CIT-Icahn battle rages on, some notes take a hit; Bon-Ton Stores improves on guidance revision

By Stephanie N. Rotondo

Portland, Ore., Oct. 27 - The battle between CIT Group Inc. and Carl Icahn raged on during Tuesday's session, as Icahn announced a competing tender offer for small noteholders.

Still, traders saw little movement in most of CIT's debt - "even the shorter paper," a trader said - but some of its longest-dated issues were on the active side, trading about 40% lower on the day.

Meanwhile, Bon-Ton Stores Inc. announced improved guidance for the year in a press release published late Monday. The news resulted in some gains in the bonds, ranging from a "good bit" to 4 points.

Though the housing market is still experiencing some softness, the building products arena has been climbing ever higher, according to one market source. Names such as Associated Materials LLC and Ply Gem Industries Inc. were on the firmer side during Tuesday trading.

Overall, the market ended on a mixed note, according to traders. One source went so far as to call the session "another anemic day."

CIT-Icahn battle rages on

CIT Group remained in the headlines Tuesday, as billionaire investor Carl Icahn gave small bondholders another restructuring option.

But market players were surprised that there was not more movement in most CIT issues, though the 6.10% notes due 2067 traded rather actively - and lower.

"Interestingly, there was not much else in CIT," a trader observed, noting that there were not many trades above $5 million in the name's various issues.

However, the trader called the 6.1% notes "down a bunch" around 6, with about "$30-odd million" changing hands. He added that the notes were 10 bid, 11 offered last week.

Another trader said subordinated paper took a hit, also placing the 6.1% notes around 6, with a low mark of 5.75. That compared with 9.5 bid, 10 offered Monday, he said.

"That's a pretty good reduction, on a percentage basis anyways," he remarked.

On Tuesday, Icahn announced that he was "providing downside protection for smaller CIT Group noteholders if they are willing to support him in his opposition to the company's pre-packaged bankruptcy plan," according to a press release.

Under the terms of Icahn's offer, he would pay 60% of par value for notes tendered by smaller noteholders. That group, he said, "have been disadvantaged by the restructuring process and completely ignored by CIT and its advisors, as well as by those purportedly representing them."

As such, "it is very important that the smaller holders realize that their vote matters greatly because, under applicable bankruptcy law, CIT's pre-packaged plan - which would entrench the board at the noteholders' expense - requires, among other things, 50% in number of those voting to approve the plan. This means that whether you own one note or 1,000 notes, your vote counts the same in determining whether the 50% in number is achieved.

"Let us show CIT once and for all that the small noteholder is the wrong group to ignore," he added. "Our tender offer provides downside protection to those noteholders willing to stand up to the company and reject their plan in the face of the scare tactics being used by the company."

This is not the first time Icahn has attempted to undermine the company's current restructuring plan. As previously reported, Icahn is said to have offered the company a $6 billion loan to wind down operations. CIT had previously gone to lenders - including a group of bondholders that had provided rescue financing over the summer - to seek participation in a new loan. However, by participating in the CIT-proposed loan, bondholders would be required to approve the company's plan.

Icahn lambasted the company's board of directors for what he deemed to be "Tammany" tactics and went so far as to send a letter to all bondholders urging them to vote against the plan.

Included with the Tuesday announcement was a letter to small bondholders, in which Icahn posed the question, "This board has been the overseer of the precipitous ruination of CIT, so why continue it in power?"

Those bondholders wishing to take part in Icahn's plan have until Oct. 29 to tender their debt - the same deadline set by CIT for most series being tendered for. CIT extended the deadline for some issues on Monday to Nov. 5.

In response to Icahn's announcement, CIT released a press release of their own, entitled "CIT Sets the Record Straight."

In the release, CIT said that "Icahn is seeking to convince smaller bondholders to vote against the company's proposed restructuring plan now in exchange for his ill-defined promise that some of Mr. Icahn's unidentified 'affiliated entities' will eventually deliver on that vague promise."

And, "under CIT's plan all bondholders within the same class, large and small, are treated equally."

The company went on to outline several "misrepresentations" made by Icahn, including the "fundamental economics" of CIT's proposed plan, as well as statements made regarding the company's board.

"First, CIT's board of directors will be comprised of a majority of new independent members, a significant number of whom will be proposed by the company's bondholders," the release said. "Second, with regard to restrictions on the use of cash, contrary to Mr. Icahn's assertions, CIT has incorporated into its plan a cash control process that places restrictions on the reinvestment of cash into the business and ensures that certain cash flows are used to accelerate the repayment of debt."

CIT Group is a New York-based lender to small businesses and middle-market customers.

Bon-Ton improves on guidance revision

In the world of retail, Bon-Ton Stores' debt gained some ground after the company revised its fiscal 2009 guidance late Monday.

A trader saw about $25 million of the 10¼% notes due 2014 trading around 83, which he called "up a bit."

But another trader said the bonds had gained somewhere in the neighborhood of 4 points on the day. He quoted the debt at 83 bid, 84 offered, compared with levels around 80 on Monday. Those levels were up from around 77 last week.

"They have had a nice run here," he said.

In a press release published late Monday, the York, Pa.-based retailer said that "based upon favorable sales trends for the month of October and third fiscal quarter ending Oct. 31, 2009, it believes results for the full year of fiscal 2009 will be at the high end of the previously stated guidance range."

On Aug. 20, Bon-Ton released its preliminary guidance, estimating that fiscal 2009 EBITDA would fall somewhere in a $150 million to $170 million range. Loss per diluted share was expected to be between $3.70 and $2.50 per share.

Bon-Ton provided a guidance update during its presentation at Wells Fargo's Consumer Growth Conference in New York on Tuesday.

Elsewhere in the sector, Blockbuster Inc.'s 9% notes due 2012 were weaker at 56 bid, 58 offered, compared with levels in the low-60s last week.

"They started falling yesterday," a trader noted.

Building products show strength

A trader said the building products arena was experiencing some strength of late, despite a still sluggish housing market.

For example, Associated Materials - also referred to as SIDE, its ticker symbol - announced a new issue to "take out" one of its bond issues. Since that news, he said, the 11¼% notes due 2014 were "up a good 10 points" around 90.

Builders FirstSource Inc.'s 4.69% notes due 2013 "have been moving up too," he said, placing the issue around 98.25.

Ply Gem Industries' 9% notes due 2012 were meanwhile trading in the 70s, "up from the 60s."

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