GMAC holds on despite weak results; First Data gains on scrapped merger; OSI unfazed by downgrade

By Stephanie N. Rotondo

Portland, Ore., Nov. 5 - The distressed bond market tried to hold its ground Wednesday, as the equity markets were in a virtual freefall.

However, the steadiness might be short-lived.

"It looked like the market held on despite what was going on in the equities," a trader said. "It might be looking to back off this afternoon or tomorrow morning if the equities continue to retreat."

"Things are weak, but not a lot of trading," said another. "All the on-the-run stuff was pretty static, but off-the-run continues to decline."

GMAC LLC paper finished the day unchanged to slightly lower after the company released its third-quarter results. The weaker figures resulted in some market sources warning of imminent danger at the finance company.

Elsewhere, First Data Corp.'s bonds managed to inch up despite the news on Tuesday that the company had terminated a merger proposal with InComm. However, the two companies said in a press release that they planned to continue their working relationship.

A downgrade had little to no effect on OSI Restaurant Partners Inc.'s debt, traders reported. The bonds were deemed unchanged on the day amid little trading.

Moving the market

In the world of distressed bonds, news of any kind has historically been the catalyst for any movement, positive or negative. But in the current market, that does not seem to be the case.

"It's all about bid lists," said a source. "Forced selling by funds that have to de-lever. It seems to be getting better, but the corporate distressed market is very slow because there are billions of leveraged loans for sale still.

"Funds have been crushed this year, guys are scared to buy anything and most of the trading going on is between dealer desks, in my opinion, right now. Dealers are getting crushed as well and laying folks off across the board."

GMAC holds on

GMAC's bonds managed to hold on despite the company's disappointing third-quarter earnings.

One market source saw the benchmark 8% notes due 2031 slip just a point to 45.5 bid, 46.5 offered. Another saw the 6 7/8% notes due 2012 also down a point at 52.5 bid.

At another desk, a trader pegged the 8% notes due 67 bid, 68 offered and the 5.85% notes due 2009 at 91 bid, 92.5 offered, essentially unchanged on the day.

"It looks like there were a lot of small trades [in GMAC paper], but nothing huge," he said.

For the quarter, GMAC posted a wider net loss of $2.52 billion, compared with a loss of $1.6 billion the year before. Revenue dropped 24% to $1.72 billion from $2.25 billion. The company attributed the declines to losses in its mortgage division, which have suffered in the current market. Realized losses and valuation adjustments on assets and other securities also weighed on the bottom line.

The company has also struggled as its Residential Capital LLC unit has continued to spiral downward. The subsidiary reported a loss of $1.91 billion in the third quarter, still better than the year ago loss of $2.26. However, GMAC noted that the future of that business is still in jeopardy.

"In this climate, our primary objective is to make prudent use of our resources and take the steps needed to address the reduced access to liquidity," Alvaro G. de Molina, chief executive officer, said in a statement.

"Things at GMAC are looking pretty grim these days," Gimme Credit analyst Kathleen Shanley wrote in an afternoon comment. "You know things are getting really bad when a company clams up and stops taking questions on its earnings conference call."

Shanley continued on to say that GMAC's "Demand Notes" are not the place for investors, at least those looking to make money for retirement. She also noted that the company is talking about a private debt restructuring deal, but no details have been released. Also, GMAC's plan to become a bank may or may not come to fruition, she warned.

First Data bonds firm

First Data's paper inched up during Wednesday's session, despite the announcement on Tuesday that the company had terminated a merger proposal with Atlanta-based InComm.

A trader called the 9 7/8% notes due 2015 "up a little," around 68. Another quoted the notes at 68 bid, 69 offered, up about a point.

Instead of going ahead with the merger originally announced in April 2008, the parties have agreed to a distribution agreement.

"First Data and InComm are leaders in the stored value market, and we're pleased to continue working together to deliver tremendous value to our mutual customers," Brooks Smith, president and chief executive officer of InComm, said in a prepared statement.

"As a strategic partner for many years, this decision lets both parties focus on the unique value we each bring to our mutual customers and the market," said Ed Labry, president of Denver, Colo.-based First Data's USA division. "We look forward to continuing our relationship with InComm and building on the successful relationships we have with our customers."

Revlon loan gains

Revlon's term loan gained some ground on Wednesday after the company came out with third quarter results, according to a trader.

The term loan was quoted at 79.5 bid, 82.5 offered, up from 77.5 bid, 80.5 offered, the trader said.

For the third quarter, Revlon reported net income of $29.2 million, or $0.57 per diluted share, compared to a net loss of $10.4 million, or $0.20 per diluted share, last year.

Net sales for the quarter were $334.4 million, compared with $330.8 million in the 2007 third quarter.

Operating income was $19.8 million, unchanged compared with the year-ago period.

And, adjusted EBITDA for the quarter was $42.6 million, compared with $42.8 million last year.

Revlon also announced on Wednesday that it plans to repay its MacAndrews & Forbes senior subordinated term loan in full using proceeds from a $107 million equity rights offering that would allow stockholders to purchase additional shares of class A common stock.

The subordinated term loan was originally sized at $170 million, but $63 million of it was already paid down earlier this year with proceeds from the sale of the company's non-core Brazilian brands.

Revlon is a New York-based cosmetics, hair color, beauty tools, fragrances, skincare, anti-perspirants/deodorants and personal care products company.

OSI unfazed by downgrade

OSI Restaurant Partners, better known as Outback Steakhouse, received a downgrade from Moody's Investors Service Wednesday.

But traders said the company's 10% notes due 2015 were unchanged on the news at 20 bid, 24 offered.

"It wasn't really moving," said one trader.

Moody's cut its corporate family and probability-of-default ratings on OSI to Caa1 from B2, the senior unsecured ratings to Caa3 from Caa1 and senior secured ratings to B3 from B1. The rating agency said the downgrade reflected weaker-than-expected operating performance. Market conditions, such as consumer spending, were also blamed for the cut.

Broad market mixed

Metaldyne Corp.'s 10% notes due 2013 continue to decline, trader said, after the company announced earlier this week it would skip a looming interest payment. The trader pegged the issue around 21, down 2 points.

Meanwhile, Tronox Worldwide LLC's 9½% notes due 2012 traded up 2 points to 21 bid, 22 offered. The trader said the gains were due to short covering and "not any other reason."

Elsewhere, a trader said he saw Bon-Ton Stores Inc.'s 10¼% notes due 2014 at 17 bid, 19 offered.

"I haven't seen any pictures in those in awhile," he added.

Idearc Inc.'s 8% notes due 2016 were quoted at 17.5 bid, 18 offered.

Some of MGM Mirage's issues hit recent highs, a trader said. He saw the 7 5/8% notes due 2017 at 59.5 bid, 60 offered and the 8 3/8% notes due 2011 at 58.75 bid, 59.25 offered. However, the trader noted that the latter issue traded down to 57 post-market close.

Sara Rosenberg contributed to this article.

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