Rite Aid off highs, still better following numbers; GMAC slides; GM, Ford mixed on bankruptcy buzz

By Stephanie N. Rotondo

Portland, Ore., Dec. 18 - As the market geared up for the holiday slowdown Thursday, distressed bond traders reported that the market actually felt somewhat better.

"It seemed like the market felt better," a trader surmised.

"It was relatively quiet with people counting down to the end of the year," another trader said. "They are doing what they have to and not much else."

Rite Aid Corp.'s bonds got a boost despite posting a wider loss for the third quarter. One trader called the numbers "solid," and noted that the debt gained as much as 6 points on the day, before coming back to close as much as 3 points better.

Meanwhile, GMAC LLC's paper started the day strong - only to slide back down by the end of trading. A trader said the bonds fell as much as 5 points intraday as concerns over the company's attempts to become a bank remained.

In somewhat related news, the Bush Administration is reportedly considering what it calls an "orderly" bankruptcy for General Motors Corp. and Ford Motor Co., along with Chrysler LLC. By filing for a government-backed Chapter 11, the companies would possibly have a "softer landing" upon exit. Still, the news did little to move the bonds. Ford's paper was unchanged to better, while GM's price action ran the gamut.

Rite Aid bonds off highs

Rite Aid's bonds "rallied pretty good on solid numbers," a trader said.

The trader called the bonds 2 to 3 points better, generically speaking, but added that the paper was "up as much as 5 to 6 points as one point." He quoted the 9½% notes due 2017 and the 9 3/8% notes due 2015 at 32 bid, 33 offered and the 10 3/8% notes due 2016 at 74 bid, 75 offered.

Another source deemed the 8 5/8% notes due 2015 up more than 5 points at 33 bid.

"I saw better sellers [in the name]," a trader remarked.

Rite Aid Corp.'s term loan also gained some ground during the trading session following the company's third quarter numbers, which showed an increase in EBITDA, and the company "said they're going to be cash flow positive," a trader told Prospect News.

The term loan was quoted at 55 bid, 59 offered, up 3 points from previous levels.

"I am pleased to report a significant improvement in our operating results this quarter with adjusted EBITDA up 8.5%," Mary Sammons, chairman and chief executive officer, said in a news release.

"With the Brooks Eckerd integration complete, our team has been totally focused on delivering profitable sales and taking unnecessary costs out of the business, and it showed. Same store sales were up, with pharmacy sales in core Rite Aid stores especially strong despite an industry-wide slowdown in prescription growth. Our gross profit rate improved, and our cost savings initiatives intensified in the quarter. Improving operational efficiency is a top priority, and we expect to see even greater benefits from these initiatives going forward," Sammons added in the release.

The Camp Hill, Pa.-based pharmacy chain posed a net loss of $243.1 million, compared with a loss of just $84.8 million the year before. The company said higher taxes and inventory expenses were to blame for the wider loss.

Revenue fell to $6.47 billion from $6.5 billion, though sales at stores open at least a year gained 1.4% in the third quarter.

Also, Rite Aid said that its year-end numbers might be worse than they had previously thought. The company maintained its sales and adjusted earnings forecast, but noted that sales at stores open at least a year would be lower than expected.

GMAC paper slides

The market continued to speculate whether GMAC's attempts to become a bank holding company would be successful, traders reported. News came out early in the day stating that, so far, the company has yet to receive the necessary 75% participation in its debt exchange.

"People are hopeful," said a trader. "Everyone is on pins and needles, it's very speculative at this point."

Still, he noted that there were "better buyers in the short end" of the company's debt. He said the 5.85% notes coming due in January hit a high of 89 before they "ended up trading much lower."

Another trader said the 5 5/8% notes due 2009 were the most active of the GMAC's issues. He saw the bonds close around 67, which he called down 3 to 4 points from the day before.

However, he noted that the paper opened in the low-70s, "so they were actually down like 5 points intraday."

At another desk, a market source called the benchmark 8% notes due 2031 5 points weaker at 31 bid.

According to a regulatory filing, GMAC said that it had received 58% of eligible GMAC notes and 38% of eligible Residential Capital LLC notes as of Wednesday. The deadline for early tender is Friday.

A lawyer representing a group of bondholders who had originally objected to the debt swap said Wednesday that it seemed likely GMAC would receive the necessary 75% participation. His clients had agreed to support the swap after GMAC revised the terms of the deal.

Still, Pacific Investment Management Co. has reportedly balked at the plan and might not participate. PIMCO is one of GMAC's biggest debtholders.

Earlier this month, GMAC said that if the debt exchange failed, there would be a "significant risk" that the company would default on its debt.

GM, Ford mixed

Word that President George W. Bush was considering an "orderly" bankruptcy for Detroit automakers had little effect on the companies' notes, according to market sources.

At one desk, General Motors' 7 1/8% notes due 2013 were deemed a touch better at 18.5 bid, but its 8 3/8% notes due 2033 fell some to 15 bid. Ford Motors' 7% notes due 2013 were also slightly better at 51.5 bid, while its benchmark 7.45% notes due 2031 were unchanged at 25 bid.

At another desk, a trader said GM's debt was "kind of hanging in there," its 7.20% notes due 2011 at 16 bid, 18 offered and its 8 3/8% notes at 13 bid, 15 offered.

"They are all between 13 and 18," he said of the company's various issues.

He also called Ford's 5.80% notes due 2009 unchanged at 98.

White House press secretary Dana Perino told reporters Thursday that an "orderly" bankruptcy was one of the "spectrum of options" being considered by the Bush Administration, including allowing the Big Three access to the $700 billion TARP funds set aside for Wall Street.

"There's an orderly way to do bankruptcies that provides for more of a soft landing," Perino said. "I think that's what we would be talking about."

On Wednesday, Chrysler LLC said it would close all of its North American manufacturing plants for a month while it tried to deal with its looming cash crisis. Along with GM, which has also scheduled plant shutdowns, the companies have said they might not make it to the end of the year without some kind of bailout.

Broad market firms

Washington Mutual Inc.'s senior holding company paper, like the 4% notes due 2009, rallied a couple points to around 63, a trader said. The trader said the subordinated issues, such as the 4 5/8% notes due 2014, also closed a few points better at 18.5 bid, 19 offered.

Nortel Networks Corp.'s floating-rate notes due 2011 continued to gain, ending the day at 17.5 bid, 18 offered.

First Data Corp.'s 9 7/8% notes due 2015 were "up probably 3 to 4 points," a trader said, at 54 bid, 55 offered. He noted that the bonds were "fairly active" on Wednesday around the 51 level.

Charter Communications Inc.'s 8¾% notes due 2013 traded "somewhat actively," finishing the session a bit firmer at 54 bid, 55 offered.

Sara Rosenberg contributed to this article.

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