ResCap long paper firmer; Retailers unchanged to weaker; Spheris notes quoted lower on earnings

By Stephanie N. Rotondo

Portland, Ore., May 16 - As the equity markets dipped during Friday's session, the distressed bond market managed to end the day largely unchanged.

"Everything is pretty much the same levels as yesterday and not much is trading," one trader said.

All week, market sources have reported that trading activity was relatively light. Even as several companies reported quarterly results, the junk sector seemed unwilling to move.

"All the numbers were pretty much in line," the trader said. "They were just good enough to keep the market calmed down."

Still, Residential Capital LLC's longer-dated paper was able to edge up during the trading day. One trader called the bonds a couple points better as the company's exchange offer deadline came and went.

Meanwhile, retailers ended the session unchanged to weaker, a trader said. Blockbuster Inc.'s debt, which had gained in the previous session on the back of better-than-expected numbers, was seen perhaps slightly better. Claire's Store Inc.'s bonds closed a touch softer, just one day after the company elected to use the PIK feature on its recent coupon.

In the health care sector, Spheris Inc.'s bonds were seen quoted lower, though trading action was few and far between, a trader said. The decline in the bonds came after the company reported disappointing quarterly results earlier in the week.

ResCap's longer issues edge up

With Residential Capital's deadline on its exchange offer for upcoming maturities closing in, some of the company's debt edged up during the last trading session of the week.

One trader saw a market of 51.75 bid, 52.75 offered in the 6 3/8% notes due 2010. The 6½% notes due 2012 ended at 50 bid, 51 offered, and the 6 7/8% notes due 2015 closed at 49 bid, 50 offered.

However, the trader said he did not see any levels in the 2008 paper.

Another trader called the 2010 issue higher by a couple points at 52 bid, 53 offered, though he notes that "very little traded."

Another trader saw ResCap's 6½% notes due 2013 down half a point at 49.5 bid, while ResCap corporate parent GMAC LLC's 8% bonds due 2031 rose 1.5 points to 78. At another desk, the ResCap 8 7/8% notes were a point better at 51, while GMAC's 6 7/8% notes due 2012 were up half a point at the 81 level.

The exchange offer, which began on May 5, will give holders of the upcoming June maturity between 80 cents and 100 cents on the dollar. Holders of other 2008 issues, as well as 2009 paper, will receive new 8½% notes due 2010, while holders of 2010 through 2015 debt will get 9 5/8% notes due 2015. The offer deadline was 5 p.m. ET on Friday. After that, holders of the June 2008 issue could see their recovery levels go down.

Some bondholders have expressed their rancor at ResCap's move to extend its maturities, and thereby avoid default. In fact, earlier in the week, news reports indicated that some bondholders were looking to form a committee to fight the proposed plan.

Still, other market players have said that while holders of upcoming maturities may not fare as well, holders of the 2010 through 2015 issues are likely to participate.

Residential Capital is a Bloomington, Minn.-based mortgage lender.

Retailers unchanged to weaker

There was not much activity in the retail sector Friday - as well as the broad market in general - but one trader said that by and large, names in the sector were weaker to unchanged.

After posting better-than-expected numbers on Thursday, Blockbuster's bonds were a smidge better, the trader said. He quoted the 9% notes due 2012 at 82 bid, 83 offered.

"That's about the same, maybe a quarter-point higher," he said.

At another desk, a trader called the Dallas-based movie rental chain's bonds unchanged at 82.75 bid, 83.5 offered.

Meanwhile, Pembroke Pines, Fla.-based Claire's Stores' 9 5/8% notes due 2015 were "maybe a little weaker," though there was "not much trading," just one day after the company decided to use the PIK feature on the bonds in lieu of paying the coupon in cash. The trader pegged the bonds at 58 bid, 59 offered.

Bon-Ton Stores Inc.'s debt ended weaker with its 10¼% notes due 2014 trading at around 74.

Spheris notes quoted lower

Spheris posted what one trader called "bad numbers" on Tuesday and, as a result, the bonds have been quoted lower.

The trader noted that action in the name has been slight, however.

"Nobody's really saying what is going on," he said.

The trader quoted the 11% notes due 2012 wide at 72 bid, 78 offered.

For the three months ending March 31, Spheris saw revenue decline to $49.2 million, compared to revenue of $52.3 million the year before. Its net loss widened to $4.8 million, versus a net loss of $2.1 million in 2007.

Spheris is a Franklin, Tenn.-based medical transcription company.

Elsewhere in the health sector, Insight Health Services Corp.'s floating-rate notes due 2011 "drifted down to the mid-40s," a trader said.

However, "they haven't been trading recently," he added.

Another source saw the bonds trade at 46.

April housing starts boost sector

The sector got a boost from better-than-expected April housing starts and construction-permit numbers and from the excitement generated by Hovnanian Enterprises Inc.'s new $600 million bond sale. After those bonds priced just below par, they were heard having moved up smartly to levels as high as 103 bid, 103.5 offered before settling in about a half point down from that peak.

Hovnanian's established 7¾% notes due 2013 were seen by a trader up 5 points to 69 bid, 71 offered. Another saw its 6 3/8% notes due 2014 a point better, at 74 bid. But yet another trader called its 6 3/8% notes and 6¼% notes due 2016 unchanged at 70 bid.

"There was a lot of news, but they were still unchanged," he said.

He also saw Beazer Homes USA Inc.'s 11 5/8% notes due 2011 unchanged at 86, while Standard Pacific Corp.'s 7% notes due 2015 were steady at 74. The trader saw WCI Communities Inc.'s 9 1/8% notes due 2012 down 2 points at 41 bid, 43 offered.

Broad market mixed

Idearc Inc.'s 8% notes due 2016 were "still firm," a trader said, at 73 bid, 74 offered.

In the autosphere, Delphi Corp.'s bonds "continued to advance a little bit," according to another trader. He said there "seems to be buyers still in the mid-40s."

Spectrum Brands Inc.'s 7 3/8% notes due 2015 ended unchanged around 67.5.

Paul Deckelman contributed to this article.

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