Alltel paper gives back some gains; Rite Aid action quiets down; Perkins notes fall on numbers

By Stephanie N. Rotondo

Portland, Ore., June 6 - As the week came to an end, the distressed bond market gave back some gains as the equity markets experienced a heavy decline.

"The total implosion in the stock market put a pale on the day," a trader said. The Dow Jones Industrials fell nearly 400 points on the back of disappointing job data and a more than $10 increase in oil.

"The market is a little scary and guys are acting accordingly," said another source, "I don't know how this one plays out."

Quipped another trader: "There was nothing notable besides lunch."

Still, it was somewhat notable that Alltel Corp.'s bonds lost a little after running up in recent sessions. The earlier gains were caused by rumors, then confirmation, that Verizon Wireless was looking to buy the wireless network. While the merger has positive implications for Alltel, some are left wondering what it will mean for Verizon.

Meanwhile, Rite Aid Corp.'s paper ended virtually unchanged, though a trader said there was little to no activity in the name. The drugstore chain's bonds had previously been one of the more actively traded issues after the company announced a debt exchange offer.

Poor quarterly figures were blamed for a dip in Perkins & Marie Callendar's Inc.'s bonds. The company reported the results Thursday, which showed an increase in revenue but still a wider loss.

Alltel gives back some gains

After experiencing a considerable run-up in recent days, Alltel's bonds fell slightly during the last trading day of the week.

But traders blamed an overall softer market, following an over 300-point loss in the Dow. Others said it was simply "that it had run up so far so fast, [and] people are taking a breather," a trader said.

The trader quoted the 7 7/8% notes due 2032 at 103 bid, 104 offered, adding that volume was "nowhere near the amount trading the day before."

At another desk, a trader called the 7% notes due 2012 at 102.5 bid, 103.5 offered and the 7% notes due 2016 at 102 bid, 103 offered.

Basking Ridge, N.J.-based Verizon Communications announced its plan Thursday to acquire Little Rock, Ark.-based Alltel for $28.1 billion, including debt assumption.

Since the announcement, several ratings agencies have said they are considering upgrading Alltel, while Verizon might face a rating cut. The deal has some scratching their heads.

"It's a stupid idea," a trader said of the merger. The question is "is Verizon going to be a weaker credit now?" he said.

Dave Novosel, an analyst with Gimme Credit LLC, expressed a similar idea.

"A little over a year ago, we argued that a Verizon takeover of Alltel made more sense than an LBO," Novosel wrote in an afternoon comment. But Verizon eventually backed away from the deal, leaving many to believe that it was too expensive to take on Alltel's debt.

"After demonstrating such prudence last year, one has to question the wisdom of paying even more for the asset this year," he concluded.

Rite Aid action quieter

Rite Aid's bonds were one of the more heavily traded names during the week after news of a debt exchange. But like most other previously active names, come Friday the bonds were much quieter.

A trader said he saw the 9 3/8% notes at 76.75 bid, 77.25 offered and the 6 7/8% notes due 2013 at 69.5 bid, 70.5 offered. He added that he saw nothing in the company's new 8½% convertible notes due 2015.

On Friday, Moody's Investors Service rated the new issue at Caa2, affirming the ratings for the company's existing issues. The agency called the outlook negative, citing weak performance.

However, on Thursday, the Camp Hill, Pa.-based drugstore chain said same-store sales increased 1.3% for the month of May, while pharmacy store sales gained 1.4%. Overall sales totaled $2.54 billion for the five-week period, a 47.9% increase year over year.

Perkins slips on numbers

Perkins & Marie Callendar's reported its first-quarter results for the period ended April 20, and, as a result, its bonds fell 1.5 to 2 points during the session.

A trader called the 10% notes due 2013 "lower on back of the numbers," ending the day around 69.

Revenues for the quarter increased 2.3% to $182.4 million, versus $178.3 million the year before. The Memphis, Tenn.-based company noted that food costs increased, though labor and benefits fell. Overall, the company posted a wider net loss at $7.5 million, compared to $2.7 million for the first quarter of 2007.

The company will hold a conference call at 11 a.m. ET on Tuesday to discuss the results.

Elsewhere in the world of eateries, a trader saw the rarely traded Vicorp Restaurant Corp. 10½% notes due 2015 trade around 15, down from the 20s a week earlier.

Are airlines landing back in distressed?

With many distressed bond traders frustrated by the lack of notable volume, many are looking for new names to take up the slack.

But even as the economy struggles and many companies are teetering on the brink of bankruptcy, "there just aren't any," a trader recently told Prospect News.

However, for several months, traders have speculated that the airlines might soon take yet another nosedive into the distressed arena.

"I think people are looking at airlines because they are expecting they will file," a trader opined. There had previously been some hope of consolidation, he added, what with United and US Airways discussing mergers, and the recent Delta-Northwest Airlines deal. Those hopes were let down when United recently announced that it would be flying solo for the time being.

"We have gone from possible consolidation to possibly filing," the trader remarked. "With fuel prices [being what they are], it doesn't bode well for these guys."

Even as individual consumers have been hit with rising fuel costs, airlines are hit even harder. In fact, the cost of fuel is one of the factors that have led many airlines to cut capacity and jobs and increase fares.

Delta and United both waved good-bye to Chapter 11 protections just last year. Conditions being what they are, distressed traders are keeping their eye on the sector.

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