Linens notes better to unchanged; Blockbuster holding steady; Delphi exit: Not for months

By Stephanie N. Rotondo

Portland, Ore., April 15 - Linens n'Things Inc. celebrated Tax Day by obtaining a forbearance agreement from its creditors, a move aimed at staving off a bankruptcy - for now.

The market was anticipating the retailer would file for Chapter 11 protections Tuesday after a news report on Friday that speculated that would in fact be the company's course of action.

Still, investors were somewhat weary of the name. Traders reported the bonds were unchanged to slightly better, though volume was not extraordinary.

Meanwhile, Blockbuster Inc.'s bonds quieted down after trading heavily in the previous session on news that the company was looking to acquire Circuit City Stores. As the trading day came to a close, the bonds ended virtually unchanged.

As expected Delphi Corp.'s bankruptcy exit could be put off for months, according to the company's chairman. The automotive parts supplier has struggled throughout its quest to emerge from bankruptcy and was further derailed when Appaloosa Management pulled out of a $2.55 billion investment deal. Traders said the company's debt closed unchanged to just lower on the day.

Overall, traders saw the distressed arena firmer, but with very little volume.

"Nothing is trading," said one trader. "I find it very frustrating to say the least."

Another trader opined that the lack of action since the week began could be due to "Spring Breakers."

"I know there are a lot of people on Spring Break," he said.

Linens better, Blockbuster unchanged

With the market in general feeling a bit better, Linens n'Things' debt was barely phased by the news that the company had entered into a forbearance agreement with its creditors.

One trader said the floating-rate notes due 2014 traded up to around 41. Another trader, who in the previous session had speculated that the company would not file but might get a reprieve from lenders, pegged the notes at 41 bid, 41.5 offered. He added that the bonds are trading flat with due bills to seller.

Yet another trader quoted the bonds at 41 bid, 42 offered, while another saw the notes due 2014 trading at 41 bid, 41.5 offered, with due bills attached, versus their previous levels in the upper 30s "with" [interest].

The market began buzzing Friday that Linens would file for Chapter 11 protection by Tuesday. However, instead the company chose to obtain a forbearance and defer its quarterly interest payment on the bonds, entering into its 30-day grace period.

The retailer has been struggling to overcome the hurdles of a slowing economy and weaker consumer spending. The Clifton, N.J.-based company is in talks with some of its creditors to discuss its reorganization options. Standard & Poor's downgraded the company after the news of the deferment to D from CCC+.

Meanwhile, activity in Blockbuster's debt died down after the bonds dominated distressed trading in the previous session. The surge was due to the company's bid to acquire the also-struggling Circuit City Stores for $6 to $8 per share.

A trader said the 9% notes due 2012 were trading "in the same zip code" as Monday, around 82. Another trader quoted the notes at 82 bid, 83 offered.

At another desk, a trader said the bonds were "still banging around in the low 80s" at 82 bid, 83 offered. Another trader, though, saw them at 81.5 bid, 82 offered, which he called unchanged on the day, "on not much volume."

On Monday, Blockbuster said it was taking its more than $1 billion proposal to shareholders. The bid was originally placed before Circuit City in February, but thus far the company has rebuffed the attempts to merge the companies. Some investors, however, see the merger as a good opportunity.

Still, traders were weary of the deal, deeming it a little optimistic, given Dallas-based Blockbuster's current financial condition and the conditions in the credit market.

In other retail names, Michael's Stores Inc. edged higher, its 11 3/8% notes due 2016 around 83 and its 10% notes due 2014 around 92.

Delphi debt holding tight

Delphi's debt was "on the quiet side," a trader said, despite word from the company's chairman that a bankruptcy emergence could take months.

The trader said Delphi's bonds were still trading in the high-30s, while another trader quoted the 6.55% notes that were to have matured in 2006 at 36 bid, 38 offered. The second trader said the company's other bonds were trading generically at 38 bid, 40 offered.

Another trader saw Delphi's bonds "a little lower" at 37 bid, 39 offered, which he called "probably a point lower," and he said he "didn't see a whole lot of trading in it."

Another trader saw the 6.55% notes having dropped to 36.5 bid, 38.5 offered, down from prior levels in the upper 30s, while the 6½% notes due 2009 ended at 38.5, down from about 40 bid previously. He said that for the most part, the Delphi bonds "haven't traded in a week - but they're lower than where they were by a couple of points."

During a speech promoting his new book, Steve Miller, Delphi's executive chairman, said the company would exit bankruptcy - eventually.

Delphi's reorganization plan was confirmed in January, but troubles in the credit markets made it difficult for the company to obtain the necessary financing to leave bankruptcy behind. The company was previously slated to exit on April 4, but on that day a key investor, Appaloosa Management, terminated a deal to invest $2.55 billion in the automotive parts supplier.

Further, Delphi's $6.1 billion exit loan expired Tuesday, meaning Delphi will have to reassemble its entire exit facility.

But the banks that were involved with the loan - as well as Appaloosa - have said they are still interested in helping the company exit Chapter 11. For its part, Delphi is contending that Appaloosa must follow through on its investment pact and has considered asking the court to enforce the deal.

Delphi is a Troy, Mich.-based automotive parts supplier.

Broad market mixed

Residential Capital LLC's paper was "a smidge better," a trader said, its 6 1/8% notes due 2008 up 1 point at 82 bid, 83.5 offered.

The trader also said there was "not a ton" of activity among homebuilders, though he did see a few trades in Technical Olympic USA Inc. He quoted the subordinated issues - the 10 3/8% notes due 2012 and the 7½% notes due 2011 and 2015, respectively, at around 8.

Another trader saw homebuilder bonds mostly "unchanged this [Tuesday] morning, and then I noticed there wasn't a whole lot of activity later in the day." He said that a lot of credit-default swap spreads protecting holders of homebuilder bonds were trading - "that seemed more active than the bonds."

He saw Standard Pacific Corp.'s 7% notes due 2015 steady at 72 bid, 74 offered, as was the company's 2014 notes, while Beazer Homes USA's 8 5/8% notes due 2011 were likewise unchanged at 74 bid, 76 offered. Hovnanian Enterprises Inc.'s bonds were at 68 bid, 70 offered, also unchanged.

At another desk, Standard Pacific's 6½% notes due 2010 were up a point at 81 bid.

Charter Communications Inc.'s debt advanced slightly, its 11% notes due 2015 at 74.

Another source said there was "plenty" of trading in Harrah's Operating's 10¾% notes due 2016, which stayed in an 83 to 83.5 range.

Primus Telecom Communications' 8% notes due 2014 were down 2 points to 41 bid, 42 offered, following a Moody's Investors Service downgrade.

Idearc Inc.'s 8% notes due 2016 were about unchanged at the 69 level.

Spectrum Brands Inc.'s 7 3/8% notes due 2015 were down nearly a full point to 65.

AbitibiBowater Inc.'s 8.55% notes due 2010 were down more than a point at 48.5.

Paul Deckelman contributed to this article.

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