Rite Aid jumps on improved sales; Autos mixed post-Chrysler news; MGM gains on new Dubai deal

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., April 30 - The distressed bond market closed stronger Thursday, according to traders.

"Everything is the same or better," a trader said. "If anything was off, it was off by fractions, not points.

"The weird thing is there was a lot of volume, but I'm not sure what it was in," he added, noting that there was nearly $2 billion changing hands in the secondary marketplace. "There were no big trades."

"All the buyers wanted yesterday's prices and all the sellers wanted tomorrow's prices," said another trader. "The most popular accounts were the guys that said they had something for sale."

"Everything's flying, everything is on fire," another trader said.

Rite Aid Corp.'s bond got a boost after the company reported improved sales figures for April. In some cases, the bonds were up more than 7 points on the day.

Meanwhile, the autosphere closed the day generally mixed following news that Chrysler LLC planned to file for Chapter 11 protections. Rival General Motors Corp. saw its bonds end slightly weaker to unchanged, while debt associated with Chrysler was largely better.

News released late Wednesday resulted in a good size gain for MGM Mirage's debt. The company said in the previous session that it had reached a deal with Dubai World. The casino operator's bonds gained as much as 7 points in response.

Rite Aid jumps on sales

Rite Aid's bonds were up anywhere from 3 to more than 7 points on the day after the company reported better April sales numbers.

A trader quoted the 8 5/8% notes due 2015 and the 9½% notes due 2017 at 53 bid, 54 offered. Another called the debt 53 bid, 55 offered.

One market source deemed the 8 5/8% notes up more than 7 points at 54.25 bid, while another placed the 9½% notes in the mid-50s.

For the four weeks ending April 25, Rite Aid saw same store sales increase by 1.8% from the year before. Front-end same store sales gained 3.2%, while pharmacy same store sales moved up 1.2%. Pharmacy sales gained despite a 453 basis points negative impact from the introduction of new generic medications.

At the company's Brooks Eckerd stores, sales were basically unchanged, with front-end sales gaining 4.4% and pharmacy sales falling 1.5%.

Total sales came to $2.003 billion, the same as the four-week period in 2008. Prescription revenue accounted for more than half of that amount.

Among other retailers, Neiman Marcus Group Inc.'s bonds continued to rally. One source placed the 10 3/8% notes due 2015 at 55.5 bid, up about 5 points, while another source saw both the 9% due 2015 and the 1 3/8% notes in the mid-50s.

Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2015 inched up to 70, according to a trader.

In other consumer-driven names, Revlon Inc.'s term loan gained some ground during market hours after the company came out with first quarter numbers that showed an improvement in net income, according to traders.

The term loan was quoted by one trader at 86 bid, 88 offered, up about a point on the day, and by a second trader at 86 bid, 91 offered, up about 1¼ points on the day.

For the first quarter, Revlon had net income of $12.7 million, or $0.25 per diluted share, compared with a net loss of $2.5 million, or $0.05 per diluted share, last year.

Net sales for the quarter were $303.3 million, compared with $311.7 million in the first quarter of 2008.

And, adjusted EBITDA for the quarter was $49.1 million, including pension expense of $6 million, down from $57.5 million in the prior year, which only included $2.1 million of pension expense.

Revlon also said on Thursday that during the first quarter it reduced debt by a total of $38.3 million.

The debt reduction comprised an $18.7 million senior secured term loan repayment and the repurchase of $23.9 million of 9½% senior notes.

After the term loan repayment, there remained outstanding at the end of the first quarter approximately $815 million of term loan debt, which matures in January 2012.

In addition, at March 31, there was $4 million drawn under the company's revolving credit facility.

Revlon is a New York-based cosmetics, hair color, beauty tools, fragrances, skincare, anti-perspirants/deodorants and beauty care products company.

Autos mixed post-Chrysler news

General Motors saw its debt close unchanged to slightly lower following news that fellow Big Three carmaker Chrysler had filed for Chapter 11 protections. The bonds were also likely affected by news that bondholders were planning a counteroffer on the company's recently announced debt swap.

A trader called GM's 7.2% notes due 2011 a point weaker at 8 bid, 9 offered, while the 8 3/8% notes due 2033 gyrated between 6.5 and 10.5.

Another trader quoted the company's notes generically at 9 bid, 9.5 offered, calling that unchanged on the day.

Bondholders are reportedly planning to present a counteroffer to GM's restructuring proposal. Under the terms of that offer, bondholders would receive a 51% stake in the company. The group believes that their plan will allow the company to repay loans obtained from the U.S. Treasury Department and therefore avoid nationalization.

On Monday, GM announced a debt-for-equity swap in which bondholders would receive 225 shares of common stock in exchange for each $1,000 of debt tendered. That would give the creditors just 1% interest in the reorganized company.

Meanwhile, under the Chrysler umbrella, one of the main attention getters on Thursday was Chrysler Financial Services' term loans as gains were pretty significant on talk that the company may be rolled into GMAC LLC in connection with Chrysler Auto's bankruptcy filing, according to traders.

The first-lien term loan was quoted by one trader at 75 bid, 77 offered, up about 10 points on the day, and by a second trader at 76 bid, 77 offered, up from 68 bid, 70 offered on Wednesday. The second trader said that the loan was as high as 78 bid, 80 offered "right after the Obama press conference but then it backed up a little."

Meanwhile, the company's second-lien term loan was quoted at 48 bid, 50 offered, up from 42 bid, 45 offered, the second trader added.

On Thursday afternoon, GMAC announced that it had agreed to provide automotive financing products and services to Chrysler dealers and customers.

GMAC will be the preferred provider of new wholesale financing for Chrysler dealer inventory and has a four-year agreement for incentivized retail financing with limited exclusivity.

GMAC went on to say that it has not acquired the existing assets or liabilities of Chrysler Financial.

A trader called GMAC's bonds "one of the big movers" on the day, helped by the news that bankrupt Chrysler's auto-loan arm will be merged into GMAC - which will get government support. "There's nothing like the government telling you that they're giving you money," he quipped.

He saw "old" GMAC 8% bonds due 2031 left outstanding after its recent debt exchange, at 60 bid, 65 offered, "up what, like 15 points, or maybe even more?" He said there was "huge size trading" lifting GMAC paper "across the board.

"It was up in all the issues." The activity was "very significant," he said. "Everything else pales by comparison."

He said the upshot of the news - a huge deal in the junk and distressed markets, although it was overshadowed in the general financial markets by the overall story about Chrysler's bankruptcy - was that "they [GMAC] are not going out of business - and they leaped today."

He also saw good upside movement at the shorter end of the curve, with the 7¾% notes due 2010 having gotten as good as 92 bid, up 12 points "on huge size trading." The issue, he said "is very volatile, up a lot - don't hang your hat on any one level because it's moving even as we speak."

Another market source pegged the 7¾% notes as having firmed smartly to 93 bid.

Chrysler's (Chrysler Auto) term loan was another spotlight stealer during market hours as the debt gained a few points in response to the company's Chapter 11 filing, according to a trader.

The term loan was quoted at 27½ bid, 28½ offered, up from Wednesday's levels of 23 bid, 25 offered, the trader said.

Chrysler filed for bankruptcy on Thursday after reaching an agreement-in-principle to establish an alliance with Fiat SpA, under which Fiat powertrains and components will be produced at Chrysler manufacturing sites.

The company said that it was unable to obtain the necessary concessions from all of its lenders to keep it out of bankruptcy.

During the bankruptcy period, the government will provide enough debtor-in-possession financing to allow continuation for the continuation of business as usual.

Chrysler said on Thursday that it is expecting to exit from Chapter 11 within the next 30 to 60 days and is looking for quick court approval of the Fiat agreement.

When the Fiat deal is done, the Voluntary Employee Beneficiary Association will own 55% of the new company and the U.S. and Canadian governments will own proportionate shares of a 10% stake.

Fiat will initially hold a 20% ownership stake in Chrysler, with the right to increase its stake by an additional 15% in three increments, and cannot become a majority owner until after all U.S. government loans have been completely repaid.

Chrysler Auto is a producer and seller of Chrysler, Dodge and Jeep vehicles.

Ford Motor Co.'s bonds edged up a tad, with one source pegging the benchmark 7.45% notes due 2031 at 53 bid.

MGM spikes on Dubai deal

A new agreement with Dubai World sent MGM Mirage's bonds soaring as much as 7 points on the day, traders reported.

One trader said the casino operator's bonds were "remaining stronger," the 6 5/8% notes due 2015 at 55.75, the 8½% notes due 2010 at 71 bid, 72 offered and the 6% notes due 2009 in the "84 area."

Another trader said the debt structure was "up a bunch" on the news, placing the 6 5/8% notes at 57.5 bid, 58 offered, the 8½% notes at 70 bid, 71 offered and the 6% notes at 82 bid, 84 offered.

Late Wednesday, MGM announced it had inked a new deal with its CityCenter joint venture partner. Under the terms of the deal, MGM will pay for any cost overruns and for completion costs of the $8.5 billion project, should net proceeds from condominium sales fall below $243 million.

In return, Dubai World has agreed to drop its breach of contract lawsuit against MGM and will also repay $135 million that MGM had previously paid to lenders in its stead.

Elsewhere in the gaming arena, Boyd Gaming Corp.'s 7¾% notes due 2012 moved up 5 points to 96.5 bid. The company will release its quarterly results on May 8.

Harrah's Entertainment Inc.'s 5 5/8% notes due 2015 closed at 28.

Paul Deckelman contributed to this article.

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