Sears Holding debt attempts modest rally; ResCap gives back gains; Kodak could face bankruptcy

By Stephanie N. Rotondo

Portland, Ore., Jan. 4 - The generally positive theme that has prevailed in the last few weeks continued into Wednesday's session, according to distressed debt players.

"The theme has been the same for a couple weeks," a trader said. "Slow, but grinding higher."

The firm tone even helped Sears Holding Corp.'s battered bond regain some ground. The debt had been drifting lower since last week when the company reported poor sales and said it was shuttering up to 120 stores.

However, the general optimism of the market did not help some credits.

For instance, Residential Capital LLC saw its debt give back some of the gains earned on Tuesday after reports that its parent company had no plans to force the mortgage-lending unit into bankruptcy.

Eastman Kodak Co. also lost some ground as rumors of a potential bankruptcy filing circulated. Traders noted that activity in the name, however, was light.

Sears busy, moving up

A trader said that the "Sears debacle continued" on Wednesday, as the bonds continued to trade busily.

However, he said that the recently battered bonds were "gaining strength." He placed the 6 5/8% notes due 2018 up a quarter-point at 761/4, with about $25 million changing hands.

But another trader said the debt was "basically unchanged."

On Dec. 27, the retailer posted comparable store sales for the fourth quarter and for the year. For the quarter, sales were down 5.2%. For the year, sales slipped 2.6%.

Given that the company has been struggling to recover from the economic downturn, Sears then said it was planning to cut costs. Among the cost cutting endeavors were plans to shutter some 120 stores under both the Sears and Kmart monikers. Investors reacted negatively to the closures, pushing the bonds lower.

On Wednesday, Moody's Investors Service put in its 2 cents, downgrading the company to B3 from B1.

Moody's attributed the change to the belief that the Hoffman Estates, Ill.-based retailer would report significant losses for fiscal 2011.

ResCap gives up gains

After gaining as much as 6 points in the previous session on reports that its parent company would not force it into bankruptcy, Residential Capital's 9 5/8% notes due 2015 gave back some of those gains.

A trader called the issue down a couple points at 72. The bonds had traded in a 75-76 context on Tuesday.

On Tuesday, The New York Post reported that parent company Ally Financial Inc. was not considering a bankruptcy filing for ResCap, due to potential lawsuits by creditors. The report cited unidentified sources.

ResCap is based in Minneapolis.

Kodak faces bankruptcy rumors

Rumors of a looming bankruptcy filing put pressure on Eastman Kodak's debt, according to traders.

One trader said the 7¼% notes due 2013 were "down a couple points" at 30 bid, 32 offered.

Another market source saw the issue falling more than 5 points to 31 bid.

At another shop, a trader said he didn't see much action in the bonds, though he noted that the stock "got hammered."

The stock (NYSE: EK) fell 18 cents, or 28.19%, to 47 cents.

The Wall Street Journal, citing unnamed sources, reported that the Rochester, New York-based company was considering filing for Chapter 11 protections later this month or early February if it could not find a buyer for its digital patents. The company is reportedly in talks with lenders to secure a $1 billion debtor-in-possession facility.

Greek bank gains

National Bank of Greece SA's preferreds were also on the rise, spurred by news the company was looking to repurchase up to $2.5 billion of debt.

The 9% series A noncumulative preference shares (NYSE: NBGPA) closed up $1.49, or 47.3%, at $4.64.

The Greek bank said it would buy back bonds and hybrid securities in an attempt to boost its capital. The bank is looking to repurchase the equivalent of $2 billion of 3.875% covered bonds due 2016, as well as five series of preferreds issued in various denominations.

Holders of the covered bonds will receive 70% of face value, while preferred holders will get 45% of face value. Though that is below the original issue price, it is above current trading levels.

The Athens-based bank is the country's largest lender.

Broad market remains strong

Elsewhere in the distressed market, a trader said Royal Bank of Scotland Group plc's 4.7% notes due 2018 moved up 3 points to 683/4, while Springleaf Finance Corp.'s 5.4% notes due 2015 gained 1½ points to end around 75.

Another trader said Caesars Entertainment Corp.'s 10% notes due 2018 were better at 71½ bid, 72 offered.

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