ResCap paper continues to drift lower; Linens notes reverse direction, Claire's bonds gain

By Stephanie N. Rotondo

Portland, Ore., April 28 - Residential Capital LLC remained one of the more active issues in the distressed arena Monday, and the mortgage lender's paper continued to experience losses.

Mounting concerns at GMAC LLC's struggling offspring last week resulted in a series of ratings downgrades, and the company's bonds responded by slipping. Despite the overall quietness of the day, traders reported that the debt saw some follow through after last week's action, losing at least 1 point on the day.

Meanwhile, Linens n'Things Inc.'s notes ended their several-session run-up, falling back about a point. The bonds had previously been slowly but steadily climbing, despite continued speculation on the company's restructuring efforts and issues with vendors. Claire's Stores Inc.'s debt, however, edged higher, though there was no fresh news to prompt the gain.

Still, as is typical in the distressed and high-yield sectors on the first trading day of the week, traders reported that activity was less than stellar Monday, though the market was still seen as firm overall. Some market players opined that the upcoming Federal Reserve meeting was creating a wait-and-see attitude.

"I think it is just a good excuse for people to say 'I'm going to wait and watch,'" a trader said.

The central bank's gathering begins Tuesday and ends Wednesday. Expectations are that the Fed will cut interest rates by a quarter point, adding to the cuts it has already made since the beginning of the year. A statement is expected from the group by 2:15 p.m. ET Wednesday.

ResCap paper drifts lower

Residential Capital's debt continued to decline in relatively active trading, traders reported, as the market followed through on what it began last week.

A trader said the 6 3/8% notes due 2010 and the 6 1/8% notes due 2008 were among the more active of the company's many issues, with the former ending the session at 49 bid, 50 offered and the latter closing at 80 bid, 81 offered.

Another trader pegged the 6½% notes due 2013 at 47 bid, 49 offered, up from the day's low of 45 bid, 47 offered but still down about 2 points.

Another market source quoted the 8 7/8% notes due 2015 softer by 1 point at 48 bid.

With GMAC's "big conference call" scheduled for Tuesday morning - and both GMAC and ResCap executives will be in attendance - a trader speculated that "people are trying to position" ahead of the call.

Investors might bring up GMAC's recent loan to its floundering offspring. Last week, GMAC secured a $750 million credit facility and ResCap promptly drew down more than half of that amount. The increasing assistance GMAC has provided the company resulted in downgrades from both Moody's Investors Service and Standard & Poor's.

The ratings agencies also cut ResCap, citing the resignation of two independent advisers from the company's board, as well as general concerns about the company's ability to continue.

Some believe that there is plenty to be concerned about regarding the company's future.

"Everyday that this bond is above zero is unacceptable," one trader said. He said that the nearest maturity, the 5.12% notes, should be valued at par, with the next maturity around 80.

"Everything after that should be zero," he said, predicting a March 2009 bankruptcy filing.

ResCap is a Bloomington, Minn.-based mortgage lender.

Linens slips, Claire's gains

Linens n'Things' bonds reversed their direction Monday, losing about a point on the day.

A trader quoted the floating-rate notes due 2014 at 45 bid, 46 offered, down from 46 bid, 47 offered last week. At another desk, a trader placed the bonds around 44 bid, 46 offered.

The first trader said he was not sure why the bonds came in, speculating that "there might just be a seller" entering the market. The second trader, however, opined that the recent gains in the Clifton, N.J.-based company's debt were due to short covering - and that is over now.

The trader also noted that the company is still up from its all-time lows in the 20s.

Linens' debt surprised many by steadily climbing, even amid reports that the company was just seconds away from a bankruptcy filing, that is was having issues with its vendors and that it was looking to unload some of its underperforming locations.

Among other names in the LBO genre, Claire's bonds ended the session on a higher note, though it was not clear what had pushed the debt up.

A trader said the 10½% notes due 2017 moved about 2 points up to 54.5 bid, 55.5 offered from 53 bid, 53.25 offered. He said that there was no news out on the Pembroke Pines, Fla.-based company but added that he had heard there was a seller in the marketplace last week.

"Maybe that was holding them down," he said.

Broad market ends mostly stronger

Trump Entertainment Resorts Inc.'s 8½% notes due 2015 closed the session at 64 bid, 65 offered.

A trader said Masonite International Corp.'s 11% notes due 2015 continued to fall on concerns that the company "might have issues with its debt covenant." The trader said the bonds have fallen to 67 bid, 69 offered from 72 bid, 74 offered.

"That doesn't sound like a good thing," said another trader.

Exide Technologies Inc.'s 10½% notes due 2013 keep creeping up, a trader said. The bonds ended the day at around 98.

A trader saw Charter Communications Inc.'s 8 3/8% senior notes due 2014 firm to 96.5 bid, 97.5 offered, while its 10% subordinated notes due 2014 were a point better at 51 bid, 53 offered.

The rarely traded Sea Containers Ltd.'s bonds were likewise firmer, its 10¾% notes that were to have matured in 2006 up 2 points at 43 bid, 45 offered.

After reporting what was considered disappointing numbers, beverage retailer Cott Corp.'s 8% notes due 2011 fell 2 points to 83.5 bid, 85.5 offered. For the first quarter of 2008, Cott's revenue declined 2.6% to $389.7 million. Net loss was $20.7 million, compared to a net income of $4.8 million the previous year.

Paul Deckelman contributed to this article.

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