Distressed debt market zooms along; GM, Rite Aid announce sales, bonds gain; MGM improves

By Stephanie N. Rotondo

Portland, Ore., Jan. 4 - Distressed debt continued to firm in Tuesday trading, leaving one trader to surmise that the market "still wants to go and go up some more."

"It's just crazy crankin' business," he said.

General Motors Corp. and Rite Aid Corp. released their respective sales reports during the session, both of which showing unexpected gains. As a result, both issuers saw their bonds gaining ground.

MGM International Resorts Inc. was also stronger, possibly due to news regarding the company's Macau operations. One trader noted that activity in the name has been on the rise.

Even Ahern Rentals Inc. got involved in the action, as the rarely traded bonds moved in decent size on Tuesday. A trader opined that the credit might be getting more investor attention because "it's still here."

Sales gain boosts GM

GM's debt was better to unchanged following the release of the company's 2010 sales report.

A trader called the benchmark 8 3/8% notes due 2033 half a point higher at around 37. The 7 1/8% notes due 2013 and the 7.2% notes due 2011, however, were seen hanging around 35¼ to 351/2.

Another trader said the 8 3/8% notes hit a low of 36 and a high of 37¾ but settled in around the 37 mark by end of business. He also pegged the 7 1/8% notes at 35 bid, 36 offered.

"Most people are now trading [the bonds] versus the stock," he said. "So it will whipsaw a little more than otherwise."

For the year, Detroit-based GM sold 21% more vehicles than it did in 2009, according to a company press release. December sales were also better, rising 16% year over year.

Management attributed the gain in sales to its leaner post-bankruptcy business model.

Rite Aid up on sales

Camp Hill, Pa.-based Rite Aid also announced its monthly sales results, which showed a 0.6% gain in December same-store sales.

Still, one trader remarked that there was "not all that much" trading in the credit, though he deemed the debt up half a point to a point across the board.

He saw about "$25-odd million" of the 9 3/8% notes due 2015 change hands at 86¾ bid, 87¼ offered. Another "$10-and change" million of the 8% notes due 2020 traded at 104½ bid, 105 offered.

At another shop, however, a trader called the 9 3/8% notes "basically unchanged" at around 87 but in "pretty active" dealings.

Yet another source said the 8 5/8% notes due 2015 gained more than 2 points, closing at 89¾ bid.

For the month, Rite Aid's total drugstore sales dipped 0.5% to $2.08 billion. About 63% of that revenue came from its pharmacy sales.

Analysts had been expecting a 1% decline in same-store sales.

For the 43 weeks ended Dec. 25, however, same-store sales dropped 1.1%. Total sales came to $20.77 billion, down from $21.22 billion the year before.

MGM mostly better

MGM International Resorts' notes "have definitely been a bit more active," a trader said, calling the bonds up across the board in Tuesday trading.

He saw the 9¾% notes due 2016 around 94 and the 6 5/8% notes due 2015 at 921/2. Of all of the Las Vegas-based casino operator's various issues, he said the 7 5/8% notes due 2017 were the only ones to give back a little, ending around 93.

He attributed the slight slip to position jockeying.

But another trader said the bonds were "down in general," seeing the 7 5/8% notes losing a point to end around 931/2. The 7½% notes due 2016 dipped almost a point to 94.

Ana another trader said there's been "a fair amount of MGM trading - it looks like it's off a little bit, but was probably up [Monday] on the good news about numbers coming out of Macau in particular," where the gaming giant has a joint venture with a locally based operator.

Ahern getting attention

Ahern Rentals' 9¼% notes due 2013 got a piece of the action on Tuesday, according to a trader.

The trader said there were bids around 50 for the bonds, noting that about $10 million to $15 million worth of debt traded, all between 49½ and 50.

"It's getting a little attention because the world didn't end and it's still here," he said. He also remarked that it was nice to see a distressed issue trading in the 50s instead of the 90s.

Another trader said the paper was "a touch more active," trading around 50.

Ahern is a Las Vegas, Nev.-based construction equipment rental company.

Broad market still strong

Among other distressed issues, a trader said Clear Channel Communications Inc.'s 11% notes due 2016 were "unchanged but pretty active" at 891/2.

Another trader agreed that the credit was "very active," seeing the 11% note around 90 and the 10¾% notes due 2016 around 91.

Meanwhile, Dynegy Inc.'s 7¾% notes due 2019 gained a point, closing around 691/2.

NewPage Corp.'s 10% notes due 2012 were 1½ points better, according to a trader, at 59.

Another trader said the Great Atlantic & Pacific Tea Co. Inc.'s 11 3/8% notes due 2015 were trading "a bunch" at 93 bid, 94 offered, about unchanged.

"It's been trading, but it's always leaving the bid," he said.

Paul Deckelman contributed to this article

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