Tembec hangs on to gains; Retailers mostly weaker; GMAC unaffected by downgrade

By Stephanie N. Rotondo

Portland, Ore., Dec. 21 - Friday's distressed bond market began to wind down as some market players will head out for a long Christmas weekend.

But as the equity market rallied, bond trading was flat.

"It was a little bit mellower," a trader said. It was "pretty quiet across the board."

The trader noted that he found it "interesting" that the bond market remained flat, what with the Dow Jones Industrial Average gaining more than 200 points on the day.

At another desk, a trader said things were "going pretty good," with more firmness in the marketplace.

Tembec Inc.'s bonds held on to their gains as the week closed - for the most part, anyway. Traders were mixed in their evaluation of the company, but at the very least, the bonds were unchanged.

The retail sector felt little holiday cheer, as several names under that heading - such as Bon-Ton Stores Inc., Linens n'Things Inc. and Perkins Family Restaurants - were weaker. But Dollar General Corp. came out a bit better on the day after the company reported its quarterly numbers for the period ended Nov. 2.

A downgrade from Moody's Investors Service did not spark much movement in GMAC LLC's bonds. A trader called the debt unchanged, though the mortgage lender is now on equal footing with its struggling subsidiary, Residential Capital LLC.

The bond market will be open Monday, Christmas Eve, though it will close early.

Tembec bonds better to unchanged

Tembec's bonds "stuck in there," a trader said, as the rest of the distressed market traded flat to slightly lower.

The trader called the levels on the forest products company's debt about the same, its 7¾% notes due 2012 at 46 bid, 47 offered, its 8½% notes due 2011 at 47 bid, 48 offered and its 8 5/8% notes due 2009 at 51.5 bid, 52.5 offered.

Another trader said the bonds were about a half point better, its 7¾% notes at 46.5 bid, 47 offered and its 8 5/8% notes at 51 bid, 52 offered.

A market source said Tembec's 8 5/8% notes got as good as a 53 handle during the session, but ultimately gave all of its gains back to close about a point lower, at 49. Meanwhile its 8½% notes were half a point better at 47.5.

At another desk, the 8 5/8% notes were seen up more than 1.5 points on the day at 51.5.

The Canadian company's bonds have been moving up since the announcement earlier in the week that it would swap $1.2 billion in debt for new equity. While some have expressed concern over the refinancing - Moody's downgraded the company Thursday and Tembec's former chief executive officer has said he is outraged over the plan - investors have overwhelmingly been supportive - thus the gains over the week.

Retailers mostly lower

With Christmas just around the corner, little hope is seen in the retail/restaurant/entertainment sector.

Bon-Ton Stores' 10¼% notes due 2014 were reportedly lower due to a "sell" recommendation circulating in the market. A trader pegged the bonds down a point at 76.5, while another called the notes off more than 1 point, also at 76.5

Linens n'Things floating-rate notes were also down, though by just half a point. A trader quoted the debt at 53.5 bid, 54 offered, down from around 54.25 in the previous session.

Another trader said there was a "fair amount of trading" in Perkins Family Restaurant's 10% notes due 2013. Those bonds, which slipped the day before on a downgrade from Moody's, were unchanged to slightly lower at 71.5 bid, 72 offered.

The trader also noted that there was some activity in Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2014. Those closed the day around 81.

Dollar General, however, seemed to buck the trend in the sector, moving higher after posting its quarterly report.

The trader placed the 11 7/8% subordinated notes due 2017 up at 78.5 bid, 79 offered.

For the quarter ended Nov. 2, Dollar General's total sales increased 4.5%, while same-store sales increased 3.7%. Gross profit also increased year over year by 28%.

Net sales for the quarter increased 4.5% to $2.31 billion, compared with $2.21 billion for the same quarter the previous year. However, all told, the company reported a net loss of $60.2 million, compared with a loss of $7.99 million in the same quarter of 2006. The company attributed the wider loss to merger and tax expense.

GMAC steady

A trader said that a downgrade "quite frankly" did little to move GMAC's bonds.

A trader said that the 8% notes due 2031 - which have been around 83 recently - remained at that level through Friday's close. He noted that the debt, which overall has been weaker of late, did dip below 83 "briefly."

Still, "the market seemed to shrug it off somewhat," he said.

Moody's lowered the rating on the mortgage lender, making it equal to that of its subsidiary Residential Capital LLC. The ratings agency noted that outlook on both GMAC and ResCap was negative.

Meanwhile, ResCap paper, which had been declining over the week thanks to an article discussing defaults that cited the struggling company, was quiet.

Another trader called ResCap's 8 5/8% notes due 2008 - which had retreated on Thursday - about 0.75 point better on Friday, at 80.5, while its 6 7/8% notes due 2015 were down 1.5 points at 59.

Another source saw its 7% notes due 2011 up 1 point at 62.5.

Broad market mixed

Tenet Healthcare Corp.'s 7 7/8% notes due 2008 gained a half point to close around 96.5. A trader said there was "no particular news" to explain the move.

James River Coal Co.'s debt continues to move higher, and traders speculate that short covering is the catalyst. A trader said the 9 3/8% notes due 2012 opened at 88 bid, 90 offered only to close better at 90 bid, 91.5 offered.

Another trader placed the bonds at 90 bid, 91 offered, calling that a "recent high."

Tekni-Plex Inc.'s 8¾% notes due 2013 were unchanged at 94 bid, 94.5 offered.

Dura Automotive Systems Inc.'s debt slipped on news that the company would extend its debtor-in-possession financing to Jan. 31. A trader quoted the 8 5/8% notes due 2012 at 15.5 bid, 16 offered after getting as high as a 17 bid in the previous session.

Paul Deckelman contributed to this article.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.