Supervalu debt avoids selloff following delay in Cerberus buyout talks; AMR notes drive higher

By Stephanie N. Rotondo

Phoenix, Nov. 30 - It was a Supervalu Inc. and AMR Corp. show in the distressed debt arena on Friday.

Supervalu's bonds were reacting to news out late Thursday regarding a potential buyout by Cerberus Capital Management LP. Cerberus is reportedly having difficulties lining up financing, which has stalled buyout talks. Once the news hit the tape Thursday, the bonds started to drift lower and were expected to fall more come Friday.

However, that was not the case, as the bonds managed to hold their ground for the most part.

Meanwhile, AMR's recent rise continued in Friday trading. On Thursday, the market learned that an ad hoc bondholder group had offered to provide exit financing for the bankrupt airline, though with strings attached.

Supervalu surprisingly steady

A trader said Supervalu's 8% notes due 2016 "continued to drift down," losing nearly 2 points to end at 921/4.

However, the trader said that was off the day's lows around 90.

He also pegged the 7½% notes due 2014 at 95, up from 93 on Thursday.

But another trader said the 8% notes were "about where they went out" on Thursday, quoting them at 91 bid, 92 offered.

Late Thursday, it was reported that progress on a buyout by private equity firm Cerberus had stalled, as lenders were wary of providing the funds for the leveraged buyout. Some market players had speculated that the late-day losses seen after the news would continue into Friday's session.

But a trader remarked that the company has said it is continuing to talk with prospective buyers, which helped the bonds from "cratering."

"So the fact that they are still having active talks is going to keep them from getting clocked," he said.

Other buyers could include TPG Capital and KKR. However, both firms have indicated interest in only certain parts of the Eden Prairie, Minn.-based grocery store operator, not the entire company as Cerberus had.

"We believe the sale of the entire company would be difficult to complete with the pruning of assets more likely so management can narrow its focus on turning around its core supermarket banners and raise additional funds to either invest in lower pricing or reduce debt," wrote Gimme Credit LLC analyst Evan Mann in a report released Friday afternoon. "The sale of assets could also prove problematic and occur over an extended time frame, leading [the company] to consider other restructuring initiatives."

AMR continues to fly

AMR debt was "clearly stronger," a trader said Friday, as the company sought to extend its exclusivity period.

"It was the hottest name of the day," the trader said, seeing the benchmark 6¼% convertible notes due 2014 trade "as high as 78."

Another trader said the bonds "continue to move up," placing them in the high-70s as well.

As previously reported, the market learned Thursday that a group holding about $885 million of the bankrupt airline's debt - a group that includes JPMorgan Chase & Co. and Pentwater Capital Management LP - has said it will provide restructuring financing for the Fort Worth-based parent of American Airlines, which would allow the company to emerge as a standalone business. But the group has one demand: fire the entire current board of directors.

Speculation is that the group wants to get rid of the board so that upon emergence, it can seek a merger with U.S. Airways. However, U.S. Airways might only be interested in buying the company while it remains in bankruptcy, as it would likely get it for a cheaper price.

Market ends week firm

Among other distressed credits, Edison Mission Energy paper continued to trade around the 50 mark, according to a trader.

The trader said he heard the company was "close to an agreed-upon prepack deal." The company missed a coupon payment on Nov. 15 and has 30 days to cure it before officially defaulting.

Meanwhile, Patriot Coal Corp.'s 8¼% notes due 2018 put on a point to end around 491/2.

And, MF Global Futures Ltd.'s 6¼% notes due 2016 were "creeping up," closing around 65.

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