GM bonds up; TXU debt ends mixed; Great Atlantic & Pacific Tea tanks on numbers, CEO exit

By Stephanie N. Rotondo and Paul Deckelman

Portland, Ore., July 23 - Distressed debt was still going strong by Friday's end, continuing its nearly week-long stretch of gains.

"It was a lot busier than I would have guessed," a trader said, given that it was a Friday, "but there was way more volume and good strength."

General Motors Corp.'s notes remained on an upward path as more news about the formerly bankrupt carmaker poured into the market. News reports were buzzing with more rumors about a planned initial public offering. The chatter followed news out Thursday regarding the purchase of AmeriCredit Corp.

Meanwhile, Energy Future Holdings Corp. continued to be active in secondary trading. But the company's bonds were mixed by the end of business, as a trader speculated players were "jockeying for position."

But traders said it was Great Atlantic & Pacific Tea Co., Inc. that was taking up all the attention in the secondary world. The bonds were seen entering freefall after the company reported less-than-stellar numbers, as well as the departure of its top executive, who had only been at his post for about six months.

GM remains stronger

GM's bonds continued to improve during the final trading day of the week, following another round of news that suggested the company will be launching an IPO soon.

A trader said that about $60 million to $70 million of the benchmark 8 3/8% notes due 2033 changed hands at 34 7/8 bid, 35 1/8 offered. That was up about a point from Thursday's levels.

The trader also saw the 7.2% notes due 2011 ending "marginally" better around 34 1/8. He added that about "$20-odd million" of the notes traded.

News reports from a variety of outlets - including Bloomberg and Reuters - cited sources "with direct knowledge" of the IPO preparations as saying that the Detroit-based automaker was planning to file regulatory documents related to the IPO by Aug. 16. The sources said that GM hoped to complete the IPO before November elections.

The renewed IPO buzz came just one day after GM announced it would purchase subprime lender AmeriCredit Corp. for $3.5 billion in cash.

But the proposed acquisition - which GM said was due to customer demand for in-house financing options - has resulted in criticism from Main Street.

Sen. Chuck Grassley (R-Iowa) is asking the special inspector general responsible for the TARP program to look into the purchase, given the U.S. government's 61% stake in the company.

"As you know, GM is a major TARP recipient that received a $49.5 billion taxpayer bailout," Grassley said in a letter to the inspector. "Most of that money has not been repaid, and the nonpartisan Congressional Budget Office estimates that the GM bailout will end up costing taxpayers around $30 billion. It also has been reported that GM paid a 24% premium for AmeriCredit, meaning that GM managed to pay over $800 million more for the company than it was worth in the public markets just a few days ago."

"If GM has $3.5 billion in cash to buy a financial institution, it seems like it should have paid back taxpayers first," Grassley said in a statement posted on his website. "After GM's experience with GMAC, which left GM seeking a taxpayer bailout, you have to think the company and, in turn, the taxpayers would be better off if GM focused on making cars that people want to buy and stayed clear of repeating its effort to make high-risk car loans."

TXU ends mixed

Energy Future Holdings' debt closed the day mixed, as a trader opined investors were "just jockeying for position" and playing one issue against another.

The trader saw $20 million to $25 million of the 11¼%/12% senior toggle notes due 2017 change hands at 681/4, which was up a bit from the day before. However, he saw the 10 7/8% notes due 2017 slipping to 741/4, on $15 million to $20 million traded.

The Houston-based energy company is undertaking a debt exchange for both of those issues. In return for valid tenders, bondholders could receive stock as well as a cash payment for their holdings.

A&P sinks

Several traders said about the only major secondary activity on Friday was a sharp fall in the bonds of the Great Atlantic & Pacific Tea Co. - operator of the iconic A&P supermarkets as well as the PathMark and Waldbaum's store chains, mostly in the northeastern United States.

Those bonds, along with the Montvale, N.J.-based retailer's shares, took a tumble after the company reported poor fiscal first-quarter numbers and announced that its chief executive officer, Ron Marshall, was being replaced after just six months on the job.

A&P also said it would take steps to raise capital and augment its liquidity ahead of the maturity next year of its $165 million of outstanding 5 1/8% convertible notes due 2011.

"The big action today was A&P," said a trader, who noted that the bonds "pretty much tanked" after the company's earnings conference call.

Another trader agreed that "A&P was the whole day. The stock got crushed and all of that stuff [on the bond side] moved down."

He saw the company's senior secured notes due 2015 fall "into the low-60s" from prior levels around 83 bid, 85 offered, while seeing the 5 1/8% notes drop to a 63-64 context from previous levels around 94 bid, 95 offered, and the company's 6¾% convertible notes due 2012 at 50 bid.

"We traded that, for a fact, [Thursday] at 71¾ bid, 72 offered," he added.

At the end of the day, he said, "hedge funds were coming in like piranhas."

The first trader meantime said that the 5 1/8% notes had traded around a 95 bid level on Thursday and for the last couple of weeks before that, but on Friday, they were falling to a wide 70-80 context "when the news was breaking" in the morning. Then, he said, "a 70 bid was hit," which drove the bonds down to an equally wide 60-70 neighborhood. After that, he said, bids traded as high as 65-66. But the last trade he saw was around the 63 bid level.

He saw the 6¾% notes trading on Thursday in the mid-70s before going out at 72 bid, but then opening Friday's dealings trading into a 70 bid. Then they were offered at 61, and "then they just started marching their way down." He last saw them on Friday afternoon bid around 45.

"Someone's not going home today in a good mood," he suggested.

The trader meantime saw the 11 3/8% notes opening Friday at 66 bid, 67 offered, before finally going home in a 63-65 context; earlier in the week, he had seen those junk bonds around 82 bid.

"So it was a bloodbath today for A&P," he said. Apart from the supermarket operator's paper, there was "not a heck of a lot going on. Most of the activity and interest today seemed to be in G-A-P."

A&P's New York Stock Exchange-traded shares were also swooning, ending at $2.61, their lowest point in more than 25 years - down $1.32 on the day, or 33.59%. Volume of 7.9 million shares was more than 10 times the norm.

The bonds and shares got crushed as A&P reported a net loss of $122.6 million, or $4.83 per share, in the fiscal first-quarter ended June 19, on revenue of $2.54 billion. That compares unfavorably all around to its year-ago results - a net loss of $65.2 million, or $3.64 per share, on sales of $2.79 billion.

Wall Street was shocked out of its socks, since analysts had been only expecting a loss of about 70 cents per share on revenue of $2.6 billion.

A&P gets new CEO

In addition to the poor results, A&P also announced an abrupt leadership change, with Sam Martin, up until now the chief operating officer at Office Max, taking over as president and chief executive officer. He replaces Marshall, who had only been hired as president and CEO at the end of January.

Marshall was cryptically described in the A&P press release announcing Martin's hiring as having "left the company."

While Martin has considerable retail food store experience - he had been chief operating officer for Wild Oats Markets, Inc. through the company's acquisition by Whole Foods, and he has experience as well in senior management roles at ShopKo Stores Inc. and Fred Meyer - so did Marshall, who in the past had been the CEO at grocery wholesaler Nash Finch as well as the chief financial officer at A&P division PathMark.

The second trader noted that company executives said on the conference call that they were "planning an asset sale and they would work with the banks" to augment their liquidity. He said A&P has ample funds available to take care of the maturing 5 1/8% notes next year, but also warned that "they're bleeding cash."

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