Distressed investors focused on Sprint, driving bonds downward; Rite Aid gains with market

By Stephanie N. Rotondo

Portland, Ore., March 21 - The distressed debt market was generally higher Monday - by a half a point to a full point, depending on whom you asked - but volumes were centered on one nom du jour.

That name was Sprint Nextel Corp. The Overland Park, Kan.-based wireless telecommunications carrier's debt dipped after the market learned it had lost Deutsche Telekom AG's T-Mobile USA unit to AT&T Inc. Bonds were down 2 to 3 points or more on the news, as a trader said it was "not so good" for the No. 3 carrier.

But away from Sprint, traders said there wasn't much else happening in the distressed space.

Still, the generally positive tone of the market did help Rite Aid Corp. paper gain ground, even with no fresh news out.

Sprint loses T-Mobile

Sprint Nextel bonds took a dive following news that AT&T bested its offer for Deutsche Telekom AG's T-Mobile USA unit.

On the news, a trader said Sprint was "obviously crazy busy," with about $200 million to $300 million of the company's assorted issues trading. Of the more active issues, the 6 7/8% notes due 2028 traded down "a solid 3½ points" to 93 5/8 on $40 million to $50 million traded.

A "huge hunk" of the 8¾% notes due 2032 also moved, hitting a low of 106½ before coming back to close around 108. The trader said that was "still down 3 points" from Friday levels.

Another trader said the 8¾% notes were the most active of the Sprint issues and also "down the most" around 107 7/8. He said that compared to levels around 112 on Friday.

The second trader also saw the 6 7/8% notes at 93 5/8, down 3 5/8 points, and the 6% notes due 2016 around 102, down 2 to 2½ points.

Yet another market source deemed the 6% notes down over 2 points at 102¼ bid.

AT&T said on Monday that it would buy T-Mobile for $39 billion in a mostly cash transaction. Chatter is that AT&T beat Sprint because it agreed to pay mostly in cash and also because it agreed to a higher-than-usual breakup fee.

"A lot of people invested in Sprint paper when rumors first came out" that Sprint was looking into buying the wireless carrier, a trader said. Now that purchasing the unit is no longer an option, it is looking "not so good" for Sprint, said another trader.

"I would think that the transaction has to give everyone pause," a trader said. One thing on many investors' minds was how disadvantaged other carriers would be if the merger is completed, he said.

The merger still has to face regulatory approvals, as the combination will result in AT&T holding about 80% of U.S. market share.

"The combination of AT&T and T-Mobile USA, if approved by the Department of Justice and Federal Communications Commission, would alter dramatically the structure of the communications industry," Sprint said in a statement.

"The DOJ and the FCC must decide if this transaction is in the best interest of consumers and the U.S. economy overall and determine if innovation and robust competition would be impacted adversely and by this dramatic change in the structure of the industry."

If approved, the transaction will close sometime in 2012.

Rite Aid up with market

Rite Aid bonds were moving upward mostly on the day, traders reported.

One trader said trading in the Camp Hill, Pa.-based drugstore chain's debt was "muted," seeing the 10 3/8% notes due 2016 unchanged at 106¾ and the 9 3/8% notes due 2015 at 91¾ bid, 92¼ offered, up a point.

At another shop, a trader placed the 10 3/8% notes around "106 and change," the 9 3/8% notes at 91¾ bid, 92 offered - up a point, the 9½% notes due 2017 at 88 bid, 89 offered, which the trader called the issue "better bid for," and the 8% notes due 2020 at 106½ offered.

Yet another source called the 8 5/8% notes due 2015 up over a point at 92¾ bid.

There was no fresh news out to push the paper up, though the market was generally firmer on the day.

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