Realogy structure gets a boost; Rite Aid bonds steady, loans softer; Harrah's holds its ground

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Sept. 24 - Realogy Corp. and Rite Aid Corp. dominated trading in distressed land Thursday.

First up, Realogy bonds traded in decent size and up as much as 7 points on the day. The gains came after it was announced that the company was seeking a new term loan in order to swap-out debt held by billionaire investor Carl Icahn. The company's bank debt also gained ground.

Rite Aid meanwhile saw its bonds trading heavily, though unchanged, after the company reported its second-quarter results. In the bank debt, traders saw the drugstore chain's loans declining.

Meanwhile, activity in Harrah's Entertainment Inc.'s debt quieted down after being one of the more active names in the previous session. The bonds were seen unchanged to down slightly by the end of trading.

Realogy structure gets a boost

Realogy's bonds traded in good size, according to a trader, and up several points on the back of the company's announcement it would seek a new $325 million incremental second-lien term loan that will be used to refinance a portion of its existing debt.

A trader said the 10½% notes due 2014 were "quite active," hitting a high of 82 bid, 83 offered before settling in around 78, still up 5 to 6 points on the day.

The trader also saw the 12 3/8% notes due 2015 ending around 63.5, though he noted the issue traded in a wide range between 62 and 68.

"There's trades all over the place," he said, adding that the paper was also up 5 to 6 points.

"So they are up big," he said.

At another desk, the 10½% notes were quoted at 78 bid, 80 offered, up 5 points, while the 11% toggle notes due 2014 gained 6 points to 71 bid, 73 offered. The 12 3/8% notes meanwhile were seen increasing more than 7 points to 63 bid, 64 offered.

Realogy's bank debt also posted noticeable gains on Thursday, according to traders.

The strip of institutional bank debt was quoted by one trader at 86.75 bid, 87.75 offered, up from 84 bid, 85 offered and by a second trader at 85 bid, 87 offered.

And, the company's delayed-draw loan was quoted by the first trader at 86.5 bid, 87.5 offered, up from 84 bid, 85 offered.

Realogy said the new loan would be used to swap out 70% of the $311 million of the toggle notes held by billionaire investor Carl Icahn for $150 million of the new debt.

The new second-lien term loan is being led by JPMorgan and the books on the deal were scheduled to close on Thursday afternoon.

Moody's Investors Service rated the proposed new loan C.

Realogy has also recently been engaged in confidential discussions with certain institutional holders of its 10.5% senior notes due 2014, 11%/11.75% senior toggle notes due 2014 and 12.375% senior subordinated notes due 2015 regarding a potential exchange of the notes for equity and new debt.

Based upon the company's current financial forecast and additional equity available from its sponsor through Dec. 31, and the ability to repay bank borrowings with the proceeds of additional second-lien or other debt, the company expects to remain in compliance with the senior secured leverage ratio under its credit facility at Sept. 30.

In addition on Thursday, Realogy also updated its expected financial results for the third quarter ending Sept. 30.

The company now expects revenue for the third quarter in the range of $1.14 to $1.17 billion.

Net loss for the quarter is expected in the range of $20 to $25 million.

And, EBITDA for the quarter is expected in the range of $165 to $180 million after estimated expenses of $15 million to $20 million for restructuring and other items.

Realogy is a Parsippany, N.J.-based provider of real estate and relocation services.

Rite Aid bonds steady

Camp Hill, Pa.-based drugstore chain Rite Aid saw its bonds traded actively during the session, following the company's release of its second-quarter results.

One trader said the 9½% notes due 2017 "might have been the most active bond," with at least $30 million changing hands. However, despite all the volume, he said the issue was "not much changed," trading between 80 and 84, compared with a trading range of 81 to 83 on Wednesday.

Another trader said "$40-odd million" of the 9½% notes traded at 82, "kind of right where they were." The 8 5/8% notes due 2015 traded "about the same amount" at 83, also unchanged.

However, the company's term loan lost some ground, according to a trader.

The old term loan was quoted at 88 bid, 89 offered, down a quarter of a point on the day, and the new term loan was quoted at 94¾ bid, 95¾ offered, down half a point on the day, the trader said.

For the second quarter ended Aug. 29, Rite Aid reported a net loss of $116 million, or $.14 per diluted share, compared with a net loss of $222 million, or $0.27 per diluted share.

Revenues for the quarter were $6.3 billion versus revenues of $6.5 billion in the prior-year second quarter.

Adjusted EBITDA for the quarter was $216.5 million, or 3.4% of revenues, compared with $219.9 million, or 3.4% of revenues, last year.

And liquidity remained strong with $822.3 million of availability on the company's credit and accounts receivable facilities at quarter-end.

Rite Aid lowered its fiscal 2010 guidance as a result of expectations for a continued weak economy with high unemployment negatively affecting front-end sales along with increased pressure on pharmacy gross margins.

Total sales are now expected to be between $25.7 billion and $26.2 billion in fiscal 2010 with same store sales ranging from a decrease of 1% to an increase of 1% over fiscal 2009.

Adjusted EBITDA is now expected to be between $900 million and $1 billion.

And net loss for the fiscal year is now expected to be between $390 million and $615 million or a loss per diluted share of $0.48 to $0.74.

Rite Aid is a Camp Hill, Pa.-based drugstore chain.

Harrah's holds its ground

Though it was one of the more active issues on Wednesday, a trader said that action in Harrah's Entertainment's notes died down come Thursday.

The trader saw only about $1 million of the 10¾% notes due 2016 trade, versus about $15 million the day before. He said the paper was "right where they have been" around 84.

But another trader said the 5½% notes due 2010 were "kind of active" at 98.875 bid, 99 offered, which he called "relatively unchanged."

The second trader also saw the 6½% notes due 3016 slip slightly to around 64.25.

On Thursday, the Las Vegas-based casino operator announced it had amended the terms of a previously announced tender offer for its 5½% senior notes, 7 7/8% senior subordinated notes due 2010, 8% senior notes due 2011 and 8 1/8% senior subordinated notes due 2011.

Harrah's reduced the maximum purchase price to $160 million from $175 million. For each $1,000 principal amount of notes, Harrah's will pay $980.00 for the 5½% notes, $997.50 for the 7 7/8% notes, $960.00 for the 8% notes and $955.00 for the 8 1/8% notes.

Also, Harrah's said it increased the amount of new term loans it is seeking under its current senior secured credit facilities. The company now intends to secure $1 billion, up from the original size of $750 million.

The tender offer is contingent upon the company securing the new loans.

Harrah's also announced that it had repurchased $208.4 million of its notes on the open market, according to a regulatory filing.

Broad market mixed

In the rest of the distressed space, a trader saw Park-Ohio Holdings Corp.'s 8 3/8% notes due 2014 trade with a 77 handle.

"They have been kind of hard to find," he said.

Another trader said about $25 million of American Axle & Manufacturing Inc.'s 5¼% notes due 2014 traded up to 72.5.

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