CIT bonds gain on merger buzz; Realogy mixed following rating action; Smurfit Stone notes pop

By Stephanie N. Rotondo

Portland, Ore., Sept. 29 - CIT Group Inc. was the name of the day in the distressed space Tuesday, as rumors started circulating that the company was considering merger possibilities.

Though "people familiar with the matter" later refuted those rumors, the bonds reacted mostly positively anyway. The same sources also noted that the company was looking to secure a credit line as it attempts to stave off a bankruptcy filing.

Meanwhile, Realogy Corp.'s bonds ended the day mixed following a round of downgrades. The rating shift was attributed to the company's plan to exchange some of its toggle notes at a discount, which is considered a distressed exchange.

Smurfit Stone Container Corp.'s debt gained some ground in trading. However, traders had no explanation for the move and there was no fresh news to act as a catalyst.

CIT gains on merger buzz

CIT Group's bonds were mostly better, following reports that the company was looking at merger possibilities.

A trader said the bonds traded actively and better, the 6.10% notes due 2067 at 18 bid, 19 offered.

"A bunch of them traded," he said.

The 4½% notes due 2010 were also active around 76 bid, 77 offered, he said.

But another source saw the debt dipping, the 4.65% notes due 2010 at 84 bid, 85 offered, compared with 86 bid, 87 offered previously.

The New York Post reported that CIT was looking into the possibility of merging with IndyMac Federal Bank and that hedge-fund manager John Paulson was the one who had proposed the deal.

However, other news outlets reported that the rumor was "way off base," according to Paulson.

Still, CIT is reported to be looking for a credit line in an effort to keep a bankruptcy filing at bay.

A Reuters article cited "people familiar with the situation" who claim that the struggling financial institution was in the process of negotiating a credit facility up to $10 million. The sources said that the new lines could be dropped if CIT is able to renegotiate terms on its current lines of credit, which include a $3 billion loan from bondholders and a facility administered by Goldman Sachs.

New York-based CIT has to submit a restructuring plan to bondholders under the terms of the loan secured in July by Oct. 1.

Realogy mixed on rating action

Realogy debt finished the session mixed following a downgrade form Standard & Poor's.

A trader placed the 12 3/8% notes due 2015 around 55.5, down from 56.5 on Monday.

"That's down a little [on the day] and down like 5 points from last week," he said.

The trader also saw the 10½% notes due 2014 at 72 bid, 73 offered, which he deemed "kind of the same as yesterday."

Another trader saw the 12 3/8% notes at 55.5 bid, 56.5 offered, which he said was down about a point, while the 10½% notes held steady at 72.5 bid, 73.5 offered.

S&P lowered its rating on Realogy to SC from CC, citing news that the company had closed on a $515 million second-lien term loan due 2017 and that some of the proceeds would be used to exchange some of the company's toggle notes due 2014.

S&P said it considered the swap a distressed exchange.

Moody's Investors Service also changed the company's probability of default rating to Caa3/LD from Caa3.

Realogy is a Parsippany, N.J.-based real estate services company.

Smurfit notes pop

Smurfit-Stone Container's 8¼% notes due 2012 gained a couple points, according to a trader, on no news.

The trader pegged the issue at 67 bid, 68 offered, up from 65 bid, 66 offered.

But another source saw the paper gaining even more, closing at 70.25 bid, which was up nearly 3 points.

Smurfit Stone is a Creve Coeur, Mo.-based manufacturer of integrated containerboard and corrugated packaging.

Broad market better

Elsewhere in the distressed arena, a trader saw Park Ohio Holdings Corp.'s 8 3/8% senior subordinated notes due 2014 at 77.75 bid, 78.75 offered, "the highest I've seen them since before [last year's] crash. People love the credit."

He noted that the bonds had moved up to their current levels from mid-summer levels in the middle 50s.

At another desk, a market source saw the Cleveland-based supply-chain logistics company's bonds doing even better than that, trading around the 80 level, although noting that this came on a number of smallish odd-lot trades. That last round-lot trade, this past Thursday, left the bonds around the 77.5 level.

Also, there was "some activity" in Pilgrim's Pride Corp.'s 7 5/8% notes due 1015, at the 108.75 to 109 bid level, a trader said, adding that it had been among the names that his shop had been getting some inquiry on.

Since the beginning of the month, those bonds - as well as the rest of the capital structure - have moved up smartly to levels well above par, first on the speculation, and later, on the actual news, that the bankrupt Pittsburg, Texas-based chicken producer would be bought by Brazilian meat-packing giant JBS SA.

Paul Deckelman contributed to this article.

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