Capmark gains on financing news; Rite Aid gives back gains; Nortel steady despite wider loss

By Stephanie N. Rotondo

Portland, Ore., May 11 - Following several sessions of strength, the distressed bond market reversed direction Monday as the market overall had a weaker tone.

"This is probably one of the first down days in a while," a trader remarked, noting that the day "started off quiet."

Another trader said that profit takers might have been the cause for the weakness and also added that the day was "on the slower side."

Of the few positives in the day, Capmark Financial Group Inc.'s bonds gained as much as 4.5 points in response to news out last week. On Friday, the company announced it had obtained new financing, which it would use to refinance its current lending facilities.

Meanwhile, Rite Aid Corp.'s debt dropped as much as 6.75 points, thereby ending its recent run-up. But traders had little explanation for the declines, other than the softer broader marketplace.

Nortel Networks Inc. released its first-quarter results Monday. Despite a wider loss - attributed in part to restructuring costs associated with its bankruptcy case - the company's bonds managed to hang in there.

Also weaker was General Motors Corp. Company management once again remarked that a bankruptcy filing was "more probable," but that it has no plans to amend its debt-for-equity swap that bondholders have objected to.

Capmark gains on financing news

Capmark Financial Group's debt jumped as much as 4.5 points on the day in response to news released last week regarding new financing.

A trader called the company's bonds up 1.5 to 3 points across the board, though he saw issues gaining more than 4 points as well. He saw the 5 7/8% notes due 2012 move up nearly 2 points to 28.75, on $35 million traded. The floating-rate notes due 2010 jumped more than 4 points to 47.75, with $25 million changing hands, while the 6.3% notes due 2017 increased almost 3 points to 27, with $20 million trading.

At another desk, a trader placed the 5 7/8% notes around the 29 level and quoted the 6.3% notes at 27 bid, 28 offered.

On Friday, the Horsham, Pa.-based company said it secured a $1.5 billion loan from unidentified investors. Capmark said it would use the funds, as well as $75 million in cash, to refinance part of its bridge loan and senior credit facility.

Also on Friday, Capmark said it had received yet another extension on its bridge loan. The new maturity is May 21, pushed back from May 8. If the company is unable to refinance the loan, it could be forced to file for Chapter 11 protections.

Elsewhere in the financial arena, American International Group Inc.'s bonds were called one of few names - along with Capmark - that ended positive during the session.

A trader called the 6¼% bonds due 2037 a point better at 24.5.

AIG announced Monday that it had agreed to sell its Tokyo headquarters in an all-cash deal to Nippon Life Insurance Co. for approximately $1.2 billion.

"This is a significant transaction because of the prominence and unique nature of the property and the highly attractive value that both AIG and Nippon Life Insurance Co. are realizing through the transaction," stated Edward Liddy, AIG's chairman and chief executive officer, in a press release. "This transaction has been successfully negotiated by AIG despite the difficult real estate market environment in Japan and globally. The sale generated substantial interest from both Japanese and foreign investors, resulting in a very competitive bidding process. AIG is pleased to effectively monetize this asset within the context of its restructuring effort. We view this transaction as a win-win for all concerned, with Nippon Life Insurance Co. acquiring a premier real estate asset.

"We have reached agreement or closed over a dozen deals in the past several months, despite a very challenging economic environment," he continued. "We presently are in various stages of discussions with respect to other potential transactions, as we continue to move forward with our asset disposition and restructuring efforts in order to serve the best interests of AIG and its constituents."

Rite Aid gives back gains

After running up over the last week or two, Rite Aid's bonds began to give back some gains in a big way, traders reported.

One trader saw the 9½% notes due 2017 falling more than 4 points "after moving up, up, up" in recent sessions. He said $15 million of the paper traded at 57 7/8.

Another trader quoted the issue at 58 bid, 59 offered, down from around 60. Yet another source pegged the notes at 56 bid, 58 offered, down from 60 bid, 62 offered on Friday.

One other market source called the 8 7/8% notes due 2015 down more than 6 points at 58.25 bid.

When asked why the bonds had fallen off of their pedestal, a trader came back with "why did it go up 30 points in a month?"

"You're going to have to give it back as well," he said, pointing to the laws of volatility.

Despite the losses, news reports out Monday indicated that some market players are seeing the threat of bankruptcy decline, as the company's operating performance has improved.

In a research report published Friday, Citigroup analysts led by John Fenn said that the Camp Hill, Pa.-based retailer's bank lenders were unlikely to force the company into bankruptcy any time soon.

"Bank negotiations are progressing and we see little reason why lenders would file the company," the note read. "Clearly the balance sheet is highly levered but it is hard to contemplate a scenario in which bankruptcy follows."

Nortel holding in despite loss

Nortel Networks' paper ended weaker to unchanged after the company reported a net loss of $507 million for the first quarter of 2009.

A source saw the 10 1/8% notes due 2013 fall a point to 28 bid, while another deemed the floating-rate notes due 2011 unchanged at 27.

The quarterly loss of $507 million or $1.02 per shares, compared with a net loss of $138 million, or $0.28 per share, the year before. The wider loss included reorganization costs associated with the company's bankruptcy filing.

Revenue dropped 37% to $1.73 billion.

"First quarter results showed a decline in revenue and margins as expected due to the severe economic downturn and our filings for creditor protection," said Mike Zafirovski, president and CEO, in a statement. "However, despite the declines we saw this quarter, revenue has stabilized and our cash balance is stable from year-end 2008. We accomplished our initial objectives of maintaining our customer commitments and strengthening our operational performance. Network performance and customer service levels are at multi-year highs and customers are expressing their support of Nortel. Our employees have done a tremendous job under challenging conditions."

Regarding the company's bankruptcy proceedings, which have been under way since Jan. 14, Zafirovski said, "We are focused on maximizing value for stakeholders, including creditors, customers and employees. Nortel has rich resources, leading-edge know-how and a deep talent base, and it is our responsibility to preserve this value.

"These are the key considerations in our decision-making process, and work is well underway to evaluate the ultimate path forward for our businesses," he continued. "Discussions are taking place with various external parties, however, decisions have not been taken and we continue to evaluate our restructuring alternatives. To provide maximum flexibility we are also taking the appropriate steps to complete the move to standalone businesses."

GM bonds fall

As new reports came out calling a General Motors Chapter 11 filing more likely, the Detroit automaker's bonds experienced a decline.

A trader placed the bonds generically at 5 bid, 6 offered, while another pegged the notes at 5.5 bid, 6.5 offered.

Another trader saw GM's benchmark 8 3/8% bonds due 2033 down a point at 6.5 bid, 7.5 offered, while seeing domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 up 2 points on the day at 55 bid, 57 offered.

GM's top executive Fritz Henderson said during a conference call that the company was looking at potential filings on a "country by country" basis, though he declined to give further details. Henderson also stated that the company was not planning on altering the terms of a much-maligned debt swap.

Bondholders have reportedly countered with a proposal of their own. Under GM's plan, bondholders would walk away with 10% of the new equity in the reorganized company. But the bondholder plan gives the group 58%. However, Henderson said last week that the U.S. treasury - which has helped keep the carmaker aloft with federal loans - would not approve such a plan.

Paul Deckelman contributed to this article.

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