CIT concerns remain; Rite Aid paper active, better; Sprint Nextel notes unfazed by Virgin buy

By Stephanie N. Rotondo

Portland, Ore., July 28 - The distressed debt market remained strong despite a mixed equity market, traders said Tuesday.

"The market still has got strength to it," one trader remarked. He noted that the activity was "more spread out" instead of one or two names dominating trading.

"The market still has a pretty good bid to it," said another source.

But overall market strength did not help CIT Group Inc.'s debt. Though not nearly as active as it was just last week, traders said volume in the name picked up some. However, the bonds ended lower, unlike the rest of the marketplace.

Meanwhile, Rite Aid Corp. paper traded rather actively, with the 9½% notes due 2017 emerging as the "go to" issue. Still, market sources could not explain the recent improvement in the debt.

Sprint Nextel Corp. announced it would acquire Virgin Mobile USA Inc. in a deal valued at $483 million. But despite being one of the more active names on Monday, the company's bonds were nearly unfazed by the news.

CIT concerns remain

CIT group debt was "active again," though not nearly as much as it was last week, traders reported.

"It was not in the top 10 things that traded," one trader explained.

Still, another trader saw about $20 million of the floating-rate notes due 2009 trade "up and down around 79," which he called "a little softer." He also saw an approximately $20 million block of the 7 5/8% notes due 2012 "floating around" at 56 bid, 57 offered.

"I don't think any have actually traded, but they are trying," he noted.

At another desk, the longer issues were seen remaining in the mid-50s, and the 7 5/8% notes were again quoted at 56 bid, 57 offered.

"It's certainly a lot more quiet than it was last week," the trader said of the name.

On Tuesday, Bloomberg reported that CreditSights analysts Adam Steer and David Hendler believed a prepackaged bankruptcy was the best option for the struggling bank.

"Even if the tender succeeds, we believe CIT remains at risk for filing for bankruptcy because its business model is broken," Steer and Hendler said in a research note published late Monday. "Attempting a prepackaged bankruptcy may be CIT's most viable alternative at this point."

The company has already received $3 billion in rescue financing from a bondholder group - which some claim is a way to force the company into bankruptcy. Either way, CIT has said that the funds would not be enough to meet its needs.

So, a tender offer for $1 billion of August floaters surfaced. Those that tender early will receive 82.5 cents on the dollar for their debt.

CIT is also looking at asset sales, but in the current market, that might be hard to do.

CIT has said it will put its aircraft and railcar leasing units on the block. But companies such as General Electric CO. and American International Group Inc. have attempted similar sales - with no success.

Elsewhere in the world of finance, SLM Corp. - also known as Sallie Mae - saw its 4½% notes due 2010 get "active again," in the words of one trader. He said that "$30-odd million" of the notes traded lower at 93.5.

Rite Aid going strong

Rite Aid's senior issues continued to gain steam, though it was not clear what was driving the move.

A trader said the 9½% notes due 2017, the 9 3/8% notes due 2015 and the 8 5/8% notes due 2015 - which he said trade "on top of each other" - ended in the 72 bid, 73 context, a gain of 1 to 2 points.

Another trader placed the 9½% notes at 73 bid, 73.5 offered, "a little better," on about $20 million traded. The 8 5/8% notes were also firmer at 72 bid, 72.5 offered, with about $15 million changing hands.

Yet another source called the 9½% notes "up a couple points" at 72.3 bid, 73 offered, up from 71.

"I didn't see any news" that could account for the gains, the source said.

Rite Aid is a Camp Hill, Pa.-based drugstore chain.

Sprint unfazed by Virgin buy

After being one of Monday's more active names, Sprint Nextel was on the quiet side, even as the company announced it would acquire Virgin Mobile USA Inc. for $483 million.

A trader said $10 million of the 7 3/8% notes due 2015 traded at 85.5, calling that "right where it was." Another market source pegged the 6% notes due 2016 at 86 bid, 87 offered, also unchanged.

Sprint will pay $5.50 per share for Virgin and its prepaid mobile service. That particular unit has been Sprint's saving grace, as its post-paid division has suffered. One analyst said in an interview with Prospect News that the deal "shows Sprint's focus on prepaid," but did not address its "core struggles."

Sprint will also retire Virgin's outstanding debt, which is expected to total $205 million.

"The acquisition of Virgin Mobile USA positions Sprint for even greater success in the prepaid wireless segment," said Dan Hesse, chief executive, in a press release. "Prepaid is growing at an unprecedented rate with consumers keenly focused on value. Virgin Mobile is an iconic brand in the marketplace that will complement our Boost Mobile brand."

Sprint Nextel is an Overland park, Kan.-based wireless telecommunications provider.

Broad market better

In other distressed issues, Swift Transportation Co. Inc.'s 12½% notes due 2017 ended better around 45, according to a trader.

A trader said that Kellwood Co.'s bonds have been on the rise "ever since they averted bankruptcy" by giving holders of a bond issue that came due on July 15 new debt.

"So people feel that they now have time to work out their problems" - which has given the St. Louis-based apparel maker's 7 5/8% notes due 2018 a boost all the way up to the 30 bid area, a more than 10-point gain from where they were last Thursday, when Kelllwood said that its bondholders had agreed to accept new senior secured notes due 2014 in place of the $140 million of 7 7/8% notes slated to mature on July 15.

Trading was active on Tuesday, although it was mostly in smallish odd-lot pieces, with the bonds circulating in a 29 to 30 context.

Smurfit-Stone Container Corp.'s 8¼% notes due 2012 - which have been steadily rising over the past week or so, to levels in the lower 50s after having started in the 30s some days back - lost a little bit of steam on Tuesday, dropping nearly a point on the day to end just over 50.

Paul Deckelman contributed to this article.

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