Distressed market slips; Rite Aid debt flags on poor earnings; OPTI, Clear Channel stay active

By Stephanie N. Rotondo

Portland, Ore., Dec. 16 - There was some softness in the distressed debt arena, traders reported Thursday.

However, "to be fair, there was more volume than I would have expected," a trader said, though he conceded that most of the activity was recent new issues and "people trimming positions."

Rite Aid Corp. announced its quarterly results on Thursday and while the company reported a narrower net loss, revenues dipped. As a result, the company revised its 2011 guidance.

Still, the news didn't cause as much of a stir as some traders would have expected, though the debt did end weaker.

Elsewhere, OPTI Canada Inc. and Clear Channel Communications Inc. continued to be active. OPTI, for its part, gyrated throughout the trading day, ending unchanged to slightly softer. Clear Channel closed about a point cheaper.

Dynegy Inc. meanwhile took a breather after its hefty trading day on Wednesday. The bonds had been active in the previous session on news of another takeover bid, but come Thursday, traders saw little goings-on in the credit.

Rite Aid weaker post-earnings

"There was some Rite Aid action," a trader said after the company released its third-quarter results.

He called the bonds down anywhere from half a point to three-quarters, the 9½% notes due 2017 at 84 bid, 85 offered, the 9 3/8% notes due 2015 at 86 and the 8 5/8% notes due 2015 at 871/2.

Another trader, however, was surprised at the amount of Rite Aid debt that traded.

"Very little Rite Aid traded considering they had crappy numbers," he said. He estimated that total of $70 million to $75 million of the company's assorted issues changed hands, which he said was "a lot, but not a lot" considering there was news out.

He pegged the 9½% notes around 85, which he deemed down a "full point," while the 9 3/8% notes ended around 86.

He added that there were no trades in the 7.70% notes due 2027, but suspected that they ended 56 bid, 57 offered.

"They were 63-64 just a couple weeks ago," he said. "Those have been hit the worst."

Another market source called the 8 5/8% notes over a point cheaper at 86¾ bid.

Rite Aid lowers guidance

For the quarter ending Nov. 27, the Camp Hill, Pa.-based drugstore chain reported revenues of $6.2 billion, a net loss of $79.1 million - or 9 cents per share - and EBITDA of $212.5 million.

"The quarter was below our expectations," said John Standley, president and chief executive officer, in the earnings release. "Based on our third quarter results and our current view that same stores sales in the fourth quarter will be softer than we had expected, we have lowered our guidance for the full year."

Third quarter revenues were down 2.4% year over year, "primarily as a result of a decline in pharmacy same store sales and store closings," the release said. Same-store sales for the quarter dropped 1.3% over the course of the quarter.

However, net loss was slightly better than the third quarter of 2009.

As the market prepares to enter a new year, Rite Aid said it lowered its guidance for sales and EBITDA and increased its forecast for net loss. The company is expecting to see sales between $25 billion and $25.2 billion, EBITDA to be between $815 million and $855 million and net loss to be between $655 million and $525 million.

OPTI gyrates in trading

Volatility reigned in OPTI Canada debt, as the bonds "traded all the way down and then all the way back up," according to one trader.

He saw the 7 7/8% notes due 2014 closing around the 64¼ level, up from the day's low around 63 but down from highs around 66. The 8¼% notes due 2015 meantime ended around 65, versus the low of 64 and the high of 68.

The 9% notes due 2012 closed at 98¾ bid, 99 offered.

Another trader said the debt was "still active," seeing the 7 7/8% notes trade up to 66 before settling back in around 64, "about unchanged." The 8¼% notes climbed up to 67 before backing off to 65, which he said was up half a point.

"There is going to be a lot of that [price movement] going on," the trader said, as the market tries to figure out what the company will do to improve its balance sheet.

OPTI Canada is a Calgary-based oilsands producer.

Clear Channel busy, cheaper

Clear Channel Communications' bonds were "active across the board," a trader said, with no news to drive the activity.

He called the 11% notes due 2016 "down a buck" at 813/4, while the 10¾% notes due 2016 were "kind of unchanged" at 841/4.

Another trader said the credit "had some significant activity," with about $50 million of the 11% notes trading at 821/4, down half a point. Almost $40 million of the 5½% notes due 2014 turned over at 80 7/8, which the trader said was up a bit.

The trader added that another $50 million or so of the company's assorted issues traded, "all in the ball park of where they have been."

Trading in the San Antonio-based multimedia company has been active over the last week or so, though there hasn't been any news out. Several market sources have opined that trading action was simply due to the fact that there was so much debt to play with.

"It's liquid," a trader said. "So it trades."

Dynegy quiets down

After trading on the active side on Wednesday on news of a takeover bid by Icahn Enterprises LP, Dynegy debt was on the quiet side, traders reported.

One trader said "less than $10 million" of the 8 3/8% notes due 2016 traded at 741/4, "kind of right where it was."

Another trader said the 8 3/8% notes were the "only ones that traded," pegging the paper at 741/4.

On Wednesday, the Houston-based power producer announced that it had received a $5.50-per-share offer from Icahn, a 10% increase over Blackstone Group's failed offer. However, many bond market watchers speculated that an Icahn deal would not be good for bondholders.

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