ResCap, GMAC boosted by debt infusion; Delphi bonds better; Retailers continue to rebound

By Stephanie N. Rotondo

Portland, Ore., April 7 - Market players had the weekend to digest the news that GMAC LLC had infused more than $1 billion into its offspring, Residential Capital LLC. Come Monday, both companies saw their bonds gain as much as 4 points on the day.

GMAC has been struggling with its floundering ResCap business since last year. The market has often speculated on how much the parent would give to its child as it tried to right itself from the blowout associated with the subprime mortgage meltdown and ensuing housing slump.

Meanwhile, an overall firmer marketplace helped Delphi Corp.'s bonds regain some ground. The company's debt fell on Friday after the market learned that a key investor had pulled out of an investment deal aimed at bringing the company out of bankruptcy. Investors therefore began to worry what would happen in the near term for the company's reorganization plan.

The stronger tone of the market also helped lift distressed retailers. Linens n'Things Inc. continued to post gains, while Bon-Ton Stores Inc.'s bonds also edged higher.

"Across the board, everything is stronger by 1 to 2 points," a trader said. "Everything was following the stocks from the get go - except that stocks closed flat."

"The market just continues to rally," said another trader.

"The world is a better place," said yet another source. "Everything is higher, much higher."

ResCap, GMAC boosted by debt infusion

Both ResCap and its parent GMAC saw their bonds moving higher, pushed up by the news out late Friday that GMAC would bolster its offspring with a $1.2 billion debt infusion.

A trader said ResCap's shorter-dated paper gained 6 to 8 points during the session, though the bonds settled back to close about 2 to 4 points better. He quoted the shortest issue, the 3.49% notes coming due this June, at around 90 after hitting a high of 93.

Longer issues were also better, up 2 to 3 points on the day, the trader said. He said the 2010, 2012 and 2015 maturities ended at 57 bid, 59 offered.

At another desk, a trader quoted ResCap's 12% notes due 2013 at 56.5 bid, 57.5 offered and GMAC's 7¼% notes due 2011 at 84 bid, 85 offered. The 8% notes due 2031 also firmed to 78 bid, 79 offered.

Another source deemed GMAC's 6 7/8% notes due 2012 up 1 point to around 81.

Late Friday, ResCap said in an 8-K filing that GMAC had given the struggling offspring $1.2 billion in debt that the parent had acquired through the open market. In return, GMAC received more than 600,000 preferred membership interests with a liquidation price of $1,000 per unit.

Still, the contributed debt is only worth about half of its face value, a problem many distressed issuers have faced in the current economic environment.

However, the infusion will allow ResCap to erase the debt from its books, which could keep the company from filing bankruptcy - at least for now.

"It doesn't make sense for GMAC to squander cash by buying back ResCap debt if it intends to put ResCap into bankruptcy in the next few months, so we think ResCap debt maturing in May and June now faces better odds of being paid out at par," wrote Gimme Credit analyst Kathleen Shanley in a morning report.

In an afternoon report, the researcher did note that ResCap continues to face obstacles related to the subprime mortgage meltdown and housing slump.

Standard & Poor's said its ratings on both companies would be unaffected by the news.

Residential Capital is a Minneapolis-based lending institution. GMAC is a Detroit-based lending institution.

Elsewhere in the financial sector, E*Trade Financial Corp.'s 8% notes due 2011 "continue to move up," a trader said. The trader called the bonds "up a couple more points" at around 88.

Delphi debt rebounds

Delphi's debt regained some of the ground it lost last week when a key investor pulled out an investment deal that would help the company emerge from bankruptcy.

A trader said the automotive parts supplier's bonds "crept back a bit, though it was not all that active," quoting the notes generically at 38.

Another trader pegged the 6½% notes due 2013 at 37 bid, 39 offered and the 6.55% notes that were to have matured in 2006 and the 7 1/8% notes due 2029 at 38 bid, 39 offered.

Delphi's debtor-in-possession second-lien term loan and General Motors Corp.'s term loan both saw some improvement in their bank debt levels on Monday as investors took a break for the day from speculating on Delphi's future and GM's role in that future, a trader said.

Delphi's DIP second-lien term loan was quoted at 98½ bid, 99½ offered, up from 98 3/8 bid, 99 3/8 offered, the trader said.

Meanwhile, Delphi's exit facility first-lien term loan was quiet with no real levels seen, the trader remarked.

As for GM, its term loan was quoted at 90¼ bid, 91¼ offered, up from 89½ bid, 90½ offered on Friday, although there was not much volume in the name, the trader added.

On Friday, Delphi was slated to exit Chapter 11 protections. However, key investor Appaloosa Management LP terminated the agreement to invest $2.55 billion into the company, calling Delphi's ability to secure the needed funds for its $6.1 billion exit facility "tenuous."

But one source said that as the market has turned toward the positive side, things could be looking up for the company.

"The whole market is better, which is what Delphi needs [to exit bankruptcy]," the source said. "They need the environment to turn back to positive for them to exit."

The source said that some market players might have realized over the weekend that the "deal is not completely dead," and that, given where the bonds currently trade, "the risk is already priced in."

On Monday, Standard & Poor's said that, as a result of the Appaloosa pullout, S&P no longer expects to assign its corporate credit rating of B and debt issue ratings to Delphi upon the company's emergence from Chapter 11 under the most recent plan of reorganization.

"The timing and details of any revised emergence plan by Delphi remain uncertain. We plan to monitor Delphi's efforts to secure new equity funding or alter its proposed capital structure in an effort to emerge at a later date," the S&P release added.

Delphi is a Troy, Mich.-based automotive parts supplier.

Retailers continue to gain

Distressed retailers are continuing to trend upward, though a trader noted that there was not one name in particular that was better than another.

"Retailers are all better," the trader said. "Nothing was very active, but they were trading slightly higher."

The trader said Linens n'Things floating-rate notes due 2014, which have steadily climbed over the last week, ended around 40, while another trader placed the debt at 39.5 bid, 40 offered. The second trader said the recent gains in the name were due to short covering, or so he had heard.

The first trader also saw Bon-Ton's 10¼% notes due 2014 at 69 bid, 70 offered.

The second trader called Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2014 better at 81.5 bid, 82 offered.

"First thing out of the box, all those [retailers] were higher," he said.

Linens n'Things is a Clifton, N.J.-based specialty retailer. Bon-Ton Stores is a York, Pa.-based department store.

Broad market firmer

Charter Communications Inc.'s benchmark 11% notes due 2015 ended up at 75.5.

Idearc Inc.'s 8% notes due 2016 continued to gain, closing up 1 point at around 86.

A trader said TXU Corp.'s 10¼% notes due 2015 were "up, up and away" at 103 bid.

"They love TXU; they can't get enough," he said.

Another trader said the entire coal market was better, with International Coal Group Inc.'s 10¼% notes due 2014 moving up to 97 bid.

Sara Rosenberg contributed to this article.

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