Distressed debt gains strength; positioning pressures A&P, boosts OPTI Canada; Rite Aid weaker

By Stephanie N. Rotondo

Portland, Ore., Dec. 21 - Distressed debt ended Tuesday with a firmer tone and one trader said volume was "a little bit better."

The problem, however, was that "all anyone wanted to do was buy paper," and demand outweighed supply.

Year-end positioning was given credit for price movements in Great Atlantic & Pacific Tea Co. Inc. and OPTI Canada Inc. In A&P debt, the bonds dropped about 3 to 4 points on the day, while OPTI gained about the same number of points.

For its part, A&P announced changes in pricing on its new term loan, but there was no new news out on OPTI.

Rite Aid Corp. - like A&P - was also on the softer side. One market watched expressed concerns about the company's recent earnings announcement and pondered what effect a declining sales trend might have.

A&P debt declines

The Great Atlantic & Pacific Tea Co.'s debt dropped a few points in Tuesday trading, according to market sources.

One trader said the bonds were down "at least 3 points," seeing the 11 3/8% notes due 2015 offered at 24 - without a bid - compared with Monday's highs around 97.

Another trader said the paper "stalled out yesterday around 95," but was them offered at 94½ - also without a bid - come Tuesday.

Still, the second trader added that there was "not a lot of activity" in the name.

The company announced Tuesday that it had lowered pricing on its $350 million term loan to Libor plus 700 basis points from Libor plus 750 bps and cut the original issue discount tightened to 99 from 98, according to a market source.

The 1.75% Libor floor and 101 soft call protection for one year were left unchanged, the source remarked.

The Montvale, N.J.-based supermarket chain's $800 million 18-month debtor-in-possession financing facility also includes a $450 million revolver that is expected at Libor plus 300 bps with a 50 bps unused fee.

JPMorgan is the lead arranger, bookrunner and administrative agent on the deal that will be used to refinance the company's pre-petition senior secured credit facility, to provide incremental liquidity, and for working capital and general corporate purposes.

But in regard to how that news might have affected the bonds, one trader said it was "almost meaningless."

"They have to get it done, so that would be fine," he said. He theorized that the price movement was more a factor of year-end positioning than anything else.

OPTI bonds 'pop'

OPTI Canada bonds meantime "popped up a few points," a trader said.

He saw the 7 7/8% notes due 2014 open around "67 and change" before trading up to 693/4. That compared with Monday's market of 66 bid, 67 offered.

The trader said the 8¼% notes due 2014 were "about the same" at the 7 7/8% notes at 693/4.

Another trader pegged the 8¼% notes around 69½ and the 7 7/8% notes around 693/4.

"They had touched 58 at one point," he said of the latter issue. "So they have really had some recovery."

Like the declines in A&P, the gains in the Calgary-based oilsands producer's debt were attributed to end-of-the-year positioning.

Rite Aid weaker

There was a hint of softness in Rite Aid paper, though a trader noted that only about $20 million total of the company's debt changed hands.

He called both the 9 3/8% notes due 2015 and the 9½% notes due 2017 a point cheaper at 85½ and 831/2, respectively. The 8 5/8% notes due 2015 meantime dipped about a quarter-point to 873/4, while the 7½% notes due 2017 inched up slightly to 96 3/8.

Another trader said the bonds were "off a little bit," the 9 3/8% notes at 851/2-85¾ and the 9½% notes at 831/2. However, he deemed the 8 5/8% notes unchanged at 873/4.

Last week, the camp Hill, Pa.-based drugstore chain reported its third quarter results. For the quarter ending Nov. 27, Rite Aid reported revenues of $6.2 billion, a net loss of $79.1 million - or 9 cents per share - and EBITDA of $212.5 million.

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.

"We find the company's sales trends disturbing, especially the decline in pharmacy comparable store sales," wrote Gimme Credit LLC analyst Kim Noland in a morning report.

"Unsecured bonds yield around 13% but may not provide good value if the company, which recently announced a decrease in near term spending on store improvements, is unable to reverse negative sales trends."

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