Rite Aid steady despite downgrade; Six Flags sinks on no news; Lear loan lower; GM, Ford maintain

By Stephanie N. Rotondo

Portland, Ore., Oct. 16 - The distressed bond market was on a "roller coaster," a trader said Thursday.

According to the trader, the day started off weak, but by the end of the day, some things had tried to rally.

"It's getting kind of funky," said another trader. "The swings are starting to kick in and people are wanting to do stuff."

Still, sellers beat the buyers, another trader noted.

"Everyone is a seller and there are very few buyers of anything," he said.

Rite Aid Corp.'s bonds were touted as one of the more active issues of the day. The bonds ended mostly unchanged on the day, despite a rating downgrade. However, one trader noted that the debt has been getting "crushed" of late and some are "preparing for the worst."

Meanwhile, Six Flags Inc.'s notes fell 4 to 6 points on the day. There was no news to explain the decline, but the company has struggled to shore up its balance sheet. And, during these hard times, tourist flow could be affected.

While Rite Aid's downgrade did little to its bonds, Lear Corp.'s rating cut put pressure on its term loan. But market sources were not sure if losses in the bank debt were directly caused by the downgrade, or if they were just due to the overall market's volatility.

After several sessions of declines, General Motors Corp. and Ford Motor Co. saw their term loans finish the day unchanged. Some speculated that the steadiness was simply a matter of the debt's current level - and the belief that it cannot go much further down.

Rite Aid steady

Rite Aid's bonds traded actively during the session, a trader said. But the paper ended largely flat from the previous session despite a downgrade.

The trader quoted the 6 7/8% notes due 2013 at 34.5 bid, 36 offered, "about flat from yesterday." However, he noted that the debt was down 1 to 2 points over the week.

"They have gotten crushed," he said of the overall tone of the notes. "People are preparing for the worst."

Another trader said the 10 3/8% notes due 2016 were trading in the high-60s, while the 7½% notes due 2015 were in the high-50s. He pegged the 9½% notes due 2017 at 32 bid, 34 offered.

Standard & Poor's cut Rite Aid's corporate credit rating to B- from B, and its second-lien notes to B- from B+. The agency attributed the downgrade to the drug store chain's continued struggle to turn around its Eckerd stores, as well as the turmoil in the economy.

Among other consumer-driven names, Claire's Stores Inc.'s 9 5/8% notes due 2015 finished lower at 16 bid, 17 offered. The declines in the bonds came as retail stocks in general ended better, attributed to decreasing oil prices.

Spectrum Brands Inc.'s 7 3/8% notes due 2014 fell 4 points to 35 bid on no news, while Sealy Mattress Co.'s 8¼% notes due 2014 slipped to 63 bid, 65 offered from around 70 previously.

Six Flags takes a dip

There was no news to explain the move, but Six Flags' debt nonetheless headed lower during trading.

A trader pegged the 12¼% notes due 2016 at 50 bid, 55 offered, versus levels earlier in the day of 56 bid, 59 offered.

Another trader said the 9 5/8% notes due 2014 were "plus/minus 30."

At another desk, a source saw that issue fall 4 points to 29 bid.

Earlier this month, Six Flags said it had received a delisting notice from the New York Stock Exchange, as its stock was trading under $1. The company has struggled to stay competitive, as would-be park-goers have elected to stay home in an effort to save money.

However, the New York-based company has also said that it hopes to be cash flow positive in the near term.

Lear hurt by downgrade

Lear's term loan weakened by a couple of points during market hours as S&P downgraded the company's ratings, but with the condition of the market being so negative, it was hard to tell whether the drop was a result of the downgrade, a result of the overall market performance or a combination of the two factors, a trader said.

The term loan was quoted at 60 bid, 62 offered, down from Wednesday's closing levels of 65 bid, 67 offered, the trader said.

On Thursday, Standard & Poor's lowered Lear's corporate credit rating to B from B+ and senior secured bank debt to BB- from BB. The outlook is negative.

Standard & Poor's said that Lear's ratings were lowered since sales and cash flow have the potential to be weaker than expected in 2009, resulting in credit measures that are inconsistent with the previous rating.

"Falling auto demand in North America and Europe and ongoing adverse shifts in product mix toward smaller passenger cars in the U.S. are the main reasons for the downgrade," said Lawrence Orlowski, credit analyst, in the rating release.

"We now expect U.S. light-vehicle sales to be 13 million units in 2009, and light-vehicle sales in Europe are continuing to weaken. We believe the weak economy will extend well into 2009 and suppress purchases of big-ticket items such as autos, so we do not expect production for many of Lear's key SUV and full-size pickup truck platforms to rebound in the near term," Orlowski added.

Lear is a Southfield, Mich.-based supplier of automotive seating systems, electrical distribution systems and electronic products.

GM, Ford loans maintain

Elsewhere in the autosphere, General Motors' and Ford Motor's term loans, unlike the rest of the market, did not experience any downward pressure on Thursday, with speculation being that these names have been beaten up so badly recently that they just cannot go much lower.

General Motors, a Detroit-based automotive company, saw its term loan quoted at 41 bid, 45 offered, unchanged from previous levels, the trader said.

And Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 42 bid, 46 offered, also unchanged on the day, the trader remarked.

Down 30 points over the past couple of weeks, "at some point recovery is just going to factor into these things," the trader said.

Sara Rosenberg contributed to this article.

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