't want to get involved," said one trader.

Buffets quiet on waiver news

Buffets announced that it had obtained a forbearance agreement on its bank debt under which its senior lenders have agreed to wait until April 2 to act on expected defaults on its $640 million credit facility.

However, the waiver also contained amendments to the credit agreement that would restrict the company from making a payment on its 12½% notes due 2014. That payment came due on Jan. 2 and, having missed the payment, the company entered into a 30-day grace period.

One trader said there was not much activity in the name, quoting the corporate debt at around 26. Another trader called the bonds up 1 point to 24 bid, 26 offered, adding that the bonds were "thinly traded."

Upon entering its grace period, the company said that it would begin the restructuring process. The company subsequently hired financial adviser Houlihan Lokey Howard & Zukin Capital, Inc. as well Kroll Zolfo Cooper LLC.

Bid boosts Tropicana

An $850 million bid for the Tropicana Casino and Resort in Atlantic City sparked some activity in the casino operator's debt.

A trader said the 9 5/8% notes due 2014 linked to Tropicana Entertainment, also known as Wymar Operating, were actively traded, though there was not much price movement.

"They were sort of up, but came back down," the trader said.

The trader said the bonds closed at around 61.5, though they got as high as 63 during the session.

Colony Capital LLC, a Los Angeles-based a private real estate investment firm with two other properties in Atlantic City, sent a letter to Gary S. Stein, a former New Jersey Supreme Court justice who is overseeing Tropicana's sale in his role as a state-appointed conservator, expressing interest in the casino.

In December, the operators of the resort were denied a new gaming license, forcing the company to sell the asset.

Young bonds better

In other asset sale news, Young Broadcasting Inc.'s debt was helped out by the announcement that the company was looking to sell its largest TV station.

A trader quoted the bonds 8 to 9 points better, its 10% notes due 2011 closing in the mid-70s from 66 and its 8¾% notes due 2014 ending the day around 69, up from 60 bid, 61 offered.

The company said it hopes to complete the sale of its San Francisco KRON-TV location before the end of the first quarter.

Broad market mixed

Tousa Inc.'s senior debt was "off a little," a trader said, its 9% notes due 2010 at 43.5 bid, 44.5 offered, down from 45 bid, 47 offered the previous day. The 10 3/8% notes due 2012, however, remained unchanged at 11 bid, 12 offered.

Elsewhere in the housing sector, market players are still "trying to figure out what to do in WCI [Communities Inc.]." The trader said the 4% convertible notes due 2023 were weaker at 60.5 bid, 63 offered, the 9 1/8% notes due 2012 at 49 bid, 51 offered, the 6 5/8% notes due 2015 at 45 bid, 48 offered and the 7 7/8% notes due 2013 also at 45 bid, 48 offered.

Neff Corp.'s 10% notes due 2015 edged higher to 48 bid, 50 offered.

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