Claire's president departs, bonds slip; Rough water ahead for mortgage lenders; GM, Ford notes dip

By Stephanie N. Rotondo

Portland, Ore., July 8 - The distressed bond market was generally "fine," a trader said Tuesday, as the equity markets regained some losses.

But traders also reported that buyers were still weary of weaker credits. Looking forward, one source said that second-quarter earnings could help to "clean things up."

"We know it is going to be bad," he said. "Let's figure out how bad."

The source also said that "talk is an end of the year, 2009 rebound in distressed." Until then, many firms might continue the spree of layoffs that have occurred in the sector.

"If everybody can just hang around, they'll be less competition when it gets good," he opined.

Among the day's notable names, Claire's Store's Inc. said in a regulatory filing Tuesday that its president was leaving the fold. As a result, the company's debt ended the day softer.

However, traders said that there was not much trading in the Pembroke Pines, Fla.-based company's bonds, although there were a lot of quotes floating around.

Meanwhile, GMAC LLC's bonds were either up, down or unchanged - depending on whom you talked to. Still, a trader said there was some activity in the mortgage lender, even as the sector as a whole faced the task of staying off the "Implode-O-Meter."

General Motors Corp. and Ford Motor Co. experienced good-sized sales growth in China during the first half of the year. But the better numbers did little to help either company's debt. GM's bonds fell as much as 2 points, while Ford's paper slipped as much as 1.5 points.

Top dog exits Claire's, bonds fall

News that Claire's Stores' top executive had handed in his resignation sent the specialty retailer's debt downward.

"That's always good," remarked one sarcastic source, referring to John A. Zimmermann's departure from his post as president. The resignation was effective Monday and, according to a regulatory filing, was due to "personal reasons."

But the source said that the bonds were "not much changed" on the news, pegging the 10½% notes due 2017 at 38 bid, 40 offered and the 9 5/8% notes due 2015 at 41 bid, 43 offered.

However, at another desk, the bonds were seen lower. A trader said the 10½% notes were offered at 40, while the 9 5/8% notes were offered at 43. He noted that the closing offers were the morning's bid side.

Another trader said the 10½% notes were "straddling 40," though he added that there was not much trading.

Claire's term loan B also gave up some ground, quoted at 70½ bid, 72 offered, down from 72 bid, 73 offered, a trader said.

Elsewhere in the retail arena, a trader said that most distressed names were "sliding a little, generally weaker." He saw Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2015 at 79.5 and Yankee Acquisition Corp.'s 9¾% notes due 2017 at 68 bid, 69 offered.

The trader also said that Sealy Corp. released its second-quarter results late in the day. He said he had not seen much reaction to the figures, but "the numbers didn't look so hot. We'll see how they react tomorrow."

For the quarter ended June 1, Sealy posted a 6.6% decrease in net sales to $375.4 million. Net income fell to $12 million from $16.1 million the year before.

More mortgage lender troubles

Mortgage lenders cannot seem to catch a break. In addition to the mounds of losses many have had to take since the subprime blowout, now the sector is facing another dilemma: How to stay off the Implode-O-Meter.

According to a New York Times article, the cheeky web site (www.ml-implode.com) tracks those companies that are "imploding" or are otherwise in trouble. So far, the list has hit 266 companies, with Lehman Brothers being the most recent addition.

The Times article also noted that at a recent banking convention, the topic turned to the web site and how to avoid making the list.

Of the lenders who have set up camp in distressed territory, GMAC did not even make the list - although its offspring, Residential Capital LLC, was on the "Ailing/Watch List."

Traders gave mixed reports of GMAC's activity. One trader called the 5.85% notes due this year "up a little" at 92.5. But another trader called the bonds unchanged, with the 8% notes due 2031 at 58 bid, 59 offered.

Elsewhere, the 6 7/8% notes due 2012 were seen down a point to 62 bid, while ResCap's 8 7/8% notes due 2015 were likewise lower at 37 bid.

Another trader saw ResCap's 6½% notes due 2013 "down a couple of points" to the 36 bid level. He also saw Thornburg Mortgage Inc.'s 8% notes due 2013 down half a point to 67.

In the rest of the financial sector, nominally investment-grade-rated bond insurer MBIA Inc.'s junk-rated 14% surplus notes due 2033 jumped 5 points on the day to 48 bid and got as high as 50 at one point, in line with a big gain in the company's shares, part of a general upside move by insurance names. Radian Group Inc.'s 5 5/8% notes due 2013 were seen up nearly 1.5 points to the mid-46 level.

GM, Ford slip despite sales growth

General Motors and Ford took a hit during Tuesday's sessions, despite reports that their sales overseas had accelerated.

A trader quoted Ford's 5.8% notes due 2009 at 95.25, while another source saw the 7.45% notes due 2031 down half a point at 54.5. The latter also saw GM's 7 1/8% notes due 2013 1.5 points softer at 58 and the 8 3/8% notes due 2033 down nearly a deuce at 53.75.

Another market source pegged the 2013 paper at 59.

Meanwhile, a trader called GM's 8 3/8% notes unchanged on the day at 55, although he said that they were down by 2 points "for a while" earlier.

During the first half of the year, GM saw its sales grow 12.7% in China, considered the No. 2 automotive market. Ford posted a 21% increase in sales.

Tousa: Up to par?

Tousa Inc.'s bonds saw some action after a Bloomberg News article indicated that bondholders are optimistic about the outcome of a lawsuit against the company's secured lenders aimed at forcing them to give up collateral they were given on a bailout package for a subsidiary not long before the whole company went bankrupt.

"The article said that if the lawsuit is successful, it could make the bonds go up a serious amount," a trader said - perhaps all the way up to par.

While Tousa's 9% senior notes due 2010 were actually seen down almost 3 points on the session at 52, amid a few smallish trades, its 7½% subordinated notes due 2015 were lifted more than 3 points, to 8.25, on the strength of several round-lot trades at high levels late in the day. Its 7½% subordinated notes due 2011 moved up nearly a point to just under 7, helped by several sizable trades during the session.

Broad market mixed

Primus Telecommunications Group Inc.'s 8% notes due 2014 were quoted at 30.5 bid, 32 offered.

A trader pegged Realogy Corp.'s 10½% notes due 2014 at 68 bid, 69 offered, adding "You can't tell me those bonds are worth that."

The trader also saw Swift transportation Co. Inc.'s debt "coming back in," its 12½% notes due 2017 at 32 bid, 33 offered and its floating-rate notes due 2015 at 31 bid, 32 offered.

"They will probably get some relief," he said, as oil prices decline. "But what's the difference between $130 [a barrel] and $140?"

Citizens Communications' 9% notes due 2031 traded at 88.5 bid, 89.25 offered and its 6¼% notes due 2013 closed at 92.75 bid, 93.25 offered. The company plans to release its quarterly numbers on Aug. 5.

Harrah's Operating's 10¾% notes due 2016 "continue to get pummeled," a trader said. He placed the issue at 80.75, down a point or more on the day.

Trump Entertainment Resorts Inc.'s 8½% notes due 2015 "traded off, then rallied back to even," another trader said. He quoted the bonds at 59.5 bid, 60 offered.

Ply Gem Industries Inc.'s 11¾% notes due 2013 traded down to 90.

Sara Rosenberg and Paul Deckelman contributed to this article.

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