Bon-Ton Stores battered on poor Q1 results; ATP rally fades; Chesapeake Energy choke continues

By Paul Deckelman

New York, May 17 - Bon-Ton Stores Inc.'s bonds and shares got hammered after the department store operator reported sharply worse first-quarter results versus a year ago and greatly scaled back its previous guidance.

Bon-Ton was only one of a number of underperforming or distressed names seen lower on Thursday amid a general downturn in junk bonds and other risk-asset markets.

Traders said that ATP Oil & Gas Corp. - whose recently battered bonds seemed to have turned the corner on Wednesday by pushing higher in heavy trading - were back on the slide during Thursday's session.

Traders also saw more gyrations at mostly lower levels and on continued heavy volume in Chesapeake Energy Corp.'s junk bonds and convertibles, even as news reports indicated that some energy majors like Chevron Corp. or BP plc might be eyeing the recently troubled natural gas producer as a potential acquisition target.

Also in the energy realm, there was more pain in the junk bonds and convertibles of Patriot Coal Corp.

Away from that sector, bank-debt market sources said that Residential Capital LLC's $1.45 billion debtor-in-possession loan was launched Thursday as the bankrupt mortgage lender had a bank meeting with potential lenders.

Bon-Ton battered

Traders saw huge activity in Bon-Ton Stores' 10¼% notes due 2014 after the York, Pa.-based department store chain operator announced poor first-quarter numbers.

A trader said, with some understatement, "We did see that a few times today." More than $57 million of the notes changed hands, making it the top-volume issue in Junkbondland.

Those bonds, which closed out trading on Wednesday at 69¾ bid, opened near that level Thursday but then plummeted all the way down to 63½ bid during the session in size trading. They tried to come back later on, and a few trades were actually seen up near the 69 level, but the bonds were seen around 66½ bid by the end of the day, a market source said.

Another trader called then down 5 points on the day in a 65¾ to 66¼ context.

Bon-Ton's Nasdaq-traded shares meantime lost 39 cents, or 8.84%, on the day to close at $4.02, although volume of 508,000 shares was only a little bit busier than normal.

Bon-Ton's securities swooned after the company announced that during the 2012 first quarter ended April 28, it had a net loss of $40.8 million, or $2.23 per share, versus year-earlier red ink of $36 million, or $2.01 per share. Wall Street was only expecting a loss in the $1.57 to $1.60 per share area.

Revenues fell by 1.4% to $640.8 million from a year-earlier $649.9 million, and analysts had expected as much as $654 million of sales.

Bon-Ton revised its previously issued full-year guidance down to reflect the weaker sales environment, predicting that it could show a loss of as much as 95 cents per share or a profit of up to 50 cents per share. That was in contrast to earlier expectations of earnings between 15 cents and 75 cents a share, with no losses expected.

Chesapeake churn continues

A trader said that "the other big name" in the junk bond world on Thursday was Chesapeake Energy, whose bonds have been taking a beating pretty much all week, hurt by investor concerns over how the Oklahoma City-based natural gas company will fund its ambitious capital spending and debt-repayment plans.

Its convertibles were also lower again as speculation began to build following an article in the Financial Times that said several oil majors are looking at possibly acquiring Chesapeake, an analyst said.

A trader said that the company's 6 5/8% notes due 2020 ended at 90½ bid, 91 offered, which he called unchanged, "but on an awful lot of volume," estimating turnover at north of $50 million.

He also saw its 9½% notes due 2015 at 101 bid, 101½ offered, calling the bonds down a quarter-point, on volume of $37 million.

Chesapeake, another trader said, "was down again, but it wasn't down a lot."

"Chesapeake was our focus today," yet another trader said. "We were in the long end, the short end, all over. That was our focus - Chesapeake, Chesapeake and Chesapeake."

The company's 6 7/8% notes due 2018 were seen having dropped more than 2¾ points to just below 91½ bid, while its 9½% notes were pegged ending down more than 3 points at 991/2.

In the convertibles market, the company's 2¾% convertibles due 2035 traded last at 83, according to Trace data, which was down from 84.5 on Tuesday, and lower by 2 points on a dollar-neutral, or hedged, basis, a market source said.

Chesapeake's 2½% convertibles due 2037 were last at 761/2, according to Trace data, which was down from 78 on Tuesday. These bonds were lower by 1½ points on a dollar-neutral basis.

But a convertibles trader said that Chesapeake's 2¼% convertibles due 2038 were seen last at 73.95, which was basically flat from Tuesday's 74.

The company's New York Stock Exchange-traded shares fell 49 cents, or 3.5%, to $13.55, which was down from $14.65 on Tuesday.

However, the shares were lifted off their lows with one source citing an FT article indicating that oil majors like Chevron, Britain's BP plc and French energy concern Total SA are looking at the financially strapped U.S. natural gas company. A bid may not be such a long shot given that the company's market capitalization has dropped sharply to about $9 billion.

ATP back on the slide

A trader said that ATP Oil & Gas' 11 7/8% second-lien senior secured notes due 2015 moved lower on Thursday, resuming the largely negative pattern that the Houston-based offshore energy company's paper has shown since its release last week of poor quarterly numbers.

He quoted the bonds finishing at 60 bid, 62 offered, calling that down at least 1½ to 2 points from their Wednesday close.

That was a sharp comedown from Wednesday, when the bonds had actually pushed up by several points on heavy trading of over $50 million, with traders saying the prolonged downturn the previous four sessions had been overdone.

About $22 million of those bonds changed hands on Thursday.

ATP's bonds have been under pressure since last week due to investor response to disappointing quarterly results and financial projections followed by a conference call that did not do much to restore investor confidence.

At that time, the bonds were still trading in the mid-70s - but they got hammered down successively, bottoming at lows around 60 on Tuesday and again on Thursday, in response to the numbers.

In the period ended March 31, ATP recorded a net loss attributable to common shareholders of $145.1 million, or $2.83 per basic and diluted share - wider than the $119.5 million, or $2.34 per basic and diluted share, of red ink seen a year ago in the 2011 first quarter.

Revenue of $146.6 million fell well short - by a yawning $32 million - of Wall Street expectations.

Coal carnage continues

Patriot Coal's convertibles plunged for a third straight day. The market for the convertibles reportedly touched 79 from near par early Tuesday.

Sparking the slide were liquidity concerns that flared after the St. Louis-based coal producer warned that one of its key customers may default on a sales contract, and the plunge was exacerbated by withdrawal of a credit facility. Meanwhile, demand and pricing for both thermal and metallurgical coal remain depressed.

The company's 3¼% convertibles due May 31, 2013 were seen last at 79 bid, 84½ offered, according to what a New York-based trader heard. That was about a 5-point slide, he said Thursday, on top of a 5-point slide Wednesday and about the same-sized drop on Tuesday.

One trader said in notes Thursday, "Coal companies are being treated like they're Greece."

In the junk market, a trader saw odd lots of the company's 8¼% notes due 2018 trading between 60 and 62 "mainly small lots. There was not much volume."

Toward the end of the day, he said, the notes moved up to around the 63 level, but that was still down at least a point on the day and several points on the week.

The company's NYSE-traded shares dropped another 22 cents, or 6%, to $3.52 on Thursday.

The downdraft in the notes is related to a credit facility that was pulled Tuesday. The facility was supposed to fund the redemption of the bonds next year.

Also on Wednesday, Standard & Poor's lowered its credit ratings on the company, citing weaker market conditions. It lowered Patriot's corporate credit rating to B- from B and the issue-level rating on the company's senior unsecured debt to B- from B.

ResCap talk emerges

Away from energy, a trader in the bank loan market said that Residential Capital held a bank meeting on Thursday morning to launch its $1.45 billion 18-month debtor-in-possession financing facility to investors, and with the event, price talk was announced, according to a market source.

The $200 million revolver is talked at Libor plus 400 bps, the $1.05 billion first-out term loan A-1 is talked at Libor plus 400 bps to 425 bps, and the $200 million last-out term loan A-2 is talked at Libor plus 600 bps, the source said. Both terms loans have a 1.25% Libor floor.

Also, the term loan A-1 is being offered at an original issue discount of 99, while the term loan A-2 is being offered at a discount of 98, the source continued.

Lead bank Barclays Capital Inc. is seeking commitments toward the deal by May 31.

Proceeds from Residential Capital's DIP loan will be used to provide liquidity while the company sells basically all of its assets for about $4 billion of proceeds.

The troubled Minneapolis-based mortgage lender - a wholly owned subsidiary of Ally Financial Inc. - has already agreed to sell its mortgage origination and servicing businesses to Nationstar Mortgage LLC and its legacy portfolio, consisting mainly of mortgage loans and other residual financial assets, to Ally Financial.

The sale of the assets is hoped to be facilitated by the company's recent decision to file for Chapter 11 bankruptcy protection, and the expectation is that the restructuring plan will be approved by the fourth quarter.

Rebecca Melvin and Sara Rosenberg contributed to this report

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