Distressed debt overshadowed by investment grade; Dynegy gains steam; Rite Aid little changed

By Stephanie N. Rotondo

Portland, Ore., Sept. 7 - Trading in the distressed bond arena remained subdued as the week got to a belated start on Tuesday.

One trader blamed the lack of action on an influx in investment-grade paper, as well as the upcoming Rosh Hashanah holiday. He speculated that some market players would remain absent from their desks until next week.

"Our market is not really going to kick in until next week," he said. "I think everybody's bidding their time until we get our [high-yield] issuance."

Still, there were more winners than losers in the marketplace, with Dynegy Inc. debt topping the list.

Traders saw the power producer's bonds finishing the session 1 to 2 points higher, though there was no news out to explain the activity.

Meanwhile, Rite Aid Corp.'s notes were little changed in the wake of Friday's monthly sales release. Sources called the bonds steady to firmer, despite another decline in same-store sales.

And, NewPage Corp. bonds began to give back some of the gains incurred last week on the back of better-than-expected guidance for the rest of 2010. The debt closed the day out down anywhere from half a point to a full point.

Dynegy debt improves

Houston-based energy producer Dynegy saw its bonds gaining a point or more on the day, according to traders.

One trader said the 7¾% notes due 2019 firmed "a couple points" to end around 68. Another trader also placed the notes around that level, on $20 million to $25 million traded.

The second trader also saw the 8 3/8% notes due 2016 around 77, the 7.67% notes due 2016 around 91 3/8 and the 7½% notes due 2015 around 791/2.

He called those issues all up a quarter point.

There was no news out on the company. In mid-August, Dynegy announced it was being bought by an affiliate of the Blackstone Group in an all-cash transaction valued at $4.7 billion, including the assumption of debt.

NRG Energy Inc. meantime made an agreement with Blackstone to acquire one-third of Dynegy's generating capacity, to the tune of $1.36 billion.

Dynegy was also given 40 days to find a better offer for the assets.

Rite Aid mostly steady

Rite Aid debt ended the day unchanged to a point better, depending on whom you asked.

At one desk, a trader said the Camp Hill, Pa.-based company's bonds had improved by about a point, the 7½% notes due 2019 at 91½ and the 8 5/8% notes due 2015 at 83.

But at another desk, a trader said the bonds were "kind of right where they have been," seeing the 8 5/8% notes at 82¾ and the 9 3/8% notes due 2015 at 823/4.

The second trader, however, added that trading in the credit was "pretty non-existent."

On Friday, Rite Aid posted its monthly sales report for the five weeks ending Aug. 28. The report showed a 1% decline in same store sales from year-ago levels.

Total drugstore sales dropped 2.2% to $3.34 billion, which compared with $2.39 billion the year before.

For the quarter, which also ended Aug. 28, same store sales dipped 1.5%, with total sales falling 2.5% to $6.14 billion from $6.3 billion.

NewPage reverses direction

After ending last week on a positive note, NewPage paper began the week on the decline.

A trader said both the 11 3/8% notes due 2014 and the 10% notes due 2012 fell nearly a point to close at 89½ and 46, respectively.

Another trader echoed the 89½ level for the 11 3/8% notes, but called that off only half a point. The 10% notes were also pegged around 46, though the trader deemed that down a point.

"There was a little action, but not like it has been," the second trader remarked.

The Miamisburg, Ohio-based papermaker saw its bonds heading upward last week after the company announced higher-than-expected guidance for the remainder of the year.

Harrah's, GM soften

Among distressed debt benchmarks, Harrah's Entertainment Inc.'s 10% notes due 2018 slipped slightly to close around 791/2, a trader said.

Another trader saw General Motors Corp.'s 8 3/8% notes due 2033 falling half a point to 31½ bid, 31¾ offered.

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