Neiman sales, bonds decline; Las Vegas Sands falls on covenant warning; numbers weigh on Hertz

By Stephanie N. Rotondo

Portland, Ore., Nov. 6 - The distressed bond market continued to retreat Thursday following a 400-point plus drop in the equity market and a round of negative earnings and company reports.

Neiman Marcus Group Inc. released sales numbers for October and the report was not good. The hefty sales loss for the month sent the luxury retailer's bonds down at least 5 points on the day. Retailers in general seemed somewhat weaker as monthly figures have started to come out and most are preparing for a rocky holiday shopping season.

Meanwhile, Las Vegas Sands Corp. said in a filing with the Securities and Exchange Commission that it expected to breach a covenant on its loan in the fourth quarter. The news pressured the company's debt, which fell 5 to 6 points on the day.

Hertz Corp.'s third-quarter results weighed on the company's term loan Thursday. The bank debt was seen about 2 points weaker on the back of the numbers, as well as the company's admission that full-year estimates would likely not be met.

Residential Capital LLC and its parent company, GMAC LLC, continued to see declines. Market sources have questioned the likelihood of survival at ResCap, as well as GMAC's plan to become a bank.

Elsewhere, Accuride Corp.'s term loan gained some ground despite the company's negative quarterly report. A source said that the move might have been due to the fact that the numbers beat analysts' expectations.

Neiman sales, bonds decline

Retailers are preparing for a rough holiday season as October sales figures have started to trickle out. Neiman Marcus reported an over 20% drop in same store sales for the month, resulting in declines in the company's bonds.

A trader pegged both the 9% notes due 2015 and the 10 3/8% notes due 2015 at 58 bid, 59 offered, down from the mid-60s on Wednesday. Another market source called the 9% notes 6½ points weaker at 59.5 bid.

Dallas, Texas-based Neiman saw same-store sales fall 27.6% during October at its Neiman Marcus and Bergdorf Goodman stores. Catalog and internet sales fell 23%.

Elsewhere in the retail arena, a trader said Yankee Candle's 8½% notes due 2015 ran up to 65 before coming back in to settle about unchanged at 62 bid, 63 offered.

The candle maker posted third quarter sales of $76.2 million, down over $1 million from 2007. Comparable sales at the company's retail stores fell 8%.

Numbers released from private equity firm Blackstone Group LP did not help Michael's Stores Inc.'s bonds, either. Blackstone, which counts Michael's as one of its largest holdings, posted its largest loss in the last 18 months as a public company at $502.5 million. That compared to a profit of $234 million the year before.

A trader pegged the 11 3/8% junior notes due 2016 at 36, calling that "down a couple points."

Sands falls on covenant warning

Las Vegas Sands' paper fell 5 to 6 points after the company said it would likely breach some covenants.

A trader quoted the 6 3/8% notes due 2015 at 46.5 bid, 48 offered. He noted that the debt hit a low of 43, a high of 47 and the "bulk of trading" was between 46 and 46.5.

Another source saw the issue fall into the mid-40s from around "50-ish" previously.

In a regulatory filing, the gaming operator said that a covenant breach was likely on some of its loans, unless it could raise more capital, boost earnings and cut spending on some of its development projects. Should the company fail to meet its maximum leverage ratio covenant in the fourth quarter a default could be triggered. The default would then force the company to halt any development on its pending projects and the company's viability would be in jeopardy.

In the rest of the gaming world, Trump Entertainment Resorts Inc.'s 8½% notes due 2015 fell "a couple points," a trader said, to around the 24 level.

Numbers pressure Hertz

Car rental company Hertz saw its term loan trade down during Thursday's market hours following the company's third-quarter earnings announcement that included a warning that it would not meet full-year estimates.

The term loan was quoted at 71 bid, 73½ offered, down from 72½ bid, 75 offered, a trader said.

On Wednesday night, Hertz came out with third quarter results that included net income of $17.7 million, or $0.05 per share on a diluted basis, compared to net income of $162.7 million, or $0.50 per share on a diluted basis, for the third quarter of 2007.

Revenues for the quarter were $2.42 billion, a decrease of 1.1% from $2.45 billion in the prior year.

Corporate EBITDA for the third quarter was $386.7 million, a decrease of 30.3% from $555.1 million in 2007.

Net cash provided by operating activities was a use of $261.7 million in the quarter, compared to positive cash flow of $9 million last year.

The company said that its liquidity position remains strong and that there is sufficient debt capacity to meet fleet debt amortizations through mid-2010.

Hertz also said on Thursday that it expects to fall short of its previous full-year guidance as a result of reduced demand, lower pricing and residual market conditions.

In addition, the company suspended giving specific earnings guidance on individual financial metrics, with the plan being to resume guidance when the economy and market conditions stabilize.

The company does still expect to generate a profit on an adjusted pre-tax and corporate EBITDA basis in its car and equipment rental businesses, and generate positive levered and total net cash flow for the full year.

ResCap, GMAC weaker

A trader said that ResCap paper continued to "get slaughtered" Thursday. He saw the third-lien paper, such as the 8½% notes due 2013, in the mid-teens, while the 8½% notes due 2010 dipped to 37 bid, 38 offered from 43 bid, 45 offered previously.

Over at GMAC, which wholly owns ResCap, the benchmark 8% notes due 2031 slipped a couple of points to around 43.

The slide comes one day after the two units posted disappointing financial results. Also, on Thursday Cerberus Capital Management, which owns a majority stake in GMAC, was reported to be considering giving up control of the company as it takes steps to become a full-fledged bank.

In a morning report, Gimme Credit analyst Kathleen Shanley noted that GMAC has said there is "substantial doubt" over ResCap's viability unless GMAC continues to support the floundering unit. But GMAC itself has not been performing up to par and its quest to become a bank seems misguided.

"We hardly think GMAC is what Treasury Secretary Paulson had in mind when he talked about investing your tax dollars in 'healthy banks,' but GMAC has been admitted into the Fed's commercial paper program already, so maybe pigs will fly," she wrote.

Accuride loan gains

Accuride's term loan was a touch stronger despite seemingly negative earnings as the company's results were a bit better than analyst estimates.

The term loan was quoted at 68 bid, 71 offered, up from previous levels of 67½ bid, 70½ offered, the trader said.

For the third quarter, Accuride reported a net loss of $201.2 million, or $5.67 per diluted share, compared with a net loss of $1.2 million, or $0.03 per diluted share, in the prior year.

Sales for the quarter were $239.5 million, compared with $220.6 million last year.

The company had an operating loss of $215.1 million in the third quarter, due to $212.2 million in goodwill and other intangible impairment and $11.5 million in restructuring charges.

And, adjusted EBITDA was $20.1 million, or 8.4% of sales, for the quarter, compared to adjusted EBITDA of $13.7 million, or 6.2% of sales, for the same quarter of 2007.

Accuride also said on Thursday that its 2009 outlook expectations have been lowered with an industry rebound not expected until the second half of the year at the earliest.

In addition, the company announced that it may not be able to comply with financial covenants under its credit facility at the end of the 2009 first quarter, and therefore, the situation is being monitored closely and alternatives to address compliance concerns are being explored.

As for 2008, based upon projected North American Class 8 production of approximately 200,000 units for 2008 and Class 5-7 production of approximately 180,000, the company expects its 2008 adjusted EBITDA to be in the range of $80 to $90 million.

Accuride is an Evansville, Ind.-based manufacturer and supplier of commercial vehicle components.

Sara Rosenberg contributed to this article.

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