Rite Aid structure up big despite larger loss; GM notes, loan pare losses; Charter shrugs off worries

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., April 2 - The name of the day on the distressed bond arena was Rite Aid Corp., traders reported Thursday.

The company put out its fourth-quarter results during the session. Despite a larger loss, the company's debt structure moved higher, with the bonds gaining as much as 6 points on the day. The move might have been due to comments from company management about its attempts to reduce debt and improve liquidity.

Meanwhile, General Motors Corp. pared some of the losses it had incurred since Monday's session. Traders had no explanation for the move, except that the cash market in general was better.

Charter Communications Inc.'s bonds inched up a tad, according to market sources. The notes increased despite worries that recent lawsuits could hamper the cable provider's bankruptcy case.

Rite Aid up big despite loss

Rite Aid's debt structure got a boost during Thursday trading, despite a larger fourth-quarter loss. The gains were likely due to management's comments in a conference call regarding its goal to increase liquidity and reduce debt.

A trader saw about $14 million of the 9 3/8% notes due 2015 trade at 29, a gain of more than 4 points, he said. The 8 5/8% notes due 2015, however, were flat at 28.5.

But another trader called the bonds up 5 to 6 points better overall, quoting the 8 5/8% notes and the 9½% notes due 2017 at 28 bid, 29 offered. He also saw the 10 3/8% notes due 2016 at 66 and the 7½% notes due 2017 at 58.

Rite Aid's term loan debt also rallied by a few points, according to a trader. The old term loan was quoted at 72½ bid, 74½ offered, and the new term loan was quoted at 74½ bid, 76½ offered, with both tranches higher by about 3 to 4 points on the day, the trader said.

For the fourth quarter, the company reported a net loss of $2.3 billion, or $2.67 per diluted share, compared with a net loss of $952.2 million, or $1.20 per diluted share, last year.

The company said that the net loss was affected by significant non-cash charges resulting from goodwill impairment, store impairment and an additional tax valuation allowance against deferred tax assets. Excluding these non-cash charges, net loss for the fourth quarter was $116.9 million, or $0.14 per diluted share.

Revenues for the quarter were $6.7 billion, down 1.7% from $6.8 billion in the prior year fourth quarter.

Also for the fourth quarter, Rite Aid reported adjusted EBITDA of $261.4 million, compared with $276.3 million last year.

"Despite continued weakness in the economy, we were able to improve our business significantly in the second half of the year as we completed the integration of Brooks Eckerd, enhanced our management team and focused on strengthening our financial position," said Mary Sammons, chairman and chief executive officer, in a news release.

"We made good progress operating our stores more efficiently, taking costs out of the business and reducing working capital, especially in the fourth quarter. As a result, we ended the year with our strongest liquidity position in more than a year," Sammons continued.

Rite Aid also came out with guidance for fiscal 2010 on Thursday. The expected net loss for the year is forecast between $210 million and $435 million, or a loss per diluted share of $0.26 to $0.53.

Adjusted EBITDA for fiscal 2010 is expected to be between $1.025 billion and $1.125 billion.

And, sales for the year are expected to be between $26.3 billion and $26.7 billion, with same store sales improving 0.5% to 2.5% over fiscal 2009.

"We are pleased with the results we have seen so far from these initiatives, and expect them to deliver greater benefits in fiscal 2010 and help us manage through this difficult operating environment. We are focused on improving cash flows and expect to be in a position to start reducing our debt this year," Sammons added in the release.

In a conference call on Thursday, Rite Aid management revealed that it is talking to its lenders about refinancing options for its revolving credit facility that matures in September 2010.

The expectation is that, given the current market environment, a replacement revolver will be smaller than the current $1.75 billion facility than the company has in place.

As a result, the plan is to reduce debt by $200 million to $250 million and do some other supplemental offering such as a term loan or a high-yield piece offering, officials said in the call.

At the end of the fourth quarter, the company had $724 million of availability under its revolver, and that number improved by the time the conference call was held on Thursday to $762 million of availability.

Furthermore, Rite Aid said its initiatives to reduce operational costs and inventory have and will continue to result in cash savings, making it easier for the company to reduce debt in fiscal 2010.

"We hope that these initiatives will improve cash flows so that in fiscal 2010 we can begin to reduce our debt," said Sammons in the conference call.

Rite Aid is a Camp Hill, Pa.-based drugstore chain.

Among other consumer-driven names, a trader saw Sealy Mattress Co.'s 8¼% notes due 2015 at 43 bid, 45 offered, up more than 2 points, after the mattress manufacturer reported an unexpected first-quarter profit, even though it was below year-ago totals.

A market source at another desk saw those bonds up more than 5 points, around the 44 mark.

GM pares losses

After losing weight for the last three sessions, General Motors' corporate and bank debt regained some ground, traders reported.

A trader called GM's 8¼% notes due 2023 about half a point better at 11.25, while its benchmark 8 3/8% notes due 2033 inched up a tad to 11 3/8. But the 7.7% notes due 2016 and the 7.2% notes due 2011 posted relatively big gains, with the 7.7% notes ending at 13.5, a gain of 3 points, and the 7.2% notes at 15, a gain of 2 points.

At another desk, the 7 1/8% notes due 2013 moved up almost 2 points to 13.75 bid.

A trader also saw the company's term loan wrapped around 41, up a point day over day.

Meanwhile, rival Ford Motor Co. also saw its term loan improve, finishing around 48, up about half a point.

Ford's 7.45% bonds due 2031 closed up a point at 30.5 bid, 31.5 offered.

The Big Three have been struggling amid the economic downturn. Earlier in the week, both Chrysler LLC and GM were sent back to the drawing board after the Obama administration deemed their viability plans unworthy. GM's top dog, Rick Wagoner, was then forced out and replaced with Fritz Henderson. For his part, Henderson has seemed much more amenable to a bankruptcy filing, although some think that a "surgical" Chapter 11 filing could bring up another round of surprises.

Additionally, several of GM's directors have reportedly offered to resign, a move some are calling long overdue.

In related names, GMAC LLC's 5 5/8% notes due 2009 firmed to 94.75 after the company announced it would free up about $5 billion for new consumer loans, including loans to subprime borrowers.

Charter shrugs off worries

Charter Communications' bonds closed out the day a little better, shrugging off concerns that lawsuits could derail the company's Chapter 11 proceedings.

At several desks, the 10¼% notes due 2010 were deemed half a point stronger in the 91 range. The 8% notes due 2012 were also better at 92.5.

A group of lenders led by JPMorgan Chase & Co. have alleged that Charter's reorganization plan constitutes a change of control, thus placing the company in default of its credit agreements. Under the terms of the plan, Charter's founder Paul Allen would retain 35% controlling, voting interest in the company though his equity stake would be reduced to 7%. Additionally, Charter is hoping to reprice some debt held by the group of lenders - but should the group win their case, Charter would be forced to issue new debt to cover the old debt.

Key Colony Fund, a senior bondholder, is also suing Charter, as well as Allen. The fund is alleging securities fraud, claiming the company purported to defraud bondholders by claiming the company had enough cash to last through 2009 and that the business was in fact growing.

Charter Communications, which filed for bankruptcy protection last week, is a St. Louis-based cable services provider.

Broad market mixed

In the rest of the distressed market, Idearc Inc.'s 8% notes due 2016 "continued to be lower," a trader said, placing the issue around 2.

First Data Corp.'s 9 7/8% notes due 2015 gained more than 2 points to close at 60.25.

Washington Mutual Inc.'s holding company paper ended the day mixed, according to a trader. He called the senior issues, such as the 4% notes due 2009, "a little better" at 80 bid, 80.5 offered. The subordinated issues, like the 8¼% notes due 2010, were "a touch weaker" at 51 bid, 53 offered.

The trader also quoted the bank seniors, like the 5.55% notes due 2010, at 26 bid, 27 offered.

A trader saw MGM Mirage's bonds better, apparently on the news the company is in talks about getting Colony Capital LLC to invest in its troubled CityCenter project in Las Vegas. But the trader opined that such a deal "doesn't make sense - Colony has its own problems."

Another trader saw MGM's 8 3/8% notes due 2011 at 18 bid, 20 offered, a 2-point gain, on "a lot of odd-lot trading."

Its 6 5/8% notes due 2015 were also up about 2 points, to the 38 bid level.

Paul Deckelman contributed to this article.

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