Retailers gaining ground; Delphi paper quiet, slightly better; LandSource loan softer

By Stephanie N. Rotondo

Portland, Ore., Feb. 4 - The distressed bond arena was quiet Monday. While it is not unusual for the first trading day of the week to be lackluster, traders overall blamed one thing: the Super Bowl.

"I think everybody was hung over or whatever from the Super Bowl," a trader said. Many market players were not at their desks, or left early, the day after the New York Giants upset the New England Patriots.

"It's all anyone is talking about," a trader noted.

As the Big Game dominated talk on the floor, it was not surprising that activity was light.

"There was not a lot of activity," a trader said. "I didn't see much. It was kind of boring."

Despite the lack of volume, retailers continued their upward drive - sort of. Corporate debt of distressed retailers, such as Bon-Ton Stores Inc., Burlington Coat Factory Warehouse Corp. and Rite-Aid Corp., was overall better, though the equity side ended its two-week long rally.

Meanwhile, Delphi Corp. is continuing its quest for exit financing. With no word on how progress is coming, the automotive parts supplier's debt was lacking in activity Monday, though one market source deemed the bonds slightly better.

LandSource Communities Development LLC's term loan B came under fire during trading, as a private conference call spooked investors.

According to a trader, the call focused on a new land appraisal, which showed a deteriorating condition. The trader added that the loss of value could trigger a default.

Retailer bonds gain ground

Retailers "felt like they picked up a little more," a trader said, despite a lack of heavy activity.

The trader said both Bon-Ton Stores and Burlington Coat Factory were a point better, Bon-Ton's 10¼% notes due 2014 "north of 70" and Burlington's 11 1/8% notes due 2014 at 80 bid, 81 offered.

Another trader saw Bon-Ton's notes at 70 bid, 71 offered, which he described as "a little easier, by maybe a point or so."

Drugstore Rite-Aid also continued to move higher, its 9½% notes due 2017 at 77 bid, 78 offered. Another source pegged Rite-Aid's 6 7/8% notes due 2013 a half point up around 69.

Elsewhere in the retail and restaurant sector, a trader said Buffets Inc. has "been pretty quiet of late." He noted that the 12½% notes due 2014 last traded on Thursday at around 5.5.

But while struggling retailers have slowly gained ground in the bond arena over the last week, the equity side fell off Monday after a nearly two-week rally. For example, Bon-Ton's stock slipped 23 cents, or 3.02%, to $7.38, while Rite-Aid's equity dropped 13 cents, or 4.01%, to $3.11.

News reports attributed the stock slip up to looming same-store sales figures due out this week. Many market players are assuming the numbers will be weak as the shaky state of the economy is discouraging consumers from spending.

Delphi quiet

There was "almost nothing" going on in Delphi's debt, a trader said, while another source called the bonds up slightly on the day.

Delphi gained momentum last week, as its debt slowly, but steadily gained. However, the bonds lost some spark Friday and ended its week-long rally to close unchanged at around 40.

Come Monday, the automotive parts supplier was deemed better, its 6½% notes due 2009 up almost 2 points to around 40. Another source pegged that issue up even more at around 42.

There is still no word on whether Delphi has had any success on obtaining its exit financing. Last week, the buzz was that the company would have to revise some of the terms of its first-lien term loan. Several market sources said it was likely that the Troy, Mich.-based company would have to make some changes, given the current tightness of the credit market - and the overwhelming feeling that anything automotive related is a sinking ship.

To that end, Delphi posted a more-than-double net loss for December last week. The $964 million loss comes as sales fell by 45% to $606 million.

LandSource loan softer

LandSource Communities Development saw its first-lien term loan B come under pressure during market hours after a lender-only call was held to discuss a new land appraisal, the equity sponsors' stance and potential action to be taken by senior lenders, a trader said.

The company recently did a new appraisal on its land that showed deterioration in the underlying value of that land, the trader explained.

As a result, there a possibility that the company is in default under its credit facility since the collateral is worth less than it was when it was first appraised.

"They could trip the borrowing base covenant," the trader said.

When the appraisal news first hit the market last week, speculation was that the sponsors would put in more equity, which caused the first-lien loan to rise to the 79 bid, 81 offered context and remain there through Friday.

However, following Monday's private call, the first-lien term loan was being offered in the high-70s, but there was really no bid side to be seen, the trader continued. There was also a rumor that a trade went off at 72, the trader added.

LandSource is a joint venture between Lennar Corp., LNR Property Corp. and MW Housing Partners. Its primary investment is the Newhall Land and Farming Co., which owns 15,000 acres in Santa Clarita Valley, Calif.

Solutia revises exit facility

Solutia Inc. came out with revisions to its exit financing senior secured credit facility, including a bigger original issue discount and a Libor floor on the term loan B, and an increase to the size of the ABL revolver, a market source said.

The $1.2 billion seven-year term loan B (B1/B+) is now being offered to lenders at a discount of 91, compared to initial guidance that was in the 96 area, and a three-year Libor floor of 3.25% was added to the deal, the source said.

Actual spread on the term loan B was left in line with original talk at Libor plus 350 basis points, the source continued.

Meanwhile, the five-year asset-based revolver (Ba1) was increased to $450 million from $400 million, while pricing was left unchanged at Libor plus 175 bps, the source remarked.

The original issue discount on the term loan B will be funded by a draw on the upsized ABL revolver.

Also under the changes, the accordion features under both the term loan B and the ABL revolver were eliminated, the source added.

Proceeds from the facility, along with senior unsecured notes, will be used to pay creditors under the company's plan of reorganization and to fund ongoing operations after its emergence from Chapter 11.

The notes are talked at 12.5% at 93 for a yield of 13.97%. They have a face amount of about $430 million, but net proceeds will be about $400 million.

There has been some recent controversy surrounding the exit facility and bonds as the underwriters and the company quarreled over whether the debt commitment is still valid.

On Jan. 23, the company said that the banks were 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.

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 was 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.

On Friday, Solutia said in an 8-K filing that the lead arrangers on the credit facility refused a company demand to close and fund their commitments by Feb. 6, restating their claim that market conditions have hurt their attempt to complete the financing package.

Solutia said the refusal constitutes a breach of the commitment letter.

According to the market source, the changes made to the credit facility on Monday are part of a "continuing effort on behalf of the underwriters to sell the deal."

On the heels of the exit facility revisions, the company's DIP term loan moved higher in trading, with levels going out at 98¼ bid, 99¼ offered, up from 97¼ bid, 98¼ offered, a trader added.

Broad market mixed

Finlay Fine Jewelery's 8 3/8% notes due 2012 were up a point at 51 bid.

A trader saw Quebecor World Inc.'s bonds "right in the mid-40s," with its 8¾% notes due 2014 at 48 bid, 50 offered, "sideways to down a little," while its 9¾% notes due 2015 were in a 47 bid, 48 offered range.

The company's 6 1/8% notes due 2013 lost nearly a point to end at 43.

Calpine Corp.'s 8¾% notes that were to have come due in 2007 were seen down 2 points at 109 bid.

Sara Rosenberg and Paul Deckelman contributed to this article.

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