A&P debt 'off the bottom'; BP better despite loss; CIT up on numbers; broad market still strong

By Stephanie N. Rotondo

Portland, Ore., July 27 - Distressed debt continued to "grind higher," a trader said Tuesday.

"Stuff is trading richer," he added.

"Obviously it was another huge day," added another market source, seeing total trading volume in the secondary sphere nearly hit $2 billion. The "underlying bid" that has been buoying the market, he said, still remained.

That might have been what helped Great Atlantic & Pacific Tea Co., Inc. come off of its recent lows. One trader said the company's debt gained as much as 4 points on the day, despite a rating downgrade from Standard & Poor's.

In earnings news, BP plc released quarterly numbers, which - to no surprise - showed a swing to a loss. Still, in one market player's opinion, the results encouraged investors and resulted in a gain of more than 1 point. As the company also confirmed the ouster of its top executive, bankruptcy chatter might soon quiet down.

CIT Group Inc. also announced numbers, which came in "better than expected," according to a trader. In the bonds, some issues improved by as much as a point, while others showed only modest increases.

A&P debt 'off the bottom'

Great Atlantic & Pacific Tea Co.'s bonds came a "little off the bottom," a trader said, despite getting downgraded by Standard & Poor's.

The trader said the 11 3/8% notes due 2015 were "up a good 3 to 4 points" at 66½ bid, 67½ offered. That compared with 63 bid, 64 offered on Monday.

"They were sort of creeping up all day," he added.

Another trader quoted the 11 3/8% notes at 67 bid, 68 offered and the 6¾% convertible notes due 2012 at 48½ bid, 49½ offered. He also saw the 5.125% convertible notes due 2012 at 68 bid, 69 offered.

Still, the trader remarked that there was "a lot of noise" about the bonds, but "not a lot of actual trading." As such, he deemed the improvement in the debt a "bit of a misnomer."

S&P cut its rating on the Montvale, N.J.-based supermarket operator to CCC from CCC+. The downgrade comes after the company's Friday earnings release, which was well below market expectations.

"They have got some wood to chop," one market source said. "The numbers were terrible and they are competing with Whole Foods on the upper-scale side and with discounters on the low side...and they can't seem to compete with any of them."

S&P seemed to agree that there was "wood to chop," crediting its rating decision to its expectation that weak trends will continue and that the company could find themselves illiquid in the near term.

BP better despite loss

Oil giant BP swung to a loss for the second quarter, but market players remained optimistic about the company's future.

"There is now an expectation of life at the end of the tunnel," one trader said. "They have the time to fix themselves."

The trader said BP bonds were "pretty active," with $100 million to $150 million of the 3 7/8% notes due 2015 changing hands around 95¼ and $150 million to $200 million of the 5¼% notes due 2013 around 101 1/8. He also saw the 4¾% notes due 2019 at 104 3/8.

All the bonds, he said, were up more than a point on the day.

For the quarter, BP reported a net loss of $17.2 billion. That compared with a year-ago profit of $4.39 billion.

The loss was due mostly to the Gulf of Mexico oil spill and the subsequent cleanup effort. During the quarter, BP paid out about $32.2 billion in charges related to the environmental disaster.

The company said that it was looking at selling assets to help fund the cleanup. BP has already sold off some assets to Apache Corp., for which BP received about $7 billion.

Additionally, BP confirmed that it was replacing Tony Hayward, chief executive officer, with Robert Dudley. Dudley was recently charged with heading the Gulf cleanup and will also be the first American to ever hold the CEO post at the British oil company.

CIT up on numbers

CIT Group was also among the day's earnings releasers. The New York-based lender posted its second-quarter financial statement, which showed a "better-than-expected" profit, according to a trader.

The trader said some issues of the company's debt earned a point after the news - the 7% notes due 2017, for example, ended a point higher at 94¼ bid, 93¾ offered.

The trader added that the 7% notes were the "most active" and that other notes were up just a quarter- to a half-point.

Another trader said that CIT's bonds "overall were up a quarter- to 1 point, depending upon the issue." He saw its 7% notes due 2013 up a quarter-point, to 99 bid, while its 7% notes due 2016 were a full point better at 95¼ bid. He also saw its 7% notes due 2017 a quarter-point point better, at 94½ bid.

Meanwhile, he saw its 10¼% notes due 2017 up half a point at 103¾ bid.

A market source at another desk saw the 7% notes of 2017 at 94, but called them up nearly a point on very busy trading, while seeing its 2016 notes at 951/2, up 1½ points. Its 7% notes due 2014 gained almost half a point to 97 3/8 bid, while its 7% notes due 2015 notes gained more than a point to 96.

CIT made $142.1 million, or 71 cents per share, in profit during the quarter. That compared with a profit of $97.3 million, or 49 cents per share, the quarter before.

Also, the company said it had reduced debt by $3 billion.

Broad market still strong

Elsewhere in the distressed debt arena, market benchmarks like General Motors Corp. and Harrah's Entertainment Inc. were seen climbing upward.

GM's 8 3/8% notes due 2033 moved up to 35½ bid, 36 offered, on "$30-odd million" traded, according to a trader.

The trader also saw Harrah's 10% notes due 2018 at 96 bid, 96½ offered, with $25 million to $30 million turning over.

"There was still that underlying bid that just isn't going away," the trader remarked of the market's firmness.

Paul Deckelman contributed to this article

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