Idearc loses weight; GMAC active, lower on debt swap news; Rite Aid helped by sales; Metaldyne jumps

By Stephanie N. Rotondo

Portland, Ore., Oct. 30 - Distressed bond traders reported that the market felt a little better, though trading was "spotty."

"Some stuff was going on," said a trader. "But it was a weird day, kind of spotty."

Idearc Inc. was considered one of the things "going on," as the company reported disappointing quarterly numbers. Investors reacted by pushing down the phonebook publisher's bonds, as well as its term loan.

GMAC LLC once again made the news after the company announced a major overhaul to its debt. The company also confirmed that it was looking to become a bank holding company. Despite the seemingly positive news, traders saw the company's bonds fall slightly by the end of trading.

Same-store sales at Rite Aid Corp. increased for the month of October, boosted by upward movements at the company's Brooks Eckerd stores. By the end of the session, Rite Aid's bonds had gained 4 to 5 points.

There was not much activity among automotive parts suppliers, traders reported. But Metaldyne Corp.'s debt jumped on news that the company was planning a cash-for-debt exchange - albeit at a hefty discount.

Idearc paper loses weight

Idearc bonds lost some ground Thursday after posting what one trader called "bad" numbers.

The trader said the 8% notes due 2016 traded actively and finished the day with a 14 handle. Another trader quoted the bonds at 14 bid, 14.5 offered, while another saw them at 14 bid, down more than 4 points.

Meanwhile, Idearc's term loan gave up some ground as the third quarter numbers were found to be "very weak," a trader said.

The term loan B was quoted at 41 bid, 43 offered, down from Wednesday's levels of 44.5 bid, 45.5 offered, the trader said.

For the third quarter, Dallas, Texas-based Idearc reported that its net income fell 37.6% to $73 million, while total revenues dropped 7.1% to $735 million. Advertising sales fell 10.8%.

Also, EBITDA for the quarter was $298 million, a 21.6% from $380 million last year, and adjusted EBITDA was $302 million, a 24.1% decrease from $398 million last year.

The phonebook publisher said that it was looking at its options and, as such, had hired Merrill Lynch & Co. and Moelis and Co. to review alternatives, according to a press release.

In addition, the company announced that on Oct. 24, it initiated borrowings of $247 million under its existing $250 million revolving credit facility.

Proceeds from the revolver draw will be used for general corporate purposes.

"Idearc's financial results in the third quarter reflect the significant challenges our clients are facing as they contend with difficult economic conditions across the nation," said Scott W. Klein, chief executive officer, in the release. "We remain focused on accelerating revenue, reducing expenses and improving margins, as well as creating a high-performance culture. We are acting aggressively and quickly to adjust our organization and market approach to meet the challenges ahead of us."

"No one knows whether the steady decline in its revenues is cyclical and due to the weak economy or secular as customers abandon all forms of printed media for the internet," wrote Gimme Credit analyst Shelly Lombard in an afternoon comment. "But either way, Idearc's revenue is disappearing."

The company's quarterly results are in sharp contrast to the report put out by sector rival R.H. Donnelley Corp. last week. Donnelley saw its third quarter profit increase, boosted by the company's restructuring efforts. Donnelley's wholly-owned subsidiary, Dex Media Inc., saw its 8% notes due 2013 gain 3 points to end at 24.5 bid.

GMAC active, lower

GMAC was once again an active name as the company announced a major debt overhaul and plans to become a bank holding company.

But a trader said the bonds "look like they finished down a little," the benchmark 8% notes due 2031 at 49 bid, 50 offered.

GMAC was reportedly looking at becoming a bank after it was granted access to the Federal Reserve commercial paper plan. By becoming a bank, the company will have an easier time participating in the Treasury Department's bank recapitalization plan.

Also, the money losing finance arm of General Motors Corp. said it was planning to slash its current debt load significantly through a private exchange offer for a "significant amount" of debt.

"The benefits of this type of restructuring would allow us to put additional capital and liquidity resources immediately to work in financing consumers and automotive dealers," said GMAC chief executive Alvaro de Molina in a statement.

Rite Aid gets boost

Rite Aid posted a 2.9% increase in same-store sales during the month of October and as a result, the company's bonds gained 4 to 5 points.

A trader pegged the 10 3/8% notes due 2016 at 69 bid, 70 offered. He also saw the 9½% notes due 2017 and the 9 3/8% notes due 2015 trading around 37. Another market source called the 8 5/8% notes due 2015 5 points better at 36.5 bid.

Rite Aid has previously been struggling as sales at its Brooks Eckerd stores showed continual declines. But during October, Brooks stores saw same-store sales move up 0.4%. Without numbers from those stores, however, Rite Aid's sales would have increased 4.1%.

Rite Aid is a Camp Hill, Pa.-based drug store chain.

Metaldyne jumps on tender

Metaldyne announced a cash tender offer Thursday and the news gave the automotive parts supplier's debt a hefty boost.

A trader called the 10% notes due 2013 "much better," moving into the low-20s from the mid-teens. Another trader said the issue was trading around 21 with accrued interest.

At another desk, a trader saw Metaldyne's 11% notes due 2012 more than double to 8 bid from 3 bid, while its 10% notes also more than doubled to 21 bid, from 8.

However, market sources said there was light volume in the name.

Metaldyne said it would exchange $392.2 million of debt for cash - at a discount. The company said it was prepared to offer just $65 million for the bonds if tendered by Nov. 12.

But despite the steep discount, Metaldyne said the move was necessary to keep a bankruptcy filing at bay. In a statement, the company said a Chapter 11 case "is an option that Metaldyne would consider only if the tender offer is not completed."

Elsewhere in the autosphere, TRW Automotive Holdings Corp.'s bonds edged up despite posting a loss during the third quarter.

A market source pegged the 7¼% notes due 2014 at 60.5 bid, or 3 points higher.

TRW reported a net loss of $54 million versus a net profit of $23 million the year before. The company attributed the weaker earnings to lower demand and higher restructuring costs.

"TRW's third quarter results reflect the unprecedented challenges facing the automotive industry and global economic markets in general," John Plant, chief executive officer, said in a statement. "At this point, we are planning for a difficult 2009 year with vehicle sales below 2008 levels in both Europe and North America."

Still, some market players think TRW has the juice to keep going.

"Even Halle Berry has bad hair days," Gimme Credit analyst Shelly Lombard wrote in an afternoon report. "TRW has the best credit ratios in the high-yield auto sector but 2008 and 2009 will be bad hair years for everyone in the auto industry and TRW in no exception."

Ford, GM head higher

Ford Motor Co. and General Motors Corp. posted some more gains during the session as market players continued to react favorably to the recent slew of positive auto sector chatter, according to traders.

Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 57 bid, 57.5 offered, up from the previous day's levels of 53.5 bid, 55.5 offered, one trader said.

General Motors, a Detroit-based automotive manufacturer, saw its term loan quoted a point or two in back of Ford's term loan, up from Wednesday's levels of 52 bid, 55 offered, the first trader added.

However, a second trader had General Motors' term loan quoted at 56.5 bid, 57.5 offered, up from 52.5 bid, 54.5 offered on Wednesday, and a third trader had the loan quoted at 54 bid, 57 offered, up from 51.5 bid, 54.5 offered.

As was the case on Wednesday, the improvement in Ford and General Motors' bank debt levels was spurred by talk that the companies might be getting funding from the government, that GMAC might become a bank so as to get access to the Federal Reserve's bailout plan and that the General Motors/Chrysler LLC merger discussions are progressing, one trader explained.

According to a Thursday Wall Street Journal article, six state governors sent a letter to the Treasury and the Federal Reserve requesting that the U.S. auto industry be helped with their liquidity problems.

Also, rumors from Wednesday that GMAC, the financial services company, partially owned by General Motors and partially owned by equity sponsors, is looking to become a bank holding company, were confirmed on Thursday.

As for the General Motors/Chrysler combination, on Wednesday news reports surfaced that the companies have resolved some major issues in the possible merger, moving them closer to announcing an agreement.

Sara Rosenberg and Paul Deckelman contributed to this article.

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