ResCap, GMAC notes firm on investment news; GM debt drives higher; Bon-Ton bonds holding steady

By Stephanie N. Rotondo

Portland, Ore., May 22 - Residential Capital LLC and GMAC LLC were Friday's notables in the distressed debt marketplace, traders reported.

Both the subsidiary and parent companies saw their bonds continuing to head higher as rumors from earlier in the week turned out to be true. GMAC received another $7.5 billion in federal bailout funds, the company confirmed.

In the autosphere, General Motors Corp.'s debt also ended stronger, even as bankruptcy fears continued to grow. However, some believe that the company's bank debt will be paid at par.

Traders saw little follow-through in Bon-Ton Stores Inc.'s notes. The bonds had run up in active trading Thursday following the company's earnings release.

Still, market sources categorized the day under "quiet," given the day's shortened session and the upcoming holiday weekend.

"What was notable to day was that we showed up," quipped one trader. "Somebody was actually here to answer the phone."

"A lot of people didn't come in and a lot of people are leaving early," said another.

The market will be closed on Monday in observance of Memorial Day.

ResCap, GMAC firm

ResCap paper got a boost as its parent company GMAC got another government equity infusion, traders said.

A trader called the 6 3/8% notes due 2010 "up a couple points," around 81.

"They had a good run-up yesterday," he added.

Another market source saw the 8 7/8% notes due 2015 jump 5 points to 69.5 bid.

Meanwhile, GMAC's benchmark 8% notes due 2031 were "a little better," the first trader said, at 78 bid, 79 offered.

Another trader deemed the benchmark issue up 1 to 1.5 points at 72 bid, 74 offered. The 6 7/8% notes due 2012 gained 3 points to end at 85 bid, 87 offered.

Both ResCap and GMAC have traded higher over the last few sessions on reports that the U.S. Treasury Department was considering investing another $7.5 billion into the company. On Friday, GMAC confirmed that it had indeed received more federal funds.

"These actions represent another major step in stabilizing and strengthening GMAC," said Alvaro G. de Molina, chief executive officer, in a statement. "Much like last year, 2009 is proving to be a time of landmark actions for GMAC - executing the Chrysler agreement, launching a new brand for our bank, and now taking a meaningful step forward in permanently improving our access to cost-effective funding."

Under the terms of the investment, GMAC sold the Treasury mandatorily convertible preferred membership interests and warrants, $4 billion of which was associated with GMAC's Chrysler agreements and $3.5 billion of which is associated with the Supervisory Capital Assessment Program requirements. The warrants were immediately exercised, giving the government another $375 million of the MCPs.

GMAC had previously been required to raise $11.5 billion of Tier I common or contingent common capital after failing a bank stress test" earlier in the month. About $9.1 billion of that amount had to be new Tier I capital, thus with the new funding, that figure is reduced to $5.6 billion.

Additionally, the company received approval to issue up to $7.4 billion in new FDIC-guaranteed debt.

Also on Friday, ResCap's credit default swaps fell, the five-year swaps selling at 19% of the insured amount plus 500 basis points, compared with 26% plus 500 bps on Thursday.

Elsewhere in the world of financials, CIT Group Inc.'s notes "continue to do better," a trader said. He called the 7 5/8% notes due 2012 1 to 2 points better around 76.

Capmark Financial Group Inc.'s 7 7/8% notes due 2012 were unchanged to maybe a touch higher at 29.5 bid, 30.5 offered. The company said on Friday that it had extended the closing date of its new $1.5 billion credit facility to allow more time to complete documentation.

GM debt drives higher

General Motors' debt structure moved higher during Friday's shortened trading session as a potential bankruptcy filing drew ever near.

Traders saw the automakers bonds gaining anywhere from 1 point to 3 points, the 7 1/8% notes due 2013 at 7 bid and the 7.2% notes due 2011 at 8 bid, 9 offered. But the benchmark 8 3/8% notes due 2033 were deemed unchanged at 5 bid, 6 offered.

The company's bank debt was also firmer, which a trader attributed to the belief that the bank debt may get repaid at par.

One trader quoted the Detroit-based automotive company's term loan at 80 bid, no offers, compared with Thursday's levels of 72 bid, 73 offered.

A second trader, meanwhile, had the term loan quoted even higher at 83½ bid, 85½ offered, up from 73 bid, 74 offered.

"Everyone kind of coming to the point where people think it will get taken out at par," the first trader remarked. "Rumors there was a private lender call yesterday [talking about] chance of government paying off the term loan and revolver at par and there was a Washington Post article today."

The Washington Post article claimed that the government is looking to push General Motors into bankruptcy as early as late next week, and that with the filing, the company would receive close to $30 billion in federal loans.

Chatter of the government possibly repaying General Motors' credit facility in full at par has been circulating for about a week and a half now, and since these rumors first hit, the bank debt has traded up a considerable amount.

On May 13, the term loan was quoted in the 58½ bid, 61 offered context. On May 14, when the repayment buzz first emerged because of talk that a lawyer call took place with some lenders, the term loan traded up to around 66 bid, 68 offered. The loan closed out that week in the low-70s where it pretty much remained until now.

Although the speculation on the government repaying the loan is fairly new, talk about the company possibly filing for bankruptcy has been around for a while.

In April, General Motors launched offerings to exchange $27 billion of its unsecured public notes for new equity, at which time, the company said that if, prior to June 1, it does not receive enough tenders of notes to consummate the exchange offers, it expects to seek relief under the U.S. Bankruptcy Code.

This relief may include seeking bankruptcy court approval for the sale of most or substantially all assets to a new operating company and a subsequent liquidation of the remaining assets, pursuing a plan of reorganization, or seeking another form of bankruptcy relief.

In a recent S-4/A filed with the Securities and Exchange Commission, General Motors said that it currently believes that if it pursues one of the alternatives, a sale would be the most likely.

Furthermore, bondholders have overwhelmingly rejected GM's tender offer, making it unlikely that 90% of noteholders would participate in the deal. GM has also rejected a counter proposal from bondholders, in which the group would hold about 50% stake in the reorganized company. GM's current proposal gives bondholders just 1% interest.

Bon-Ton holds steady

There was little follow-through in Bon-Ton Stores' bonds after the company's earnings release had sparked activity in the name on Thursday.

"There's no people to follow up," a trader quipped. He added that short covering might have been what prompted trading in the previous session.

He saw an odd-lot offer for the 10¼% notes due 2014 at 48, right in line with 46 bid, 48 offered quotes on Thursday.

For the first quarter, York, Pa.-based Bon-Ton saw total sales drop to $664.5 million from $700.2 million the year before. Net loss came to $45.4 million, or $2.67 per share, compared with $34.1 million, or $2.03 per share, in 2008.

Sara Rosenberg and Paul Deckelman contributed to this article.

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