Lear bonds, loan gain strength; Rite Aid notes remain steady after posting June sales figures

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., July 2 - As was expected, trading in the distressed debt marketplace was subdued, as desks sat empty ahead of the Fourth of July holiday.

"I am pretty sure that nothing has taken place today," said one trader, who added that, as of mid-day, less than $300 million bonds had traded in the secondary world.

"The bulk of the market is out," the trader noted, in "defiance" of the non-early close. "Because of that it's incredibly muted. It's a full sleeper."

Still, Lear Corp. remained a topical name. The automotive parts supplier's debt continued to gain ground, following word Wednesday that the company had reached a deal with stakeholders regarding a restructuring plan. The plan includes a bankruptcy filing.

Elsewhere, Rite Aid Corp.'s debt held in there after the company posted its June sales report. One market source speculated that the numbers - while lower - were largely expected.

The market is closed on Friday in observance of Independence Day. Prospect News will not publish on Monday.

Lear debt gains strength

Lear debt continued to be notable Thursday, just one day after the automotive parts supplier said it would in fact file for Chapter 11 protections.

One trader called the 8½% notes due 2013 and the 8¾% notes due 2016 "up a bit" around 38.

Another trader said the bonds were all around 36 bid, 37 offered, noting that was down from the intraday high around 39.

"Yesterday it was real volatile, it went from 28 to 38," the trader said.

At another desk, a trader called the company's notes active at 37 bid, 38 offered, a 4- to 6-point gain on the day.

The bonds are trading flat, or without accrued interest.

Lear's term loan was also once again stronger as it continued to be spurred on by the company's recent announcement that it plans to begin a proposed restructuring in the near future through a bankruptcy filing, according to a trader.

The term loan was quoted at 77 bid, 79 offered, up from 74½ bid, 76½ offered, the trader said.

On Wednesday, Lear revealed that it is going to file for bankruptcy as a result of the unprecedented economic downturn and corresponding decline in global automobile production volumes and the continued difficult conditions in credit markets generally.

Under the agreement in principle, subject to certain limited exceptions, Lear's trade creditors will be paid in full.

The restructuring plan has the support of a majority of the members of a steering committee of the company's secured lenders and a steering committee of bondholders acting on behalf of an ad hoc group of bondholders. The company is seeking support for its restructuring plan from additional lenders and bondholders.

"We can't call this a prepackaged bankruptcy since the company still needs to get approval from a majority of its lenders and bondholders," wrote Gimme Credit analyst Shelly Lombard in a note to clients. "But this sounds like at least a 'fast track' bankruptcy."

As was previously reported, Lear has received commitments for a $500 million debtor-in-possession financing facility that is being led by JPMorgan and Citigroup.

The DIP financing will convert into exit financing with a three-year term upon the company's emergence from Chapter 11.

As a result of the pending reorganization plan, Lear did not make the principal and interest payments due under its senior credit facility on June 30.

In addition, the company anticipates being in default under its 8½% senior notes due in 2013 and 8¾% senior notes due in 2016, as the 30-day grace period applicable to the semi-annual interest payment due on these notes will expire on July 2.

Also, on Thursday, Moody's Investors Service cut Lear's rating to PD from D.

Lear is a Southfield, Mich.-based supplier of automotive seating systems, electrical distribution systems and electronic products.

Rite Aid steady on June numbers

Rite Aid's bonds were unusually quiet after the drugstore chain released its June sales report.

A trader saw few trades in the name Thursday, but did see a 68.25 offer for the 9½% notes due 2017. He added that the sales report "knocked the stock down some," but considered the numbers to be in line with expectations.

"I don't know why people would expect it to be too different than that," he said.

Other sources saw the 10 3/8% notes due 2016 trade at 90 bid, 91 offered, unchanged.

For the four weeks ending June 27, Rite Aid's same store sales fell 0.6% compared with the year before. Front-end same store sales dropped 4.5%, while pharmacy sales increased 1.4%, including a 484 basis points negative impact from new generic drug introductions.

Excluding the Brooks Eckerd stores, total sales were flat, with front-end sales declining 4.4% and pharmacy sales gaining 2.6%.

At the Brooks stores, total sales fell 1.8%. Front-end sales slipped 5% and pharmacy sales dipped 0.7%.

Total sales came to $1.973 billion, a 2.5% decline from $2.023 billion in June 2008.

On Wednesday, the camp Hill, Pa.-based company announced that it had regained compliance with the New York Stock Exchange, as its average closing share price hit over $1.00 for the last 30 days.

Also, the company said it did not intend to go forward with a reverse stock split. Rite Aid's board had previously chosen to go that route in an effort to regain compliance.

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