First Data debt active, lower; Catalyst firms despite downgrade; Bon-Ton gives back some gains

By Stephanie N. Rotondo

Portland, Ore., March 11 - The distressed debt market "started softer, but it firmed a bit here at the end," a trader said Thursday.

Still, he noted that the focus was "centered on new issues."

"Lots and lots of new issues seems to be the thing of the day," said another source. "There was not a whole lot of secondary stuff going on."

That being said, there were a few exceptions, with First Data Corp. leading the way.

Trading in some First Data bonds hit as much as $100 million in total volume after the company released its fourth-quarter results. The company also said that its top executive was leaving effective March 31.

Though active, the bonds - as well as the bank debt - ended a few points weaker on the day.

Catalyst Paper Corp.'s remaining bonds shook off a downgrade from Standard & Poor's. Market sources saw the bonds ending steady to somewhat better.

Also, Bon-Ton Stores Inc.'s bonds gave back some of the gains earned in the previous session. Those gains came after the company released its fourth-quarter results, which showed a swing to profit.

First Data trades active, lower

First Data's bonds were the day's big trader in the secondary market, according to market sources.

The surge in activity - by one source's account, as much as $100 million of the 10.55% notes due 2015 traded - came after the company released its fourth-quarter results and also announced that its top executive was leaving his post.

The source said the 10.55% notes headed lower "throughout the day," starting around 90 and finally ending in an "85-ish range." He also said a "big hunk" - about $60 million to $70 million, "maybe even bigger" - of the 9 7/8% notes due 2015 traded "off a couple points" to around 873/4.

Another source said the 9 7/8% notes "got beat up a little bit," closing at 7 bid, 88 offered, down from 90¾ bid, 91 offered.

First Data's term loans also lost some ground in trading following the release of what one trader described as "horrible" fourth-quarter numbers and news that the chief executive officer is leaving.

The trader had the term loan B-1 quoted at 88 5/8 bid, 89 offered, down from 89 bid, 89½ offered; the term loan B-2 quoted at 88½ bid, 88 7/8 offered, down from 88 7/8 bid, 89 3/8 offered; and the term loan B-3 quoted at 88½ bid, 88 7/8 offered, down from 88¾ bid, 89¼ offered.

And, a second trader had the term loan B-1 quoted at 88 5/8 bid, 89 1/8 offered; the term loan B-2 quoted at 88½ bid, 89 offered; and the term loan B-3 quoted at 88 3/8 bid, 88 7/8 offered, with all tranches down a point on the day.

First Data earnings

For the fourth quarter, First Data reported a net loss of $369 million, down 89% from a net loss of $3.218 billion in the previous year.

Consolidated revenue for the quarter was $2.586 billion, up 12% from $2.317 billion in the fourth quarter of 2008.

Additionally, adjusted EBITDA for the quarter was $530 million, down 18% when compared with $645 million in the prior year.

"In 2009 First Data improved its solid competitive position in the U.S. and around the globe," said Michael Capellas, chairman and CEO. "We remain focused on leveraging our strengths in distribution and product innovation as we emerge from a challenging 2009 economic environment."

Management changes

Also on Thursday, First Data announced some revisions to management as its Capellas has decided to leave the company.

Capellas, who served three years with the company, is leaving to take on a new role as a senior advisor to Kohlberg Kravis Roberts & Co. focusing on technology. An affiliate of KKR acquired Greenwood Village, Colo.-based First Data in September of 2007.

Joe Forehand, a member of First Data's board, has been appointed as chairman and interim chief executive officer effective March 31.

"We have made great strides in a difficult economic environment, and I feel privileged to have worked with so many accomplished professionals that helped steer the company in the right direction," Cappellas said in a statement posted on the company's web site.

"Markets are made at the bottom, and the accomplishments of the past three years will undoubtedly strengthen our position once the economy recovers. I am extremely proud of the team and all of the employees," Cappellas said. "With the company on a solid path, I have decided that this is the right time for me to join KKR as senior advisor focusing on technology."

"I would like to express my deep appreciation to Michael Capellas for his leadership and significant accomplishments at First Data," added Henry Kravis, co-founder of KKR and a member of First Data's board of directors.

"First Data has shown exceptional resiliency and continues to grow and invest during this economic downturn. I look forward to working with Michael in his new role as KKR senior advisor, and I am confident he will be a strong contributor to our technology team," Kravis said.

Elsewhere in the financial services arena, a trader said there was a "fair amount of trading" in Radian Group Inc.'s 7¾% notes due 2011. He saw the issue gaining about "1½ points, I'd say" to close at 96½ bid, 97½ offered.

Catalyst firmer despite downgrade

Catalyst Paper's 7 3/8% notes due 2014 were unchanged to slightly better following a downgrade from Standard & Poor's.

A trader said there was "a few trades" in the issue, first around 68½ and then up to around 70. He deemed the latter up half a point on the day.

Another trader saw about $7 million of the debt change hands. However, he called the notes unchanged at 69½ bid, 70 offered.

S&P dropped its long-term corporate credit rating on Catalyst to "SD" from "CC," citing the March 10 completion of the papermaker's exchange offer for its 8 5/8% notes due 2011.

Upon completion of the exchange, Catalyst bondholders had validly tendered $318.67 million of the 8 5/8% notes in exchange for $280.43 million of new 11% senior secured notes due December 2016.

Approximately $35.55 million of the 8 5/8% notes remain outstanding.

"While the exchange of notes does not reduce the company's debt, we believe it improves Catalyst's debt maturity profile with no significant debt due until 2013," said Jatinder Mall, S&P analyst.

Mall also noted that the papermaking industry has a "weak outlook," adding that "we expect Catalyst to continue to face challenging market conditions in 2010."

Catalyst Paper is based in Richmond, B.C.

Bon-Ton gives back some gains

Bon-Ton Stores' debt ended Thursday's session "marginally lower," according to a market source, after running up in the previous session following the release of good quarterly results.

The source said the 10¼% notes due 2014 were "definitely busier [Thursday]," pegging the debt at 95 bid, 96 offered.

At another desk, the notes were seen half a point weaker around 96.

For the fourth quarter ending Jan. 30, Bon-Ton swung to a net income of $80.3 million, or $4.34 per share, versus a net loss of $87.7 million, or $5.22 per share, the year before.

While comparable store sale dropped 2.4% during the quarter, operating income improved by 67% to $101.4 million.

"We recognized early on the challenges we were going to face in 2009," commented Bud Bergren, president and CEO, in the earnings release. "Initiatives were identified and implemented throughout 2008 and 2009 to improve our cost structure and better position the company for the weakened economy as well as for the longer term."

Like many other retailers who have struggled during the weak economy, Bon-Ton managed its inventory "conservatively," which helped the company improve gross margins by 350 basis points in the quarter and by 210 bps for the fiscal year.

"Bon-Ton Stores' focus on tight control of inventory paid off," wrote Gimme Credit LLC analyst Evan Mann in a research report.

Mann maintained his buy rating on the bonds.

Bon-Ton Stores is a York, Pa.-based retailer.

Sara Rosenberg contributed to this article

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