CIT lower on Fed news; Blockbuster bonds better; Yankee Candle sinks; Ford bank debt dips

By Stephanie N. Rotondo

Portland, Ore., Aug. 13 - CIT Group Inc. was the day's big news in distressed land on Thursday.

The struggling lender said it had inked a deal with the Federal Reserve in which it will be required to submit business plans to the central bank. CIT must explain how it will maintain its liquidity while also improving its risk.

The news sent the longer-dated bonds down 1 to 2 points, according to traders.

Meanwhile, Blockbuster Inc. announced its second-quarter results, which showed a narrower loss year over year. As a result, the company's debt moved higher during the session.

Yankee Acquisition Corp. also released numbers. But, unlike Blockbuster, its bonds fell some on the day.

Ford Motor Co.'s term loan lost some weight, sources reported. The declines came even as the company said it was planning to ramp up production in the second half of the year.

CIT lower on Fed news

There was "not much action" in CIT Group's bonds following an announcement that the company had to file a business plan with the Federal Reserve by Aug. 28, a trader said. However, of the trading that did occur, everything was lower.

The trader said shorter paper, like the floating-rate notes coming due next week, stayed about the same. But longer issues, such as the 7 5/8% notes due 2012, dropped 1 to 2 points. He placed that issue at 60 and the 5.85% notes due 2016 at 55. The 5 1/8% notes due 2014 closed around 561/4.

Another trader saw the floaters trading in a 97 to 99 context, up from the mid-90s levels that the bonds had been holding, adding that "there's always volume in that stuff." He said the bonds were ending around 97.

Meanwhile, the company's 7¾% notes due 2012 were "still hanging around 60," seeing them Thursday in a 58 to 60 range, on "some volume, a decent amount." He said that they had been around the high 50s to 60 area "for the last few days. It's still hanging in that range."

CIT said in a press release Thursday that it had entered into a written agreement with the central bank in which the company had to provide certain proposals regarding it business. CIT has to explain how it will manage its liquidity - and how those actions could affect future earnings - as well as how it intends to improve its risk management.

In addition to the agreement with the Fed, CIT also said that its board had approved a "tax benefits preservation plan," which discourages shareholders from amassing a 5% or more stake in the company. By doing so, CIT can then use its net operating losses to offset its tax bill.

Among other financials, iStar Financial Inc.'s debt closed "unchanged, maybe up slightly from earlier in the week," according to a trader.

The trader quoted the floating-rate notes due 2012 at 35 bid, 35½ offered and the 5.85% notes due 2017 around the 40 mark.

Another market source placed the 6% notes due 2010 at 59½ bid, 60 offered.

On Thursday, Moody's Investors Service lowered its rating on iStar to Ca from Caa1. The agency said the downgrade was a result of challenged liquidity and concerns about its ability to meet short-term debt obligations.

Earlier in the week, Fitch Ratings had also cut iStar to CC, citing a probability of default due to the company's weak liquidity.

On July 31, the company reported a second-quarter loss of $292.3 million on bad loans.

Blockbuster bonds better

Blockbuster released its second-quarter results during the session, and by the end of the day, the movie rental chain's bonds had improved by about a point.

A trader said the 9% notes due 2012 ended the day at 49 bid, 50 offered, calling that "about 1 point higher from a couple days ago." Another source saw the notes at 49¾ bid, 50¾ offered.

One trader said the bonds "traded a lot today," noting that about $5 million - "give or take" - had changed hands.

"That's a decent amount for that name," he said.

For the quarter ended July 5, the Dallas-based company reported a narrowed net loss of $36.9 million on revenues of $1.02 billion. Adjusted EBITDA increased to $36.7 million.

Cash and cash equivalents as of the end of the quarter was $99 million.

"During the second quarter we managed the business toward maximizing cash and liquidity," stated Jim Keyes, chairman and chief executive officer, in the earnings release. "As a result, we improved operational efficiencies and recorded meaningful reductions in total SG&A expenses, resulting in a year-over-year increase in adjusted EBITDA by over 30%. We also generated cash from operating activities and recognized positive free cash flow.

"Although market dynamics remain challenging, we expect improvements during the second half of the year will be driven by a favorable title slate and increased unit availability."

Blockbuster's management also commented on its business outlook going forward.

"As the capital markets improve we hope to extend our debt maturities and reduce our cost of capital in an effort to accelerate our growth initiatives and return to profitability," said Tom Casey, chief financial officer, in the release.

"Due to ongoing challenging trends and market dynamics, combined with continued softness in top line performance and conservative comparables assumptions for the remainder of the year, we currently expect full year adjusted EBITDA to range between $270 million and $290 million, which corresponds to a GAAP range of a net loss of $15 million to net income of $5 million.

"The updated full-year adjusted EBITDA guidance compares to the previously provided range of $305 million to $325 million."

Yankee Candle notes decline

Yankee Acquisition - better known as Yankee Candle - also released numbers during Thursday's session.

A trader said a "fair amount" of the debt traded, placing the 8½% notes due 2015 at 90 5/8 bid, 90¾ offered.

Another trader quoted the notes at 90¼ bid, 90¾ offered, deeming that level "down a little" from its "91 and change" market earlier in the week.

The South Deerfield, Mass.-based company saw sales decline 3.6% to $119.3 million.

"Both the retail and wholesale segments of the business continued to be negatively impacted by the ongoing macroeconomic challenges affecting all consumer-facing companies, including the continued rise in unemployment and weak consumer spending behavior," the company said in a press release.

Net loss came to $12.5 million, including a loss of $3.9 million from discontinued operations. That compares to a loss of $9.3 million in the same quarter of 2008.

Ford bank debt dips

Ford Motor's term loan headed lower during market hours with the debt quoted at 85 5/8 bid, 86 1/8 offered, down from 86¼ bid, 87¼ offered on Wednesday, according to a trader.

On Thursday, the Dearborn, Mich.-based automotive company announced that it is increasing North American production in the third and fourth quarters to respond to growing demand and to ensure dealers are well stocked with fuel-efficient vehicles eligible for the "Cash for Clunkers" program.

Third quarter production will increase by another 10,000 units to 495,000 units, primarily to build additional Escape small utility vehicles and Focus small cars.

In the fourth quarter, the company plans to produce 570,000 vehicles, which is 33% higher than year-ago levels and 15% above the third quarter production plan.

Pilgrim's Pride loan marketed

Pilgrim's Pride Corp. wrapped up the first round of syndication on its proposed exit financing credit facility, which was for agent banks, and, according to a market source, the round resulted in $525 million in commitments toward the revolver and term loan A.

And, that $525 million does not include commitments from the joint lead arrangers on the deal - CoBank and Rabobank, the source said.

The $525 million was raised through five commitments for agent roles; however, details on which banks placed the orders are not available as of yet, the source added.

The three-year revolver is sized at $500 million and talked at Libor plus 450 bps, and the three-year term loan A is sized at $375 million and talked at Libor plus 500 bps.

The revolver, which is subject to a borrowing base, and the term loan A are being sold pro rata.

Pilgrim's Pride's $1.65 billion exit facility also includes a $775 million five-year term loan B that is talked at Libor plus 500 bps.

The company has an existing deal with CoBank, and the expectation is that the institutions involved in that deal will roll their commitments into the new term loan B, a source previously told Prospect News.

That source explained that the rollover expectation is based partly on the fact that the new term loan B has more investor-friendly terms than the existing deal.

There will be upfront fees on the revolver, term loan A and term loan B, but details on those fees are not yet available.

Financial covenants under the facility include leverage, fixed-charge coverage and capital expenditures requirements.

Security is the company's fixed and current assets.

A bank meeting to launch the deal into general syndication took place this past Wednesday in Dallas.

Pilgrim's Pride is a Pittsburg, Texas-based poultry processor.

Sara Rosenberg and Paul Deckelman contributed to this article.

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