Rite Aid, Michael's hold own; Chemtura steady post-numbers; CIT investors await tender results

By Stephanie N. Rotondo

Portland, Ore., Oct. 29 - The distressed debt market ended "kind of sideways," a trader said Thursday.

However, "it seems to be getting a little better at the end of the day," he said.

Another trader said that "a couple of things stabilized, but it certainly didn't rally with the equity market."

Even Rite Aid Corp. and Michael's Stores Inc. - both of which had fresh news out - were little changed on the day, though trading was somewhat active. Rite Aid released its October sales report and Michael's announced it received lender approval on an amendment to its credit facility.

Chemtura Corp.'s notes were also seen holding steady, despite a decline in its third-quarter results.

Meanwhile, CIT Group Inc.'s debt was also unchanged. The company's tender offer for some unsecured notes was set to expire at midnight ET and some market players speculated that investors were waiting to see the results of the tender - and vote on a pre-packaged bankruptcy - before making any trades. Still, some are not expecting the results to be announced before the weekend.

Rite Aid, Michael's hold their own

In the world of retailers, most names were unchanged on the day, despite credit-specific news.

Rite Aid's debt held its ground as the Camp Hill, Pa.-based drugstore chain posted its October sales results.

A trader called the 9½% notes due 2017 "about the same as yesterday" at 80 bid, 81 offered. However, he added that those levels were down from earlier in the week when the bonds were trading at 83 bid, 84 offered.

Another source also deemed the 9½% notes unchanged at 80.5 bid, 81.5 offered. The 8 5/8% notes due 2015 were likewise steady at 81.5 bid, 82.5 offered.

For the four weeks ending Oct. 24, Rite Aid saw its same store sales decline 0.5% compared with the same period of 2008. Front-end sales dipped 2.7%, though pharmacy sales improved by 0.5%.

Total drugstore sales fell 1.7% to $1.962 billion, compared with $1.997 billion the year before. Of those sales, prescription revenue accounted for 69%.

For the year thus far, same store sales declined 0.3%. Front-end sales slipped 3.1% and pharmacy sales increased 1.1%.

Total sales dropped 1.9% to $16.706 billion from $17.027 billion in 2008.

Meanwhile, Michael's Stores' bonds traded actively, traders reported, though still unchanged.

One trader said "$20-odd million" of the 11 3/8% notes due 2016 traded at 96 bid, 97 offered. Another pegged the issue at 96.5 bid, 97 offered, also unchanged.

The activity in the Dallas-based arts and crafts retailer came as the company received lender approval on an amendment and $1 billion extension on its term loan.

Elsewhere in the retail arena, Blockbuster Inc.'s 9% notes due 2012 "continue to get hit," a trader said.

He quoted the bonds at 54 bid, 55 offered.

Also, Neiman Marcus Group Inc.'s debt - both the 9% and the 10 3/8% notes due 2015 - "rebounded a little," the trader said, after getting "clobbered yesterday." He called the notes up a point to around 88.

Chemtura steady post-numbers

Chemtura's bonds were largely unchanged on the day, though lower on the week, as the company released its third-quarter results.

A trader said there was "not much trading" in the 6 7/8% notes due 2026. However, of the trades that did occur, the levels were steady on the day at 78, but down from 80 bid, 81 offered earlier in the week.

Another source placed the paper at 77.5 bid, 78.5 offered, also unchanged.

For the third quarter, the Middlebury, Conn.-based company posted an operating profit of $34 million, compared with $44 million for the same quarter of 2008. Net sales fell to $681 million from $924 million.

CIT investors waiting for results

As CIT Group's tender offer for about $31 billion in outstanding debt was set to expire, market players said there was only slight action going on in the struggling middle-market lender.

"Everybody is trading little scraps of CIT," one trader said. "And they are all trading for cash."

He noted that there were few - if any - "trades of any size."

"They always trade a little bit," said another trader. He called the 4¾% notes due 2010 "about the same" at 65 bid, 66 offered, while the 6.10% hybrid notes due 2067 were down some at 5 bid, 6 offered. That compared to 9 bid, 10 offered earlier in the week.

At another desk, a trader said CIT "was pretty quiet. I think people are waiting to see how the vote goes."

Yet another trader said, "I think [activity in CIT] has all died down. I really didn't see any activity at all today," ahead of the expiration of the company's offer to swap new debt for existing bonds, in the hopes of cutting its onerous debt burden by as much as $5.7 billion.

"Everybody is just waiting to see what the final is on the exchange." He added, "There was news that they still think they might have to file for bankruptcy. I guess we'll know by tomorrow [Friday]."

He said the levels on the company's paper were for the most part unchanged, "or maybe they're quoted lower, but there's no activity, so what's the real levels? Who knows?"

Bondholders had until midnight ET on Thursday to tender their holdings in exchange for new notes and equity. But some news outlets are speculating that investors may have to wait until the weekend - or later - to hear the results of the tender offer and the vote solicitation on the company's pre-packaged bankruptcy proposal.

The vote on the plan was the company's failsafe in the event the debt exchange did not knock out at least $5.7 billion in debt.

Meanwhile, the ongoing feud between CIT and investor Carl Icahn continued as Icahn issued yet another press release, this time to clarify the terms of his competing tender offer.

"While it is our intention to benefit the multitudes of smaller CIT noteholders, who we feel have been disadvantaged by CIT's restructuring process - and to that end we specifically elected to tender for only the various series of 'retail' notes issued by CIT and listed on the attached schedule - our tender offer is in fact open to all holders of those notes, large and small," the release said.

"When the tender offer is commenced, Mr. Icahn's affiliated entities will offer to purchase ANY AND ALL of the outstanding CIT notes that are subject to the tender offer. The tender offer will not be subject to any financing condition and there will be no conditions to the tender offer based on any aggregate principal amount of notes being tendered."

The release also noted that, should the vote on the company's pre-package plan fail, noteholders could only be eligible to tender if they voted against the proposal.

Vertis heading higher

A trader said that Vertis Inc.'s 13½% notes due 2014 had moved up to 20 bid on Thursday - well up from their 15.5 to 16 context seen Wednesday, and up still further from the levels they had held last month - 3 cents on the dollar at the beginning of September, and a trading level of 8.5 as the month ended.

He saw no news on the credit, suggesting that "somebody is just quietly, or slowly, accumulating a position, it looks like."

He said that "you don't really notice it - but if you go back 30 days, these things were trading in the low single-digits, then high single-digits. Then they were at 15.5 to 16, and today, 20 bid. It's always interesting to see who's buying - and why."

Another trader said that the Baltimore-based advertising insert producer's 13½% notes were bid "right around" an 18 to 20 context. He saw "not much activity - I don't see them trading, but they're quoted up higher."

He also saw "no activity" in the company's 18½% notes due 2012, which were quoted around 50 bid. "So they're quoted higher, but I'm not seeing any trades."

On the lack of any news that might explain the better quotes, he opined, "Stay tuned."

Paul Deckelman contributed to this article.

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