ResCap debt gets a boost; Vertis notes surge; GM, Visteon firm; YRC higher on short covering?

By Stephanie N. Rotondo

Portland, Ore., Jan. 4 - Though distressed debt traders reported that Monday was full of "tedious" tasks, such as year-end pricing, there were a few credits that saw good-size gains.

Residential Capital LLC got a 10-point boost, which was attributed to news from last week regarding further support from the company's parent. Still, the future of the mortgage lender remains murky, at least in the eyes of some market players.

Vertis Inc. also posted a 10-point gain. However, there was no news out that would have caused the surge, but some sources noted the various rumors that have been milling around of late.

Meanwhile, the automotive sector ended the session on a positive tone, according to traders. General Motors Corp.'s bonds improved, as did those of Visteon Corp.

ResCap gets a boost

Residential Capital's bonds soared in Monday trading, following last week's news that the mortgage lender's parent was planning another capital injection.

A trader said the 6 3/8% notes due 2010 "flew today," ending at 93 bid, 94 offered, compared with levels in the mid-70s before New Year's. Another trader said the paper traded in a range between 88 and 94, ending around the 94 mark.

"Wow, that's way up," he said.

Another market source called the 8 7/8% notes due 2015 a good 12 points better at 83 bid.

Last Wednesday, GMAC LLC - the parent company of troubled ResCap - announced it would get another $3.8 billion from the U.S. government, about $2.7 billion of which would then be used to support ResCap.

But even as the lender's bonds posted hefty gains, some market players were wondering what GMAC could possibly be thinking.

"Treasury pumped in another $3.8 billion into GMAC largely so that GMAC could support ResCap, which is ring-fenced off from GMAC and lacks a compelling ongoing business model," wrote CreditSights analysts Adam Steer and David Hendler in a note to clients. "We are at a loss for words over the complete lack of logic behind using tax dollars to support ResCap."

Moody's Investors Service said the capital infusion would likely do little to help the ailing company.

"It remains uncertain if additional deterioration will occur in these portfolios and whether ResCap can return to profitability," Moody's said in a statement issued Thursday. "The company has been unprofitable on a quarterly basis for three years, its liquidity position is tenuous, capital insufficient and franchise impaired."

GMAC is reportedly holding a conference call Tuesday to discuss the situation.

Vertis notes jump up

Among other big movers, Baltimore, Md.-based Vertis saw its bonds continue to gain ground, jumping as much as 10 points on the day.

A trader said the bonds "traded all over the place," deeming the 13½% notes due 2014 up a 10-spot to 44 bid, 44.5 offered. The 18½% notes due 2012 were also better, though only by "probably 3 points" to end at 80 bid, 81.25 offered.

Another trader also said the notes were "a little better," the 13½% notes up to the mid-40s and the 18½% notes up to the low-80s.

The trader said there was "nothing new" to explain the surge, though he noted that there have been "numerous rumors" floating around the marketplace - including chatter that the company was looking to refinance its bank facility.

The trader also said that "encouraging news from competitors" might have been the cause for the gains, as that could place Vertis' financial position in a more favorable light.

Vertis provides targeted advertising and marketing solutions to leading retail and consumer services companies.

GM, Visteon firm

Automotive names ended the session mostly better, traders reported, though with no news to explain the firmness.

A trader said General Motors' bonds - like the 7.2% notes due 2011 and the 8 3/8% notes due 2033 - finished "better, no question" around 28.

Another trader said Visteon's bonds were "busy."

"A bunch traded," he said of the 7% notes due 2014 in a 28 to 30 range, which he called up a deuce.

Investors covering shorts on YRC?

YRC Worldwide's bonds were quiet, even as Standard & Poor's dropped its long-term corporate credit rating to SD from C.

"Most of them got tendered," a trader said of the 8½% notes due 2010. He said there was only about $30 million left outstanding and that, therefore, they would likely not trade much.

However, he did note that he saw a 75 bid without an offer for the bonds - compared with levels around 65 before the new year.

"That's a short," he said. "Most people didn't think they were going to get this [debt-for-equity exchange] done and somehow they did. So some people are going to be scrambling [to cover shorts]."

Another trader saw the YRC Worldwide 8½% notes slated to come due on Apr. 15 "up a lot" from recent levels on the news that the trucking company had successfully completed its previously announced offer to exchange new common and convertible preferred stock for its outstanding 81/2s and for its contingent convertible notes.

Seeing the 8½% notes trading in the high '80s, he speculated that the roughly $45 million of the bonds still outstanding after the exchange offer were up because "the guys who held out may be getting par plus some accrued when the bonds mature in April."

He saw "some small trades" in the 86 to 87 area, while "they were trading in the 50s not too long ago." He said about 100 bonds - $100,000 - traded Monday at 87, versus the 65 level at which about 125 bonds traded on New Year's Eve, but there weren't any round-lot trades. He also saw a 78 bid for 250 bonds on Monday, "so they're definitely up, but there's not a lot of activity, obviously."

Another trader also saw "bids in the 70s, but only small lots" on Monday, even seeing an offering at 88 for "a small piece" of the untendered bonds; he had seen $30 million trade around 60 bid last Wednesday, Dec. 30, and $2 million at 65 on Dec. 31.

Paul Deckelman contributed to this article.

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