Investors buoy GM, GMAC; No relief for retailers; Casinos active, mixed; Masonite loan slips

By Stephanie N. Rotondo

Portland, Ore., July 16 - Traders reported a decent amount of follow through in the distressed market Wednesday, helped by a sharp gain in equity markets, including a nearly 300-point increase in the Dow Jones Industrial Average.

"There was very good follow through," a trader said. "The stock market didn't hurt us any either."

The trader said there might also be some nervousness in the market, as well as some short covering. With no news to drive prices, "people are starting to feel like maybe it's not so ugly," he said.

Another trader said there was "a lot more stuff flying around."

"Some of the names that have been beaten down the most were better bid," he said.

After taking the night to digest the news, General Motors Corp. and GMAC LLC's debt ended better Wednesday. The automaker and its lending arm had declined in the previous session on GM's announcement of a restructuring plan that will, among other things, cut thousands of jobs.

Elsewhere, any relief found in the general marketplace was not then lavished upon the retail sector. According to one trader, most names were unchanged to a touch better, though many were still hovering around their lows - Bon-Ton Stores Inc. being one of them. But Michael's Stores Inc., which has been on the losing side recently, rebounded some, as did Burlington Coat Factory Warehouse Corp.

The gaming sector remained active during the session. Casinos have been teeter tottering since last week, when major gaming centers released disappointing revenue numbers. Trump Entertainment Resorts Inc. managed to hold its ground during trading, after several straight sessions of losses. MGM Mirage's debt was also an active name, ending the day about a point higher.

Masonite International Inc.'s term loan continued to slip after the company warned of a potential covenant breach earlier in the week. According to traders, negotiations with the company's lenders regarding an amendment to its credit facility did not seem to be going well.

Investors buoy GM, GMAC

One day after General Motors announced a restructuring plan that would leave thousands without jobs, trading in GM and GMAC was deemed "pretty busy."

A trader quoted GM's 7.2% notes due 2011 at 66 bid, 68 offered, better by about a point, while GMAC's benchmark 8% notes due 2031 were "up and down" around 60.

At another desk, a trader placed GMAC's 8% notes at 58.5 bid, 59 offered, noting that there "were some small trades around 60" late in the day.

Another source saw GM's 7 1/8% notes due 2013 up nearly a deuce at 59.75 bid.

On Tuesday, Detroit-based automaker GM announced it would slash white-collar jobs by more than 20% and elected not to pay its $1-per-share annual dividend, among other things, to deal with the deteriorating economy. GM said it hopes to save $15 billion through 2009, which would leave it with enough liquidity to last through 2010.

GM has been hit with rumors of potential bankruptcy filing of late, given the weakening economy and its lackluster financial performance. Also weighing on the company is troubles at GMAC and its offspring, Residential Capital LLC. GMAC has continuously poured cash into the money-losing ResCap, leaving some to wonder when the pipeline will shut down.

No relief for retailers

While the rallying stock market made for generally better bids in the distressed sector, retailers were not among the top performers of the day.

"There was not a lot of relief in that sector," a trader said. He saw many retail names unchanged to only slightly better, noting that many are still hovering near their lows.

The trader quoted Bon-Ton's 10¼% notes due 2014 at 57.5 bid, 58 offered, "pretty much the lows," he said. "It looks like they found a level of support [there]," he added. "If there is any follow through, they might do better tomorrow."

Michael's Stores notes, which have been on the decline of late, rebounded a point, with its 10% senior notes due 2014 at 83.25 bid, 83.5 offered. Burlington Coat Factory was likewise a point better, the 11 1/8% notes due 2015 around 78.

Dollar General Corp.'s 10 5/8% notes due 2015 have "held in pretty well," the trader said. "They have been immune to the drop in the market." He pegged the paper at 99 bid, 99.5 offered.

Both Neiman Marcus and Levi Strauss remain at their lows, with Neiman's 9% notes due 2015 at 95.5 bid, 95.75 offered and Levi's 8 7/8% notes due 2016 at 90.75 bid, 91 offered.

At another desk, a trader called Rite-Aid Corp.'s bonds active, its 9 3/8% notes due 2015 at 63.5 and the new 10 3/8% notes due 2016 back down to around its issue price at 90.5 bid, 91 offered.

According to the Commerce Department's monthly report, nationwide retail sales increased by 0.1%, the slowest pace in the four months.

Casinos active, end mixed

The gaming arena remained one of the more active sectors in the market during Wednesday's session.

Trump Entertainment, which has been losing weight over the last few trading days, held its ground, its 8½% notes due 2015 closing unchanged at 51 bid, 51.5 offered. A trader noted that while the level was unchanged, the trades were bigger.

The trader also quoted Station Casinos' 7¾% notes due 2016 at 75 bid, 75.5 offered and Boyd Gaming's 7¾% notes due 2012 at 79 bid, 79.75 offered.

Another trader said MGM's 7½% notes due 2016 traded actively, opening at 79 bid, 80 offered and ending higher at 80 bid, 81 offered.

Yet another source saw Isle of Capri Casinos' 7% notes due 2014 up half a point at 66 bid.

Casinos nationwide saw their debt values descend last week as revenue figures out of Las Vegas and Atlantic City showed that the historically recession-proof sector was perhaps not so immune. Throughout the week, other gaming centers, such as Indiana and Connecticut, reported just as disappointing numbers.

Masonite bank debt slips

Masonite's term loan B continued to slide lower as investors reacted to the company's covenant amendment proposal.

The term loan B was quoted at 87½ bid, 88½ offered, down from 88½ bid, 89½ offered on Tuesday, traders said. And, during the session there were a couple of big blocks that traded in the 86s before the paper rebounded a little bit by the close, one trader remarked. On Monday, the loan was quoted at 90¾ bid, 91½ offered.

When asked why the paper has been steadily moving lower since the amendment was presented to lenders, one trader responded, "Contentious amendment. Sponsor that won't roll over. Bank group that's banding together. And, you got bonds that are getting crushed.

"[The] bank group is not happy with the amendment terms. Bunch of asks are just not what the lenders wanted," the trader added.

On Monday, Masonite held a call to discuss an amendment with lenders under which the credit agreement's total leverage and interest coverage ratios would be replaced with a minimum adjusted last-12-months EBITDA test.

The amendment would also change pricing on the term loan to be based on a grid that can range from Libor plus 350 bps to 500 bps. Currently, the term loan is priced at Libor plus 200 bps.

In addition, a 3.25% Libor floor would be added to the loan.

Lenders would get a 50 bps amendment fee in return for their consents.

Last week, the company said that, based on a preliminary evaluation of its financial performance, it expected to be unable to comply with financial covenants for the quarter ended June 30 as a result of challenging conditions in the U.S. housing industry.

Masonite is a Tampa, Fla.-based manufacturer of residential and commercial doors.

Airline loans boosted

Delta Air Lines Inc.'s first- and second-lien bank debt gained ground during the session after the company announced results for the quarter ended June 30 that beat estimates, a trader said.

Northwest Airlines Corp., as the previously announced merger partner of Delta, saw its term loan tread higher in reaction, the trader said.

Delta's first-lien term loan was quoted at 78¼ bid, 80¼ offered, up from 76¾ bid, 78¾ offered on Tuesday, and its second-lien term loan was quoted at 59 bid, 62 offered, up from 58 bid, 61 offered on Tuesday, the trader continued.

Meanwhile, Eagan, Minn.-based Northwest Airlines saw its term loan quoted at 72 bid, 74 offered, up from around 70 bid, 72 offered at the previous day's close, the trader added.

For the quarter, Delta's net income excluding special charges was $137 million, or $0.35 per diluted share, and including special charges of $1.2 billion (related to the impairment of goodwill and other intangibles), net loss for the quarter was $1 billion, or $2.64 per diluted share. Net income in the second quarter of 2007 was $274 million.

Delta said that the year-over-year decrease in net income was driven primarily by unprecedented fuel prices, partially offset by an increase in operating revenue from international expansion.

Revenue for the quarter improved 10%, or almost $500 million, year over year as a result of the company's international network investment, cargo and ancillary business revenue growth, and aggressive yield management.

Meanwhile, AMR Corp.'s term loan was also stronger on Wednesday as the company also came out with earnings that beat analyst expectations.

The term loan was quoted at 87½ bid, 89½ offered, up from 87 bid, 89 offered, a trader said.

For the second quarter, AMR reported a net loss of $1.4 billion, or $5.77 per share, including special charges, and a net loss of $284 million, or $1.13 per share, excluding those charges. By comparison, in the second quarter last year, the company had a net profit of $317 million, or $1.08 per diluted share.

Like Delta, record jet fuel prices contributed significantly to AMR's loss in the quarter. AMR paid $3.19 per gallon for jet fuel in the second quarter compared to $2.09 a gallon in the second quarter of 2007, a 53% increase. As a result, the company paid $838 million more for fuel in the second quarter than it would have paid at prevailing prices from the prior-year period.

Consolidated revenues for the quarter were about $6.2 billion, an increase of 5.1% year over year.

"Our company continues to be severely challenged by the fuel crisis that has afflicted our entire industry, and we expect these difficulties to continue for the foreseeable future," said Gerard Arpey, chairman and chief executive officer, in a news release.

Broad market mixed

Spectrum Brands Inc.'s 11% toggle notes due 2013 were unchanged at 79.

Six Flags Inc.'s 9 5/8% notes due 2014 continued to decline, losing 4 points to close at 44.5 bid.

Charter Communications Inc.'s 10¼% notes due 2010 traded around 94, leaving a seller, a trader said.

Sara Rosenberg contributed to this article.

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