Bon-Ton bonds slip on Macy's news; Delphi paper dips; Charter mixed

By Stephanie N. Rotondo

Portland, Ore., Feb. 6 - Distressed investors weren't biting Wednesday, despite an early rally in the equity markets, traders reported - which was just as well considering the stock market reversed itself to once again close lower.

"The market was definitely weaker," a trader said. "They tried to move the market up in the morning [with the stock rally], but by afternoon everything faded."

Another trader said the day was "worse than watching paint dry."

"Every time I think we are at the low point for activity, it gets worse," he added.

Traders have been increasingly frustrated by the lack of volume in the distressed and high-yield arenas. But an already volatile 2008 has many investors spooked.

"Folks got crushed right out of the gate in January and are being very cautious," a trader said.

But while bond market activity has been light, "bank debt markets have been busy because CDOs are blowing up and guys [are] liquidating positions," the trader added.

One of the sectors investors are most cautious of these days is retailers. An ominous announcement from Macy's Department Stores only fueled that fire, and struggling retailers, especially Bon-Ton Stores Inc., got beat up.

The automotive industry is yet another tricky sector, as many market players believe it is a bad business. But as Delphi Corp. looks to come out of bankruptcy, concerns about whether the company will receive the funds it needs to complete that task are driving the bonds lower.

Meanwhile, Charter Communications Inc.'s paper was one of the more active names of the day, though it was unclear how the notes fared. While one trader called the bonds at least a point weaker, another deemed them slightly better.

Bon-Ton slips on Macy's news

Bon-Ton Stores' debt took a hit along with other distressed retailers after Macy's Department Stores announced severe cuts to jobs, along with its expected fourth-quarter earnings.

A trader said Bon-Ton was the more active name in the retail sector, its 10¼% notes due 2014 slipping "a few points" to 65 bid, 66 offered. Another trader also pegged the bonds at 65 bid, 66 offered.

Elsewhere in the sector, Linens n'Things floating-rate notes were "a little lower" at 43.5, while Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2018 were deemed "not all that active - but they would have been lower."

Macy's, the second-largest retail chain in the United States, announced it would cut about 2,300 jobs from management, as well as consolidate some of its corporate offices. The layoffs will reduce annual expenses by $100 million beginning in 2009, after a $150 million cost in 2008.

The company also cut its fourth-quarter forecast, citing declining January sales, the second straight monthly decline.

The retail environment has taken it on the chin amid continued concerns about the state of the economy. With a recession looming and inflation still going strong, consumers are tightening their budgets and discretionary spending is going out the window.

Speaking in terms of Macy's plight, but addressing the larger issue affecting the sector, Carol Levenson, an analyst with Gimme Credit LLC, said in an afternoon report, "Huge question marks hang over the company's acquisition/transformation of the ailing May Department Stores while the environment for mid-level department stores and the holiday season remain murky ... You would have to believe in both a Christmas miracle and the death of the LBO to take this gamble."

Exit concerns hurt Delphi

Will they or won't they? That seems to be the question investors are asking themselves about Delphi's continued search for exit financing.

It has been more than a week since the Troy, Mich.-based company won court approval on its reorganization plan, but Delphi seems no closer to obtaining the needed funds to emerge from Chapter 11 protection.

After posting slow but steady gains last week, the market has seemed to reverse its feelings on the company. This week, it has been all down hill.

A trader called the automotive parts supplier's paper "quiet, but quoted lower," its 6½% notes due 2009 at 37.

"I think there are more concerns about the exit financing," he said.

Another trader pegged the debt - which trades relatively on top of one another - at 36 bid, 38.5 offered.

There has been talk that Delphi will make some revisions to its exit facility as a way to entice investors. Still, there has been no word on whether those revisions will become fact or remain fiction.

Charter paper active

Charter Communications' bonds were "fairly active," a trader said, though there was no fresh news to act as an impetus.

The trader deemed the debt weaker, the 13.5% notes due 2011 down "at least a point" at 69.5 bid, 70 offered.

However, another trader called the bonds "somewhat firmer," the 10% notes due 2014 at 51 bid, 53 offered.

Charter will hold its fourth-quarter conference call at 9 a.m. ET on Feb. 27. The quarterly and full-year figures will be released earlier that morning.

Broad market tidbits

Buffets Inc.'s bonds, which have been lacking in activity since the company filed for bankruptcy in early January, actually traded Wednesday, a trader said. He said the 12½% notes due 2014 "traded down a couple points from where they last traded" to 3.5.

Move Gallery Inc. has won approval on its plan of reorganization, but its bonds remain radio silent.

"Their stores are closing like crazy," a trader said, adding that there was "nothing going on" in the debt.

Solutia sues banks

Solutia Inc. filed a complaint in the U.S. Bankruptcy Court for the Southern District of New York on Wednesday against the three banks that provided the commitment for its exit financing debt, according to a news release.

The company is seeking a court order requiring the banks - Citigroup, Goldman Sachs and Deutsche Bank - to fund the commitment.

The complaint also asserts that the banks should be stopped from invoking the clause they claim relieves them of their obligation due to their improper conduct and misrepresentations to the company, and further claims that the banks fraudulently induced Solutia to enter into the initial engagement by promising that the financing was firmly committed.

In October, the banks committed to provide Solutia with $2 billion in exit financing comprised of a $400 million asset-based revolver, a $1.2 billion term loan B and $400 million in bonds or bridge loans.

On Jan. 23, it came out 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 took the stance 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.

And then last week, Solutia said that the banks 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.

At the start of this week, the banks actually came out with changes to Solutia's debt financing, in a continuing effort to syndicate the transaction.

Under the changes, 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. Actual spread on the term loan B was left in line with original talk at Libor plus 350 bps.

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.

And, the accordion features under both the term loan B and the ABL revolver were eliminated.

Meanwhile, price talk on the notes came out 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.

"This is not a 'best efforts' agreement," said Jeffry N. Quinn, chairman, president and chief executive officer of Solutia, in the news release. "Solutia agreed to pay the banks an enhanced fee in exchange for their firm commitment to fund the full $2 billion exit financing facility - regardless of the results of the syndication process. We are extremely disappointed by their refusal to meet this commitment and have no choice but to pursue all of our legal remedies."

"It is a well-documented fact that the ongoing conditions in the credit markets began in the summer of 2007," said Quinn, in the release. "Well before the banks committed to Solutia's exit financing, they stated in public filings and through professional advice to Solutia that the credit markets were in disarray, and that the credit crisis would continue for months to come. Despite their concerns and negative outlook, the banks entered into a firm commitment to provide Solutia with this exit financing. The willingness of these banks to offer committed financing that was not subject to a successful syndication was a major factor in deciding to award them this business.

"Solutia is ready to emerge from Chapter 11. We have successfully repositioned our company, we have confirmed a plan of reorganization that brings significant value to our constituents, and our businesses are performing well. We now look to the banks to meet their commitment," Quinn added in the release.

As a result of the financing troubles, Solutia's effective date of its confirmed plan of reorganization and its emergence from Chapter 11 has been delayed from the previously anticipated Jan. 25 date.

Tribune loan lower on McClatchy numbers

Tribune Co.'s term loan B headed down in trading on Wednesday after the McClatchy Co., another newspaper company, reported lower fourth-quarter revenues, according to a trader.

The Tribune term loan B went out at 72½ bid, 73½ offered, down from previous levels of 73 bid, 74 offered, the trader said.

On Wednesday morning, McClatchy announced that revenues for the quarter were $573.4 million, down 14.9% from revenues from continuing operations of $673.6 million in 2006.

Preliminary income from continuing operations in the fourth quarter was $33.2 million, or 40 cents per share, compared to fourth-quarter 2006 income from continuing operations of $76.9 million, or 94 cents per share.

"While we saw a slight improvement in advertising in the fourth quarter compared to the second and third quarters, the advertising environment in 2008 does not appear to be improving. In fact, in January we've seen headwinds from a worsening national economy.

"We now expect advertising will likely be down in the low double-digit range in the first quarter of 2008. As the year progresses we expect advertising revenue trends to improve somewhat from the first quarter, but we don't have sufficient visibility to be more specific," said Gary Pruitt, chairman and chief executive officer of McClatchy, in a company news release.

For the full-year, revenues were $2.3 billion compared to $1.7 billion in 2006, reflecting the addition of the retained Knight Ridder newspapers acquired in the third quarter of 2006.

Preliminary loss from continuing operations in 2007 was $1.26 billion, or $15.40 per share, compared to income from continuing operations for the full year of 2006 of $183.5 million, or $2.84 per share.

Sara Rosenberg contributed to this article.

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