CIT follows market trend, ends sideways; Michael's shrugs off loan extension; Rite Aid loan up

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Oct. 21 - The distressed debt market closed up Wednesday basically level with Tuesday, traders reported, even as the equity market went "psychotic."

"Everything is sideways," said a trader. "There is just not a lot of price movement, period."

Another trader said there was "a little noise in the morning and early afternoon" before the market went quiet. Still, the focus remained not on distressed credits, but on new issues and "five-B kind of paper."

CIT Group Inc. followed that market trend and ended mostly unchanged day over day. News continues to trickle out about the struggling lender, like reports from late Tuesday that indicated the company had received an offer to buy some of its debt portfolio.

Meanwhile, Michael's Stores Inc. shrugged off news that the arts and crafts retailer was looking to amend and extend its credit facility. The bonds - like the broader market - were unchanged to up just a tad.

Also in the retail space, Rite Aid Corp.'s new add-on bank debt was priced, sending the loan up slightly on the bid side.

CIT follows market trend

CIT Group's debt - like many other credits in the distressed sphere - ended the session largely unchanged, traders reported.

A trader placed the 4 1/8% notes due 2009 around 70. "I don't think that's a substantial change," he said. He added that longer-dated paper remained in the mid-60s.

"There are a lot of small pieces trading," he noted.

Another trader agreed with that, "there is just a ton of odd lots." He saw the 5% notes due 2015 holding steady around 64.5, the 5% notes due 2015 at 64.75 bid, 65 offered and the 4¾% notes due 2010 at 65.75 bid, 66 offered.

But he did see slight movement in the bellwether 4¼% notes due 2010, which closed at 66 bid, 66.5 offered. That compared with levels of 65.5 bid, 66 offered on Tuesday.

Another trader said CIT's short-dated paper, like its 6 7/8% and 4 1/8% notes both coming due at the beginning of next month "right around 70, still. They seem like they're hanging out there," trading "right in" a range of 68 to 70. He called that unchanged on the day.

He saw longer issues, like the 7 5/8% notes due 2012 around 63 bid, "unchanged, with not a lot of trading there."

He said that "most of the longer stuff" was in a 63 to 65 neighborhood. "It's converging, all of the longer CIT paper. " He said everyone "is waiting to hear an announcement of some kind of deal."

At another desk, a market source saw CIT's 4¼% notes due 2010 down 1.5 points around the 66 level, although the 7 5/8s were being quoted more than 2 points higher, at just under 65.

Late Tuesday, news outlets reported that hedge fund manager logi Energy offered to buy some of CIT's debt portfolio - including some energy assets - for just over $1 billion. That values the portfolio at about 60 cents on the dollar.

Logi has also reportedly said it would consider upping its offer, should CIT reject the initial price.

That news comes as Carl Icahn offered an alternative to bondholders. He recently offered to provide CIT with a $6 billion loan, under similar terms as the one the company has asked bondholders to participate in. However, CIT's proposal requires that participants vote for the company's reorganization plan, while Icahn's does not.

Late last week, CIT sweetened the terms of previously announced debt exchange. The swap is aimed at reducing the company's overall debt by at lest $5.7 billion. Should the swap fail, New York-based CIT is also soliciting votes on a prepackaged bankruptcy option.

Also in the financial space, Washington Mutual Inc.'s senior unsecured paper - such as the 4% notes due 2009 - "came in a little bit," according to a trader.

The trader pegged the bonds at 90.75 bid, 91.25 offered, down from levels around 92 on Tuesday.

Michael's shrugs off loan extension

Michael's Stores' bonds were little affected by news the company was seeking to amend its credit facility, traders said.

A trader said the 10% notes due 2014 "looked unchanged" at 99 7/8. The 11 3/8% notes due 2016 were maybe up slightly to 95.75 bid, 95.5 offered.

Another trader quoted the 10% notes at 99 bid, par offered.

The Irving, Texas-based arts and crafts retailer wants to extend the maturity of $1 billion of its term loan B to July 2016. The loan was originally slated to mature on Oct. 31, 2013.

If the company gets the extension, pricing will be amended to Libor plus 375 basis points, up from Libor plus 225 bps.

Rite Aid add-on released

Among other retailers, Rite Aid's incremental $125 million tranche-4 term loan due June 2015 ended up being issued to investors at a price of 103, in line with previous market speculation, according to a market source.

Pricing on the add-on is Libor plus 650 basis points with a 3% Libor floor, and there is call protection of 105, 103, 101 - which are the same terms that are included in the existing tranche-4 loan.

With the allocation of the term loan add-on, the tranche-4 was seen in the secondary market at 104.125 bid, 104.625 offered, compared with Tuesday's levels of 104 bid, 104.75 offered, a trader remarked.

"Market tightened because there's more liquidity in it now with the incremental allocating. More people are interested in it," the trader added.

In addition to the term loan add-on, Rite Aid is doing a $175 million senior secured revolver add-on priced at the same level as the existing revolver at Libor plus 450 bps with a 3% Libor floor.

Proceeds from the additional term loan and borrowings under the upsized revolver will be used to help repay and cancel the company's accounts receivable securitization facilities that currently have $475 million drawn.

Other funds for the refinancing will come from $270 million in senior secured notes.

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.

Rite Aid is a Camp Hill, Pa.-based drugstore chain.

Paul Deckelman contributed to this article.

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