ResCap paper dips, Thornburg gains; Delphi paper weaker on 2008 forecast; Retailers better

By Stephanie N. Rotondo

Portland, Ore., April 25 - With the nice weather in New York continuing on Friday, many distressed players bid their desks adieu to enjoy sunshine.

According to weather reports, the last day of the session was near 70 degrees and clear. But with bad weather expected over the weekend, some decided to take advantage. As a result, many desks were left unmanned and the trading day was lackluster at best.

One trader said most of the day's action was due to "month-end stuff," adding, "no real business got done."

Still, the bond market remained on the higher side, continuing the firmer tone felt throughout the week.

Residential Capital LLC, however, remained one step behind the rest of the market. The mortgage lender's bonds, which began slipping earlier in the week after seeing their ratings cut by both Moody's Investors Service and Standard & Poor's, posted losses once again. Traders reported the bonds fell as much as 4 points on the day.

Elsewhere in the sector, Thornburg Mortgage Corp.'s bonds edged higher, though there was no news to account for the move. However, one trader said that as the day came to a close, the company's debt was "coming back in."

In the autosphere, Delphi Corp.'s paper ended weaker. The automotive parts supplier's bonds fell during Thursday trading after the company adjusted its 2008 revenue and EBITDAR projections. The notes continued that trend during Friday's session.

Though consumer confidence fell to its lowest level in 16 years, distressed retailers were slightly firmer overall. Names like Bon-Ton Stores Inc. and Burlington Coat Factory Warehouse Corp. both closed the day at higher levels.

ResCap paper dips, Thornburg gains

Residential Capital's debt continued to post losses, a trend that began earlier in the week after a series of rating downgrades.

One trader called the Bloomington, Minn.-based company's bonds down another 3 points, its 6½% notes due 2013 around 49.

Another trader deemed the 8 7/8% notes due 2015 down 3 to 4 points on the day at 45 bid, 47 offered, while another market source called that issue off 3 at around 49.

"The long bonds got killed," the trader said. "ResCap's not going to make it."

ResCap's floating-rate notes coming due on June 9, 2008 lost more than 2 points to close at 92.

Moody's dropped its rating on ResCap on Wednesday following the resignation of two independent advisers from the company's board. On Thursday, S&P followed suit. Along with the board exits, concerns about the company's ability to continue also played a role in the downgrades.

ResCap has faced issues since the subprime mortgage meltdown of summer 2007 began. Its exposure to the subprime market resulted in a significant amount of write-downs. Parent company GMAC LLC has tried to keep the company afloat through loans and infusions. On Thursday, GMAC made yet another attempt to help out its offspring by obtaining a $750 million credit facility - of which ResCap has already drawn over $450 million.

GMAC's 6 7/8% notes due 2012 slipped half a point to the 82.5 context during the session, while its 6¾% notes due 2014 lost 1.5 points to end at 77.

But in the event of a bankruptcy filing, the question is how much will be left for ResCap's bondholders?

According to Kathleen Shanley, analyst with Gimme Credit LLC, not much will be left.

In an afternoon report, Shanley wrote that GMAC has done much to protect shareholders from feeling the pinch, but bondholders have not been so lucky.

"In the event of bankruptcy, there may not be much left over for unsecured bondholders after secured creditors (including GMAC) pick over the carcass," she opined.

Meanwhile, Thornburg Mortgage's bonds went the opposite direction of ResCap paper, but traders said they saw no news to prompt the move.

One trader quoted the 8% notes due 2013 at around 77. He said the only thing he had heard was that MatlinPatterson had been appointed to the company's board, but he did not see that as the catalyst for the gain.

Another trader placed the debt at 76.75, noting "they are higher, but they are coming back in."

Yet another source called the Santa Fe, N.M.-based company's bonds only a half point better at around 73.75.

At another desk, a trader said the bonds moved up 3 points at 76.75 bid, 77.5 offered, while another trader saw the bonds get as good as 77.75 bid before going out at 76 bid, 78 offered, somewhat firmer on the day.

Another trader pegged the bonds at 77 bid, up about 3 on the day.

Delphi weaker on 2008 forecast

Delphi's bonds remained on the decline after adjusting its 2008 EDITDAR and revenue projections.

A trader called the parts manufacturer's paper "weaker," quoting the bonds generically around 34. Another source also saw the bonds around 34, down 1 to 1.5 points.

In a filing with the Securities and Exchange Commission Thursday, Delphi increased its revenue expectations to $21.03 billion from $19.71 billion, attributing the rise to the retirement of divestiture activity. However, the company lowered its EBITDAR to $999 million from $1.58 million, due to pensions and other retirement benefits.

Delphi is also looking to extend its current credit agreements to Dec. 31, as the deals are set to expire July 1. As the company continues to search for exit financing, the company has stated previously that it could take months for the company to exit Chapter 11 protections.

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

Retailers confident, consumers are not

Despite yet another drop in consumer confidence, distressed retailers saw their bonds edge higher, or at least maintain their levels.

A trader quoted Bon-Ton Stores' 10¼% notes due 2014 at 73 bid, 74 offered, while Burlington Coat Factory's 11 1/8% notes due 2014 closed near 84.

Another source called Finlay Fine Jewelry Corp.'s 8 3/8% notes due 2010 up a half point to around 44.

At another desk, a trader agreed that retailers were overall better on the day but could not explain the move.

"Retailers are better," he said. "Why is that though? I can't figure it out."

According to the Reuters/University of Michigan Surveys of Consumers, consumer confidence fell for the third straight month to 62.6 from 69.5 the month before. That fell below the median expectation of 63.2.

The April reading showed the biggest drop since March 1982, when "stagflation" had taken hold of the economy. With food and gas prices increasing, but growth hitting a snag, many see the current climate as a repeat of that time.

Still, some are hoping that the economic stimulus checks will help to jumpstart the economy. President Bush announced that the payments would begin going out to taxpayers on Monday, four days sooner than originally planned.

Broad market mixed

Idearc Inc.'s paper slipped slightly in trading, the 8% notes due 2016 falling half a point to around 70.25. Sector peer Dex Media Inc.'s 8% notes due 2013 were a half point lower at 79.

Idearc will hold its first-quarter conference call at 10 a.m. ET on May 6.

A trader saw Swift Transportation Co. Inc.'s 12½% notes due 2017 off half a point to 34.5 bid, 36.5 offered.

Among the gaming bonds, Herbst Gaming Inc.'s 8 1/8% notes due 2012 fell almost 2 points to 22.5. Harrah's Operating Inc.'s 5¾% notes due 2017 ended down a point at 56.

Paul Deckelman contributed to this article.

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