Rite Aid numbers beat expectations, bonds head up; Nortel busy, steady ahead of patent auction

By Stephanie N. Rotondo

Portland, Ore., June 23 - The distressed debt market followed the trend of the broader market Thursday, opening weaker and then attempting to rally some by the end of the day.

The comeback was due in part to a boost in investor confidence, brought about by news that Greece was getting close to nearing a deal on its austerity plan.

Rite Aid Corp. was further buoyed by its first-quarter earnings, which were better than the market had anticipated. A trader said Rite Aid was "probably one of the top trading names" for the day.

Meanwhile, Nortel Networks Ltd.'s debt traded busily, but "virtually unchanged" as an auction for the company's patent portfolio nears. Apple Inc. was given approval on Thursday to make a bid for the portfolio.

The usually active OPTI Canada Inc. lived up to its reputation during the session. But while the debt was actively traded, it ended weaker, reportedly because of declining oil prices.

Numbers help Rite Aid

Rite Aid "traded up initially on numbers, dipped with the market but finished basically unchanged on the day," according to a trader.

Another trader said the 9½% notes due 2017 - the day's most active Rite Aid issue - were "higher earlier in the day, then they started to drift down." He saw the bonds trading in a range of 87¼ to 90, with ending levels being 88 bid, 88½ offered.

Another market source called the 8 5/8% notes due 2015 half a point better at 90 bid.

"They had a skinnier loss," a trader said, referring to the Camp Hill, Pa.-based drugstore chain's quarterly results, which came out Thursday.

For the first fiscal quarter, Rite Aid saw a net loss of $63.1 million, or 7 cents per share. That compared with a loss of $73.7 million, or 9 cents per share, the year before.

Analysts polled by Thomson Reuters were expecting an average loss of 12 cents per share.

Same store sales were also better, seeing a 0.8% gain. In dollars, however, sales were mostly steady at $6.39 billion.

For the current fiscal year, Rite Aid said it is expecting total sales of $25.7 billion to $26.1 billion and a net loss of 42 cents to 64 cents per share. Wall Street is anticipating sales of $25.65 billion and a loss of 53 cents per share.

"While Rite Aid continues to experiment with different kinds of stores and remodelings, we think it will remain challenged by larger competitors who have more financial flexibility," wrote Gimme Credit LLC analyst Kim Noland in an afternoon report. "Despite slightly improved EBITDA [of $263 million] Rite Aid is levered above 7x.

"The good news is that liquidity near $1.2 billion is adequate and the company affirmed its fiscal 2012 guidance."

Nortel active, auction nears

A trader said Nortel Networks' bonds were "active as we get closer to the auction results."

He saw the 10¾% notes due 2016 trading around 94½ to 94 5/8.

Another trader said, "All of the instruments were fairly active," seeing the 10 1/8% notes due 2013 trading within a range of 94 1/8 to 94 5/8.

"That was virtually unchanged from yesterday," he said.

Last week, the Toronto-based bankrupt telecommunications company said it was delaying an auction for its portfolio of patents to June 27 from June 20 due to heightened interest. On Thursday, federal regulators cleared Apple Inc. to bid on the portfolio.

Google Inc. made the stalking horse bid of $900 million. To win the patents, bidders must bid at least $29 million more than Google. Prospective bidders include Research in Motion Ltd., RPX Corp. and Ericsson SA.

OPTI debt pressured

OPTI Canada's subordinated issues were "down a little bit," a trader said, "I guess with oil prices."

Oil prices fell after the International Energy Agency said it was releasing about 60 million barrels of oil from emergency reserves to stave off rising energy prices.

The trader placed the 7 7/8% and 8¼% notes due 2014 at 39½ bid, 40 offered.

Another trader said the 8¼% notes - the day's most active OPTI issue - closed at 39 bid, 40 offered.

"Yesterday they were wrapped around 41," he said.

A third trader said OPTI was "a touch weaker, trading with a 39 handle."

OPTI Canada is a Calgary, Alta.-based oilsands producer.

Kodak ruling delayed

A ruling on Eastman Kodak Co.'s patent infringement case against Apple Inc. and Research In Motion Ltd. was postponed a week, the market learned late Thursday.

A trader said the 7¼% notes due 2013 were trading around 94.

"I think that's about where they have been," he said, noting that a ruling could cause the debt to gravitate to one direction or the other.

The International Trade Commission pushed the ruling target date to June 30. If the panel rules in Rochester, N.Y.-based company's favor, it could mean licensing fees of up to $1 billion, market players have opined.

NewPage ends mixed

A trader said that there was "mostly Street trading, back and forth" in NewPage Corp.'s beleaguered bonds, which have been trading lower most days for the past two weeks, often in heavy volume, on investor fears that the Miamisburg, Ohio-based coated-paper manufacturer may be unable to make the $100 million interest payment on its $1.7 billion of 11 3/8% first-lien senior secured notes due 2014 that is scheduled for the last day of the month.

NewPage did not respond to several e-mails and phone calls from Prospect News on Thursday seeking information on whether the company will, in fact make the coupon payment as scheduled or, alternatively, not pay the coupon and instead invoke the standard 30-day grace period.

The trader said that on Thursday, there was "good volume" in the name, although "not extraordinarily heavy," with the 11 3/8% notes trading at bid levels between 90 and 91 all day, versus recent levels in the 93-94 area, he said.

He saw NewPage's 10% second-lien senior secured notes due 2012 around 26-27 bid, around the same levels they've recently held.

The 10% notes trade many dozens of points behind the first-lien bonds, despite their ostensibly secured status because of a perceived lack of sufficient company assets to cover both tranches in the event of a restructuring.

Paul Deckelman contributed to this article

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