CIT amends plan, bonds gain strength; Rite Aid issue brings mixed results; Sprint ends higher

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Oct. 19 - CIT Group Inc. remained in the news as the new week got started and traders reported that the credit's debt showed some strength.

The gains came after the company said late Friday that it had amended its restructuring plan in an effort to sweeten the deal and get more bondholders on board. But come Monday, even the newly altered plan could not deter Carl Icahn's ire, as he berated the company's board for "Tammany" tactics.

Meanwhile, Rite Aid Corp. brought a new deal to market. The proceeds from the new issue are expected to pay down existing debt. But while the deal gave the company's existing debt a boost, it did not do so for its bank debt.

Sprint Nextel Corp. said it would acquire iPCS Inc. for about $24 per share, thereby ending a legal battle concerning its push-to-talk subscribers. The news seemingly intrigued investors, and the company's bonds moved higher in trading.

Overall, the distressed debt market stayed somewhat strong, though some considered the day to be "kind of dead."

"The market was firm, but not crazy firm," a trader said.

CIT amends plan

CIT Group's debt traded actively - and better - following word late Friday that the company had amended its restructuring plan.

A trader said the bond "has some action," with the 6 7/8% notes due 2009 improving by 3 points to close in a 71 bid, 72 offered context. The trader said the bonds were 68 bid, 70 offered last week.

"I'd take a guess that they are all up a few points on the new structure of the tender," he said.

Another source pegged the 4¼% notes due 2010 - the credit's so-called bellwether issue - at 67 bid, 68 offered, compared to levels in the low- to mid-60s on Friday. The source noted that the paper traded as high as 70 during Monday's session.

Another trader saw the company's short paper, like its 4 1/8% notes coming due on Nov. 3 and its 6 7/8% notes maturing Nov. 1 having started "right around 70. There was a lot of trading in the 6 7/8s."

He saw the latter bond ending in a 72 to 73 range, which he called up 3 or 4 points.

He also saw the 7 5/8% notes due 2012 quoted higher, pegging them in a 64 to 65 context, which he called up a point or so, but he said he "didn't see a lot of volume in that one at all. The shorter end is what moves the most."

The trader saw the CIT Group Funding Co. of Canada 5.60% notes due 2011 "plenty active", with between $15 million and $20 million having traded at levels in the 80s; he saw the bonds trading in a range of 87 to 88, with most trades around 88, which he called up 5 points on the day.

A second trader said that he "would have thought" that CIT would be a major market feature on the news, "but for some reason," it wasn't a focus where he was. He saw a lot of small pieces trading on a bid-wanted basis.

However, he said the 4¾% notes due 2010 did see at least $15 million of turnover. While they traded at 67½ in the morning - up about 3.5 points from Friday's close at 64 - the bonds came back down off the highs to end around 66.

He saw the CIT Canada 5.60s, which had turnover of about $14 million, trade up to 88 to 88.5 "first thing this morning," and then stay in an 87.5 to 88.5 range all day - up from 86.5 on Friday afternoon and 85.25 to 85.75 last Wednesday.

In a press release issued late Friday night, CIT said it had altered the terms of its exchange offer for $30.2 billion of outstanding notes. Among the amendments was a provision to shorten maturities of the new notes being offered in exchange for the old ones, and another to decrease the maturity of the junior credit facilities being offered to lenders by six months.

The new terms also sweeten the deal for some junior debtholders, giving them more equity than originally planned.

"Over the last two weeks, we have continued to work constructively with the steering committee and believe that these amendments will further build bondholder support for our restructuring plan," said Jeffrey M. Peek, chairman and chief executive officer, in the release.

"Through the completion of the exchange offers or an expedited in-court restructuring process, we will reduce the uncertainty around our business and further maximize the value of our franchise. Either approach is intended to ensure that CIT becomes a well-capitalized bank holding company that will serve as a source of strength for CIT Bank as we implement our new bank-centric funding model."

CIT is still soliciting votes on a potential pre-packaged bankruptcy, which would be used in the event the tender is not successful.

Also, as previously reported, Peek will resign his position by year's end.

In other CIT news, the New York-based lender received a letter from billionaire investor Carl Icahn, in which he claimed the company's board was to blame for the current plight.

Icahn railed against the company, calling its proposed restructuring plan "with all its attendant fees and its method of vote-buying" is the "quintessential example of what is wrong with our bankruptcy process in America."

Some bondholders are being given an option to buy into a proposed $6 billion secured loan "at well below fair market value," and those that agree to participate will be required to vote in favor of the tender offer and/or the pre-pack plan.

"This is reminiscent of the old Tammany political machine's vote-getting tactics," Icahn said.

In addition, the new loan would not only increase CIT's overall term debt, but the dent would then be secured by nearly all of the company's unencumbered assets, which totals about $30 billion, according to Icahn.

"In light of the gross over-collateralization and rich pricing being offered to investors, we view this upfront payment as excessive," he said.

But Icahn is offering an alternative that could result in $150 million less paid out in fees.

Icahn said he would underwrite the loan, though the terms would be basically the same as those CIT is proposing. However, his offer would not require participants to give an affirmative vote and would be offered to all bondholders.

In his letter, Icahn also said that if the board was unwilling to work with him due to his "strained relationship" with the company, he was "certain that there are other banks who would be eager to underwrite the financing, with large savings to CIT, as long as there is not a vote-buying condition."

CIT later confirmed that it had received his letter and noted that it remains "open to securing financing on the most beneficial terms." The company also said it would ask Icahn for more information regarding his proposal.

Rite Aid issue brings mixed results

Rite Aid's bonds moved higher during the session, as the company announced a new deal that would be used to repay existing debt. However, the Camp Hill, Pa.-based pharmacy chain's bank debt did not fare as well.

A trader quoted the 9½% notes due 2017 around 84.5, compared to levels around 82 bid, 83 offered on Friday. Another source placed the issue at 84 bid, 85 offered.

Yet another source saw the 8 5/8% notes due 2015 gaining over a point to close at 84.25 bid.

But Rite Aid's term loans lost some ground in trading as the company launched about $300 million of incremental bank debt on Monday comprises a $125 million senior secured term loan add-on and a $175 million senior secured revolver add-on, according to a trader.

The tranche-4 term loan, which is being upsized through this transaction, was quoted at 103.75 bid, 104.75 offered, down from 104.25 bid, 105.25 offered, the trader said.

For a short period during the day, the tranche 4 term loan was as low as 103 bid, 104 offered but it then moved back up.

Market chatter is that the add-on to the tranche 4 term loan may be issued at a premium of 103, which is why the existing traded down to that level for a short while, however, official issue price on the add-on has not yet been announced, the trader explained.

Also affected by the news was the company's old term loan, which was quoted at 87 bid, 88 offered, down from 87.25 bid, 88.25 offered.

The company's new term loan, however, was unfazed, holding steady at previous levels of 94.25 bid, 95.25 offered, the trader added.

Both of Rite Aid's add-ons are priced in line with the existing bank debt - so the incremental term loan tranche 4 due June 2015 is priced at Libor plus 650 basis points with a 3% Libor floor and the incremental revolver is priced at Libor plus 450 bps with a 3% Libor floor.

Also, the term loan add-on, like the existing tranche 4 term loan debt, carries call protection of 105, 103, 101.

With the add-ons, the total tranche 4 term loan size will increase to $650 million and the revolver size will increase to $1.175 billion.

Rite Aid plans on using proceeds from the additional term loan and borrowings under its upsized revolver to help repay and cancel its accounts receivable securitization facilities.

Other funds for the refinancing will come from a proposed $250 million senior secured notes offering.

As of Oct. 16, there was $475 million outstanding under the securitization facilities.

Upon successful completion of the transactions, the company will have refinanced all of its September 2010 debt maturities.

Citigroup Global Markets Inc. is the left lead bank and a bookrunner on the incremental bank debt, and Banc of America Securities LLC, Wells Fargo and Goldman Sachs & Co. are joint bookrunners as well.

Commitments toward the add-ons are due from lenders on Tuesday morning.

In connection with the new financings, Rite Aid provided information in an 8-K filed with the Securities and Exchange Commission regarding estimated cost savings for fiscal 2010 under certain operating initiatives.

The company estimates that its previously announced segmentation initiatives, which apply tailored operating strategies to high and low volume stores, will result in cost savings of approximately $150 million in fiscal 2010.

Also, the previously announced "all-store" initiatives, which include a focus on growing prescription count, controlling labor costs, reducing shrink expense, reducing supply chain costs, increasing private brand penetration and reducing working capital, is expected to result in cost savings of approximately $200 million in fiscal 2010.

The company went on to say that it anticipates the positive impact of these savings to be offset by reductions in pharmacy gross margin, caused by reimbursement rate pressures, fewer new generics and the impact of recently implemented AWP cost adjustments on its Medicaid business, and increases in labor rates and benefit costs.

Sprint gains on acquisition news

Sprint Nextel saw its bonds moving higher after it was announced that the Overland Park, Kan.-based company was planning to acquire iPCS Inc. for $426 million.

A trader called the 8 3/8% notes due 2017 up 1 to 1.5 points on the day at 95.5 bid, 96.5 offered.

Another market player saw the 6% notes due 2016 inch up slightly to 86.25 bid. At another desk, the issue was seen at 86 bid, 86 offered, up from 85 bid, 86 offered.

The all cash deal includes $405 million in net debt, Sprint said. The acquisition is expected to add positive cash flow by 2010.

The planned purchase helps Spring avoid a legal battle regarding its push-to-talk customers. The deal is also expected to remove certain hurdles from the company's plan to expand its fourth-generation network with Clearwire Corp.

"Acquiring iPCS brings added value to Sprint by expanding our direct customer base, growing our direct coverage area and simplifying our business operations," said Dan Hesse, CEO of Sprint Nextel, in a press release announcing the acquisition. "Customers in iPCS territory will see a seamless transition and continue to enjoy a superb customer experience."

"We are very pleased to have reached this agreement with Sprint Nextel," added Timothy M. Yager, president and CEO of iPCS. "Given the increasingly competitive landscape, we believe this is an opportune time to provide our shareholders with a liquidity event at a very attractive price. iPCS shareholders will receive a significant and immediate premium for their shares and our customers will continue to receive the same excellent service from the same dedicated people who provide that service today.

"We look forward to working with the Sprint Nextel team to ensure a smooth completion of the transaction and transition in the coming months."

Broad market improves

Elsewhere in the world of distressed debt, Hawker Beechcraft Acquisition Co. LLC's 8½% notes due 2015 "did not see much action," a trader said, though the bonds did trade up.

The trader placed the paper at 73.5, calling that "up a couple points from Friday trades."

On Monday, an aviation magazine, citing the company's top executive, said that recovery in the aircraft industry was not expected until 2012 or later, as many recent models have already come back to flood the used-aircraft marketplace.

A trader saw Tronox Worldwide LLC's 9½% notes due 2012 in the low 60s - down from the mid-60s levels seen last week - on "some activity." He pegged the bonds in a 60 to 62 range, with trades around 60 down 3.5 points from last week's close. He saw "decent activity" in the credit.

Another trader agreed that Tronox "seemed to be coming in today," on "pretty good volume," swinging between a low of 58.5 bid and a high of 61.5. The issue, he added "caught up with itself."

Smurfit Stone Container Corp.'s bonds were "hanging right around" an 83 to 84 context, a trader said, calling them "pretty much unchanged" at 83, and added "there wasn't a lot of activity" in the notes.

Also, Claire's Stores Inc.'s 10½% bonds at 67 to 69, which he said was "quoted higher, on no volume."

Paul Deckelman contributed to this article.

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