CIT Group's debt attempts to rally; retailers unfazed by June sales data; broad market mixed

By Stephanie N. Rotondo

Portland, Ore., July 14 - CIT Group Inc.'s bonds attempted to rally Tuesday, as the market speculated that the government might step in to avert another bank failure.

However, by the end of the day, traders reported that the early morning gains had fallen off and the company's notes were trading at or at least near Monday's closing levels.

Meanwhile, trading volume in retailers increased, led by Neiman Marcus Group Inc. Claire's Stores Inc. was also somewhat active, but both companies' debt ended the day unchanged. New retail sales data did not seem to improve the sector's overall value.

Overall, the distressed debt marketplace seemed to be holding steady.

"The market is not really moving," said one trader. "It's kind of stuck."

CIT attempts to rally

CIT Group's bonds continued to dominate trading, though on Tuesday, the debt managed to move higher, or at least maintain.

"It was another CIT day," a trader said, adding that the first 20 most active issues of the day, according to Trace, were all CIT.

"They were going up, then down and I think now they are going back up," the trader noted.

He placed the floating-rate notes due 2009 around 84 and the 5.4% notes due 2016 around 58. He said that the latter issue got as good as 61 during the day's session.

"I think better bids are coming back now," he added.

Another trader said CIT paper jumped 3 to 5 points in early trading, before coming back in to close near the Monday's offered side.

The 7 5/8% notes due 2012, for example, opened 66 bid, 68 offered, moved higher, then came back to around the same market, the trader said.

The trader also saw the 5% notes due 2014 "wrapped around 60," down from the day's high of 62.25 and about the same as Monday's closing level of 59 bid, 61 offered.

The floating-rate notes due 2011 started at 63 bid, 65 offered, traded at 65, then gave back the gains to end back around 63.

On Tuesday, news reports indicated that the bank was in talks with government officials regarding a bailout. The FDIC reportedly has said that its debt guarantee program is not the right cure for CIT's ills.

But CIT is claiming that if it is allowed to fail, many small and mid-sized businesses could be in jeopardy, mainly in the retail and restaurant industries. Those sectors are already facing peril with the economic declines and a decrease of discretionary spending.

And, without some form of aid, CIT could be doomed, as about $10 billion of the company's debt is set to mature through the end of 2010.

Still, there remains debate about whether or not the company's demise would mean disaster and some have gone so far as to say that, even with a bailout, problems still exist.

"We believe CIT's funding model is broken and have our doubts over whether an additional capital injection would cure the problem," wrote a CreditSights analyst in a morning report published Tuesday morning.

Retailers unfazed by sales data

Retail sales are on the rise, according to new data, but retailers largely shrugged off the positive news.

Still, a source said that trading in the sector was higher than it has been, with Neiman Marcus seeing the bulk of the volume.

The source said there was "a bunch of activity, definitely a lot of volume" in the 9% notes due 2015. He pegged the issue at 57.5 bid, 58 offered and the 10 3/8% notes due 2015 at 55 bid, 56 offered, both "more or less unchanged."

Another source quoted the 9% notes at 57 bid, 58 offered - "about unchanged," he said - while another deemed the 10 3/8% notes down just over a point to 55.5 bid.

Elsewhere in the retail arena, Claire's Stores "traded a bunch," according to a trader. He called the notes "mostly unchanged," the 10½% notes due 2017 at 34 bid, 34.5 offered and the 9 5/8% notes due 2015 around 33.5, compared with 31 bid, 33 offered Monday.

Also, Harry & David Holdings Inc.'s 9% notes due 2013 held steady at 48 bid, 50 offered.

"That's where they have been now for probably the last week," a trader said.

For the month of June, retail sales improved 0.6%, according to a report released by the Commerce Department. The result was more than was expected and marked the biggest increase since January.

Broad market mixed

Elsewhere in the distressed market, NRG Energy Inc.'s 7 3/8% notes due 2016 trading actively, but ended "about the same," a trader said. He quoted the notes at 96 bid, 97 offered.

Smurfit Stone Container Corp.'s debt continued to be soft, according to another trader. He saw the 8¼% notes due 2012 and the 8 3/8% notes due 2012 - "they trade on top of each other," he noted - at 35 bid, 36 offered, compared with 38 bid, 39 offered late last week.

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