Retailers boosted by January sales; Exit worries not news to Delphi; ResCap gaining ground

By Stephanie N. Rotondo

Portland, Ore., Feb. 13 - Distressed bonds turned mostly better during Wednesday trading following a rally in the equity markets.

"A number of things seemed better," a trader said, while another categorized it as "another lovely day."

"We are seeing some buyers return after a long hiatus," the second trader said. "The market is trying to recover."

Still, the first trader was weary of such optimism.

"It was a little bit of a snooze, really," he said of the day. "I'm not sure if people are buying into the rally in the market. They aren't really chasing the market; it's more sitting on the sidelines, expecting some more pain."

The retail sector, however, had a relatively pain-free day. The Commerce Department's monthly report on sales turned up surprising results, and, in turn, struggling names such as Bon-Ton Stores Inc. and Burlington Coat Factory Warehouse Corp. got a boost.

Investors were not surprised by the plethora of news stories published Wednesday that discussed Delphi Corp.'s trouble with its exit financing. That news did little to upset the company's debt. In fact, according to one source, interest in the name has picked up - even if actual trading activity has not.

In the financial sector, Residential Capital LLC has been steadily regaining some ground after almost losing its shirt due to big quarterly losses. But traders have been unable to explain exactly why the mortgage lender's bonds have firmed - and that only adds fuel to "the big debate."

Retailers better on January sales report

Better-than-expected sales figures for January gave distressed retailers a boost during mid-week trading.

A trader said names in that sector were better across the board, with Bon-Ton Stores' 10¼% notes due 2014 at 68, Burlington Coat Factory's 11 1/8% notes due 2014 at 79 and Rite-Aid Corp.'s 9½% notes due 2017 at 75.5.

Another trader also called Bon-Ton's bonds better at 68 bid, 68.5 offered. Linens n'Things Inc. floating-rate notes due 2014 were also stronger at 42.5 bid, 43 offered.

Linens has been relatively quiet of late, considering the amount of activity that name saw as the bonds entered their descent.

"They have kind of settled in," a trader said. "They were more active when they were going down."

According to a Commerce Department report, retail sales rose 0.3% in January, after falling 0.4% in December. Analysts were expecting January figures to continue to decline after the lackluster holiday shopping season.

Still, the sales gain is not expected to last. Consumer spending is expected to decline in the coming months as the threat of recession looms. However, the Bush Administration's newly inked economic stimulus package and recent interest rate cuts from the Federal Reserve have some hoping that the recession might be fought off.

Exit worries not news to Delphi

Several news outlets published stories on Delphi's struggles with obtaining its exit financing Wednesday, but that did little to hurt the company's debt.

In fact, the news likely came as no surprise to investors, and traders reported that the bonds were better, though quiet.

"There was not a lot of trading," a trader said. "But there is definitely some interest in them."

The trader said the 7 1/8% notes due 2029 were "amazingly" at a 34.75 bid. The 6.55% notes that were to have matured in 2006 were seen with a 34 bid, while the 6½% notes due 2013 were "a little back" from that level.

Another trader pegged the notes generically in the mid-30s. Another market source placed the 6.55% notes up almost 3 points at 34.

Yet another trader said the 6.55% notes were "probably a point or two higher" at 34 bid, 35 offered, while another trader saw them up 2 points, also at 34 bid, 35 offered, on the idea that "GM will help with their exit financing."

Delphi has been searching in vain for its exit financing. The tight credit market has made it more difficult for the Troy, Mich.-based company to secure all the funds it needs to emerge from Chapter 11 protection.

If the company does not secure the financing by the end of March, it could put its entire exit package at risk. At that point, if the cash has not been found, Appaloosa Management LP could abandon its plan to invest up to $2.55 billion in the automotive parts supplier.

The company has said that some of its exit loans have been nailed down, but it has not said how much is still left to go. The situation could require former parent General Motors Corp. to step in and front the necessary funds.

GM has said that it is exploring alternatives with Delphi in the event that the financing is not in place sooner rather than later. However, neither party has said just what those alternatives may be.

ResCap gaining momentum

Residential Capital is slowly attempting to regain some of the losses it incurred after the mortgage lender and its parent, GMAC LLC, posted huge quarterly losses.

But traders have not been able to pinpoint what has sparked the upward movement.

One trader said there is a "big debate" in the marketplace about whether the number of defaulted loans is less than what the current bond value is implying. Several lenders have made moves to help decrease that number, including putting a freeze on defaulted mortgages in an effort to work something out with the borrowers.

"The freeze helps," the trader said. "Maybe it will get worse, or maybe the securities are mispriced and they will rally."

Either way, he said, "we probably won't know until later in the year."

The trader quoted the 6 3/8% notes due 2010 at 65 bid, 66 offered and the 6 7/8% notes due 2015 at 62 bid, 63 offered.

At another desk, a trader said longer dated paper, such as the 10% notes due 2011, was trading in the 62 bid, 63 offered "kind of range," while the 5.65% notes due 2008 moved up to 89.5.

Another trader placed the 6 7/8% notes at 62.5 bid, 63 offered. He said they traded at 61.75 bid, 62 offered "all day" before ending at 62.5, "pretty much where they have been" for a while, but he said that "there's been activity [today] in ResCap," and in parent GMAC, "decent size trading in those names."

Another trader saw GMAC's 8% bonds due 2031 up half a point at 80.5 bid, 81.5 offered.

Elsewhere in the sector, Countrywide Financial Corp.'s 6¼% notes due 2009 were called "the hot issue today" in terms of activity levels, unchanged at 94 bid, 95 offered, while its 6¼% notes due 2016 were down 1 point at 86 bid, 88 offered and its other bonds were down half a point to a point.

Broad market mixed

Idearc Inc.'s 8% notes due 2016, which have been active of late, were deemed unchanged at 72.5 bid, 73 offered.

Trump Entertainment Resorts Inc.'s 8½% notes due 2015 continue to get better, ending the day a point firmer at 69.5 bid, 70 offered.

A trader said stub pieces of Calpine Corp.'s 8½% notes due 2011 have been trading actively, closing at 17.

The trader also called United Rentals' 6½% notes due 2012 active at 89.5 bid, 90.5 offered.

Paul Deckelman contributed to this article.

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