CIT Group fate remains in question; Rite Aid, Neiman notes trade better; Spansion bonds spike

By Stephanie N. Rotondo

Portland, Ore., July 22 - CIT Group Inc. continued to be the top name Wednesday, though traders noticed activity dying down some and other names coming out to trade more.

As far as CIT goes, the bonds were still seen falling throughout the gyrations of the session. Market players remain wary of the company's status and many are still banking on a bankruptcy filing.

In other names, Rite Aid Corp. and Neiman Marcus Group Inc. saw some action. Rite Aid ended unchanged to slightly higher after it was learned that the company had secured a $290 million loan.

"They have a lot of wood to chop," one trader remarked, referring to the company's ability to reduce its debt.

Spansion Inc. meanwhile got a boost after the company released new financial data in a regulatory filing. A trader saw some issues jumping as much as 12 points on the day.

CIT fate remains in question

CIT Group's bonds remained the day's most active name, though traders reported that trading was significantly less than just a few days ago.

Still, the notes continued to head for lower ground.

A trader placed the floating-rate notes due 2009 - which the company is attempting to exchange for cash - at 82.5 bid, 83 offered, around the offer price for the tender. He also saw the 4¾% notes due 2010 dropping to around 56 from around 60.

Another trader said the company's longest dated issues were trading somewhere in the high-40s to low-50s range, while the floating-rate notes coming due in March 2010 ended lower at 57 bid, 58 offered. However, he noted that the bonds had moved up from intraday lows near 54.

"So it definitely continues to be under pressure," he said.

"I'm just waiting for it to file," said another trader, who after several straight sessions of CIT dominance was ready to be done. "It's just a brutal situation; nobody knows what's going on."

A bankruptcy filing still seems to be a concern for investors, especially as the terms of a $2 billion bailout from bondholders came out.

The bondholder group - which includes Pacific Investment Management Co., Centerbridge Partners LP and the four other bondholders - will receive a 5% fee for the financing, as well as interest of at least 13%. That means the group earned $100 million for the $2 billion put up. On top of that, CIT was required to post collateral of up to fives times over the amount borrowed.

According to several news outlets, some market players have deemed the terms "Don Corleone" financing, referring to the epic patriarch in The Godfather, as the lenders really cannot lose money in the deal - though stakeholders who did not participate in the rescue could stand to lose a lot.

Also, word came that CIT had rejected an offer of about $2 billion in loans from General Electric Co. over the weekend. News reports indicated that the money would not have been available immediately, thus its subsequent rejection.

CIT bondholders are also being advised by some in the know to reject a tender offer for the floaters coming due in August. The company said in a regulatory filing Tuesday that if the tender was not successful, a bankruptcy filing might be imminent.

CreditSights analysts said in a report released late Tuesday that CIT's threats of bankruptcy were "hollow."

"It is our understanding that the creditors that make up the lending group that made the term loan own a sizeable portion of the company's near-term maturities and further benefit if CIT remains out of bankruptcy due to the high interest rate on the loan," wrote analysts Adam Steer, David Hendler, Pri de Silva and Jesse Rosenthal. "So why would these bondholders push CIT into bankruptcy if it did not receive the requisite tender amount when it is to their benefit that CIT remains a going concern? We don't see a reasonable answer to this question. Consequently, we recommend bondholders reject the tender offer."

Meanwhile, Fitch Ratings said it would likely downgrade CIT upon completion of the tender offer.

Also among the financials, a trader saw American International Group's 4 5/8% notes due 2010 "pretty active," but said the bonds stayed around their recent 80 to 81 level.

Another market source saw AIG's American General Finance Corp. 5.85% notes due 2013 about 3 points firmer, at the 61 mark, although its 6.9% notes due 2017 were off almost 1.5 points to finish at 55.

The source saw the SLM Corp., or Sallie Mae, 8.45% notes due 2018 down nearly 2 points at 86 bid.

A trader said that "there seemed to be some activity" in Capmark Financial Group, quoting its capital structure "lower by 1 to 2 points today," with the floaters due 2010 at 34 bid, 36 offered and its 6.2% notes due 2017 at 19 bid, 21 offered.

Rite Aid, Neiman notes better

Rite Aid's debt was trading "more than average," a trader said as the drugstore chain received a $290 million loan from GE Capital.

A trader quoted the 10 3/8% notes due 2015 at 92 bid, 93 offered, which he called about unchanged. Another source saw the 8 5/8% notes due 2015 moving up more than a point to 68.5 bid.

GE Capital said it would contribute its funds to the Camp Hill, Pa.-based company existing $1 billion revolving credit line. That facility matures in 2012.

Elsewhere in the retail world, Neiman Marcus' bonds were quoted higher, though a trader said there was "not much trading."

The trader pegged the 9% notes due 2015 at 66 bid, 67 offered and the 10 3/8% notes due 2015 at 64 bid, 65 offered. Another trader saw the 10 3/8% notes at 63 bid, 65 offered.

On Wednesday, Moody's Investors Service changed its view of the Dallas-based retailer to stable from negative. The rating agency cited the company's improved liquidity with the recent refinancing of its $600 million asset-based revolving credit facility.

Spansion bonds spike up

Bankrupt Spansion saw its bonds go "up a bunch," according to one trader.

The trader saw the 11½% notes due 2016 jump to 54 bid, 58 offered, noting that the debt had been offered about 10 to 12 points lower the day before. The floating-rate notes due 2013 improved to 83 bid, 86 offered, while the 2¼% exchangeable senior subordinated notes due 2016 ended around 7 bid, 8 offered.

The trader attributed the move to an 8-K filed with the Securities and Exchange Commission Wednesday that held certain financial projections not previously disclosed to the public.

Paul Deckelman contributed to this article.

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