Retailers stage a comeback; Buffets, Quebecor quieter; Delphi's debt takes a ride

By Stephanie N. Rotondo

Portland, Ore., Jan. 23 - Volatility was the word of the day Wednesday, with the Dow Jones Industrial Average swinging in a more than 500-point band and a bond market that followed.

One trader said that most names in the bond market were "2 to 3 points higher than when the day started."

"With the equity rally late in the day, the bond market tried to snap back a little," said another. "It definitely felt like people were trying to push stuff up in the afternoon."

The retail sector, considered by most to be one of the weakest in the distressed arena, got some relief in Wednesday's trading. Many names, such as Bon-Ton Stores Inc. and Burlington Coat Factory Warehouse Corp., have been feeling the weight of a possible recession of late, and bonds in the sector have responded by steadily declining.

But the equity rebound helped both Bon-Ton and Burlington firm, gaining as much as 3 points.

However, newly bankrupt Buffets Inc. and Quebecor World Inc. did not get as much bounce as retailers. Both companies filed for bankruptcy this week, prompting an approximate 20-point loss in both names. Come Wednesday, activity slowed in Buffets' debt, which ended relatively unchanged. Quebecor was just slightly better on the day.

Delphi Corp. was deemed one of the more volatile names of the day. The automotive parts supplier's debt, which has been slowly but surely slipping recently, fell as much as 7 points during the session before staging a comeback that left the bonds "almost even" with the previous trading day, a trader said.

Retailers stage a comeback

Retailers "snapped back," a trader said, following the trend set by the equity markets.

A trader saw Bon-Ton's 10¼% notes due 2014 open the trading day at 63 bid, 64 offered. By the end of the day, the bonds had gotten as good as 67 bid.

Another trader placed the bonds at 65.5 bid, adding that the debt dipped to 64 during the session.

Burlington Coat Factory's bonds were also better, its 11 1/8% notes due 2014 beginning the day at 72 bid, 74 offered and ending the day at 74 bid, looking, according to one trader.

Another trader said Burlington's bonds hit a low of 72.5 before coming back to 75 by the market close.

"They are working their way back," the trader said of retail names.

In a morning report, Kim Noland, analyst with Gimme Credit LLC, said that Burlington's corner of the market - that is, discounted brand-name merchandise - could help the company weather the storm brought on by a possible recession.

"Burlington is well-positioned to survive a retail environment that could get worse before it gets better," Noland wrote.

Still, with the current state of the economy, it is hard to see some sort of catalyst that could help retailers as a whole turn around. Given that, Noland issued a buy recommendation on the notes under the 70 mark.

In a related sector, OSI Restaurant Partners LLC, also known as Outback Steakhouse, saw its 10% notes due 2015 with a 60 offer.

Buffets, Quebecor quieter

In newly bankrupted names, Buffets' debt maintained its single-digit status throughout Wednesday's session.

One trader placed the 12½% notes due 2014 at 6 bid, 9 offered.

"They're dead," he said. "They're not going to be helped."

However, another trader said the name was "pretty quiet."

"They were widely quoted in the high single digits," he said. "But there was almost no trading."

A bankruptcy court approved an interim debtor-in-possession facility on Wednesday, which will give the company access to $30 million immediately. A proposal for the finalized facility is scheduled to go to court on Feb. 13.

But Buffets' bondholders have objected to the terms of the DIP financing, which would give the exit loan highest priority.

Meanwhile, Quebecor World's debt was "up a teeny bit," a trader said, following a 20-point loss in the previous session.

The trader said there was "a fair amount of trading" in the printer's 6 1/8% notes due 2013, which closed the day around 50. The trader added that the debt traded between 49 and 50 all day.

Another trader pegged the 6 1/8% notes at 49 bid, 51 offered and the 4 7/8% notes due 2008 at 48.5 bid, 49.5 offered.

The Canadian company faced a 5 p.m. ET deadline to gain approval on its interim DIP financing, a term set by its banks Credit Suisse and Morgan Stanley.

"We need that financing as quickly as possible," Michael Canning, attorney for Quebeor, told a bankruptcy judge. "If we don't have it by tomorrow, we can't make payroll and our condition will begin to deteriorate."

Delphi trading 'volatile'

A trader called activity in Delphi's bonds "volatile" during the session, just one day after the company won approval on its reorganization plan.

The trader quoted the 6.55% notes that were to have come due in 2006 and the 7 1/8% notes due 2029 at 36 bid, 37 offered. He said that, overall, the automotive parts supplier's debt fell as much as 7 points in early trading to the low-30s, before closing "almost even," only down 1 point.

Another market source called the 7 1/8% notes down 2 points at 35.25, while the 6½% notes due 2013 were 7 points weaker at 31.

On Tuesday, a bankruptcy judge approved the Troy, Mich.-based company's plan of reorganization - provided it made certain changes to its executive compensation plan. Under the conditional approval, Delphi would have to slash executive bonus payouts to $16.5 million from $87 million.

Delphi hopes to emerge from bankruptcy in March.

Elsewhere in the autosphere, Metaldyne Inc.'s 11% notes due 2012 were seen in the low- to mid-40s, with one trader pegging the bonds at 42 bid, 44 offered.

Solutia financing in jeopardy

Solutia Inc.'s $1.6 billion exit financing senior secured credit facility is in trouble with the lead banks and the company arguing over whether the loan commitments are still valid, which in turn caused the company's DIP term loan to slide lower in the secondary market, according to a trader.

The banks are arguing that an adverse change has occurred in the loan syndication, financial or capital markets since Oct. 25 that, in their reasonable judgment, materially impairs syndication of the proposed facility.

And, under the credit facility commitment, if an adverse change has occurred since that Oct. 25 date, the banks are no longer obligated to provide the financing.

However, the company is saying that the ongoing conditions in the credit markets began long before Oct. 25, and therefore, the banks are required to fund their commitments on or before the Feb. 29 deadline.

"While we disagree with the position asserted by the lead arrangers, we intend to continue to work with them to successfully syndicate the exit facility," said Jeffry N. Quinn, chairman, president and chief executive officer of Solutia, in a company news release.

According to a second market source, the banks' main priority right now is to resolve the issue with the company.

The credit facility in question, which launched on Jan. 7, consists of a $1.2 billion seven-year term loan B (B1/B+) talked at Libor plus 350 basis points with an original issue discount in the 96 context, and a $400 million five-year asset-based revolver (Ba1) talked at Libor plus 175 bps.

In addition, the banks have committed to provide a $400 million senior unsecured bridge loan if a $400 million senior unsecured notes offering is not completed.

Citigroup, Goldman Sachs and Deutsche Bank are the joint lead arrangers and joint bookrunners on the debt.

Proceeds will be used to pay creditors under the company's plan of reorganization and to fund ongoing operations after its emergence from Chapter 11.

As a result of the financing argument, Solutia's effective date of its confirmed plan of reorganization and its emergence from Chapter 11 will be delayed from the previously anticipated Jan. 25 date.

In reaction to the news, the company's DIP term loan moved down to levels in the 95 bid, 97 offered context early on in the session but then rebounded to 97 bid 99 offered when the stock market rallied, the trader said. However, the debt was still lower on a day-over-day basis given that it was previously being quoted near par, the trader added.

Solutia is a St. Louis-based manufacturer and provider of performance films, specialty chemicals and an integrated family of nylon products.

Homebuilders hanging in

Distressed homebuilders managed to hang in there, even after disappointing figures from Beazer Homes USA Inc.

Hovnanian Enterprises Inc.'s bonds were deemed "not much changed," its 7¾% notes due 2013 at 43 bid, 46 offered and its 7½% notes due 2016 at 63 bid, 65 offered.

Bonita Springs, Fla.-based WCI Communities Inc.'s bonds were called "down 1 point, but not crazy," its 9 1/8% notes due 2012 at 52, its 7 7/8% notes due 2013 also at 52 and its 6 5/8% notes due 2015 at 50.

For the final three months of 2007, Beazer said closings were down 24%, while new home orders fell 29%. Cancellations improved, though were still at a hefty 46%.

Sara Rosenberg contributed to this article.

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