Bon-Ton bonds up on improved results; Reader's Digest gets lender OK on restructuring plan

By Stephanie N. Rotondo

Portland, Ore., Aug. 20 - Bon-Ton Stores Inc.'s debt got a boost Thursday after the company posted better quarterly results.

"It's the same story as other retailers," a trader noted. "Sales are down, margins have increased."

Whatever the story, the improved figures helped give the company's bonds an at least 8-point gain on the day. A trader said there was "not too much action" in the retail sector, away from Bon-Ton.

Meanwhile, the Reader's Digest Association Inc. saw its capital structure holding mostly steady. The company announced during the session that it had secured lender approval on a restructuring plan that will likely include a pre-packaged bankruptcy filing.

Nortel Networks Corp.'s notes saw some upside after the company won more time to sell its French assets. The bonds gained about 2 points during the session.

Improved results help Bon-Ton bonds

Better quarterly numbers were touted as the reason for an 8- to 9-point jump in Bon-Ton Stores' bonds Thursday.

A trader said there was "some activity" in the 10¼% notes due 2014 between 51 and 563/4.

"They were all over the lot today," he said, adding that the bonds had been quoted at 52 bid, 54 offered earlier in the week.

Another trader called the name the day's "big mover," while yet another quoted the debt at 58 bid, 59 offered, up about 8½ points on the day.

For the quarter ended Aug. 1, Bon-Ton reported total sales of $609.2 million, compared to sales of $673.4 million the year before. Gross margins improved by 130 basis points to 37.1% of net sales.

The York, Pa.-based retailer also posted an operating loss of $10.6 million, which was an improvement from the previous year's operating loss of $32.3 million.

Net loss increased slightly to $34.8 million, or $2.04 per share, versus a net loss of $33.8 million, or $2.01 per share, in the second quarter of 2008.

"We continued to carefully manage inventory levels and control costs and are pleased to report results that exceeded our expectations, resulting in revised full-year guidance," said Bud Bergren, president and chief executive officer, in the earnings release. "I am very proud of how our team is managing through this difficult economic period and want to thank all of our associates for their continued focus on execution.

"Looking ahead, while there has been some encouraging news regarding the macroeconomic environment, we plan to continue to manage our business conservatively.

"With two important quarters approaching, we feel very good about our execution during this recession and believe our assortment of differentiated quality merchandise at outstanding values is well-aligned with our customers' needs for the fall and holiday seasons. Lastly, maintaining strong cash flow and liquidity remain a key priority for the company."

Bon-Ton revised its full-year guidance on EBITDA to $150 million to $170 million and its loss per diluted share to $3.70 to $2.50.

The company estimates that cash flow will be in the $15 million to $35 million range, "permitting us to manage and reduce our debt levels," said Keith Plowman, Bon-Ton's chief financial officer.

Reader's gets lender OK

The Reader's Digest Association's term loan B held steady as the company revealed that nearly 80% of its senior secured lenders have signed on to the agreement in principle for a restructuring plan that significantly reduces debt and strengthens the company financially, according to a trader.

The term loan B was quoted at 40½ bid, 42 offered, pretty much in line with Wednesday's levels, the trader said.

The bonds were also seen largely unchanged, to possibly down a tad, traders reported.

One trader placed the 9% notes due 2017 at 23/4, versus round-lot levels around 3 on Wednesday. He noted that a small-sized trade occurred in the previous session around 8.

"Somebody got ripped off," he mused.

Another trader also placed the debt in the 3 area, while another quoted the notes at 2½ bid, 3½ offered.

Under the restructuring agreement, senior secured lenders will exchange a substantial portion of the company's $1.6 billion in senior secured debt for equity and will reduce the company's total debt by 75%, to $550 million from approximately $2.2 billion. Ownership of the company will be transferred to the lender group.

The agreement in principle includes a commitment from certain members of the senior lender group to provide a $150 million new money debtor-in-possession term loan that is being led by JPMorgan.

The DIP loan, which is convertible into a three-year exit facility, has a term of nine months with one three-month extension option and is priced at Libor plus 1,000 bps with a 3.5% Libor floor. If the extension option is exercised, pricing will move to Libor plus 1,100 bps. There is also a 200 bps unused commitment fee.

Reader's Digest is a Pleasantville, N.Y.-based media and marketing company.

Nortel gets more time to sell unit

Nortel Networks' paper moved higher following news that the bankrupt telecommunications company had won another three months to find a buyer for its French research and development unit.

"It bought them some time, so it was a positive," said one trader.

The trader said the bonds were "up a few points" around the "48-ish area."

The notes tend to trade on top of each other.

Another trader called the 10 1/8% notes due 2013 up 2 points at 47 bid, 48 offered.

The Canadian company now has until Nov. 20 to sell the unit. The company said that multiple buyers are interested in the asset.

The sale of the French unit is just one in a long line of asset sales the company has undertaken to improve its business. Nortel filed for bankruptcy in January.

Ericsson AB is looking to buy the wireless equipment business from Nortel at a price of $1.13 billion. The Canadian government is reviewing the possible sale.

Financials mixed

A trader saw American International Group Inc.'s bonds were higher "across the capital structure," in line with a rise in its equities on "their good news" - as the company's new chief executive officer said that AIG would pay back the roughly $80 billion in taxpayer assistance it has received and would pursue asset sales to raise cash - although these would have to be "at the right time and for the right price."

He saw AIG's hybrid perpetual preferred securities as among the most active junk issues, with $25 million traded, seeing them jump to 43½ from 37 on Wednesday. He also saw AIG's regular 6¼% bonds due 2037 rise 5 points to 38 bid from 33, with $23 million traded.

Meanwhile, a trader said that he "didn't see much razzle dazzle" in CIT Group Inc.'s bonds. He quoted the 7 5/8% notes due 2012 at 593/4, about where they were quoted Wednesday. There was virtually no activity.

The short end of the curve also "looks pretty unchanged," with its 2010 paper staying at 62 to 64.

Among the CIT Group Funding Corp. of Canada bonds, which had risen sharply on Tuesday in heavy dealings, a trader said that its 5.2% notes due 2015 were a half-point higher at 73 bid on just $1 million traded. Its 4.65% notes due 2010 dipped to 81 bid from 82½ on Wednesday, also on just $1 million traded.

Sara Rosenberg and Paul Deckelman contributed to this article.

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