Rite Aid bonds decline post-numbers; Sprint notes unchanged to weaker; GM mixed, sales to come

By Stephanie N. Rotondo

Portland, Ore., March 31 - Distressed bonds were largely weaker on Wednesday, led in part by Rite Aid Corp.

The drugstore chain reported its fourth-quarter and March sales results early in the day. As a result, traders saw the bonds falling, though they managed to come off of the day's lows.

Sprint Nextel Corp. saw its bonds ending the day unchanged to somewhat weaker. The movement came as a market player speculated that the company could increase subscribers in 2011.

Meanwhile, General Motors Corp. and Ford Motor Co. debt closed mixed. The automakers are expected to release March sales reports Thursday.

Traders continued to see weaker-than-normal trading volumes, though the lackluster performance on Wednesday was blamed not on the holidays, but on quarter- and month-end pricing.

Rite Aid bonds give back

Rite Aid bonds "traded down a lot, then worked their way back up" some, a trader said, following the release of the company's quarterly results and March sales report.

The trader said $20 million to $25 million of the 9½% notes due 2017 changed hands, closing around 84. That compared with levels around 85 "a day or two ago," he said.

Another trader also placed the 9½% notes around 84, calling that down 1½ points. He also saw the 10 3/8% notes due 2016 ending a point weaker at 1053/4.

And another source deemed the 8 5/8% notes due 2015 over a point softer at 85¾ bid.

The Camp Hill, Pa.-based pharmacy chain announced its fourth-quarter results early Wednesday. The results showed a net loss of $208.4 million, or 24 cents per share, on revenues of $6.5 billion - a 3.6% decline year-over year.

"It was a difficult quarter with continued weak consumer demand, a weaker cough cold and flu season than last year and continued pressure on pharmacy reimbursement," said Mary Sammons, chairman and chief executive officer, in the earnings release.

"But our team did a good job of improving front end margins and holding tight on expenses. Thanks to our working capital initiatives, we moved into the new fiscal year with a strong liquidity position."

Rite Aid posts losses

For the fiscal year, Rite Aid reported revenues of $25.7 billion, compared to $26.3 billion the year before. The company said the decline in both the fourth-quarter and full-year revenues was "primarily driven by 121 net fewer stores and a decline in same store sales."

Net loss, however, improved to $506.7 million, or 59 cents per share, from $2.9 billion, or $3.49 per share, in fiscal 2009.

Rite Aid also provided guidance for fiscal 2011, which the company said was "based on current trends, a continued weak economy with high unemployment and the impact of the investment Rite Aid is making in its new customer loyalty program."

Sales are expected to be between $25.2 billion and $25.6 billion during the year, while net loss is projected at $355 million to $570 million.

Also on Wednesday, Rite Aid released its March sales report, which showed a 0.1% decline in total same store sales.

Total sales came to $1.96 billion, versus $1.99 billion in March 2009.

Overall, market players saw the results as more of the same.

"The company had been reporting lackluster sales and its explanation was similar: a challenged consumer and a weak cough and cold season," wrote Gimme Credit LLC analyst Kim Noland in an afternoon comment.

Noland noted that while the company was optimistic about what the recent health care legislation could mean for them, "we don't think its credit profile will improve this year." That was in line with the company's comments about its sales numbers.

"However, liquidity is adequate, having improved to $950 million at fiscal year end," Noland added.

Sprint unchanged to weaker

Sprint Nextel's debt was "a little active," a trader said, as a fund manager speculated that Sprint could gain more subscribers in 2011.

However, the trader called the bonds about a half-point weaker, seeing the 6.90% notes due 2019 at 91½ and the 8 3/8% notes due 2017 at par1/2.

Another trader placed the 6.90% notes "up and down" around 91, which he said was "kind of right where they have been." He added that about $10 million and change" of that issue traded.

BusinessWeek reported Wednesday that T. Rowe Price Group Inc.'s Dan Martino opined Sprint would begin gaining contract subscribers by the second quarter of 2011.

The Overland Park, Kan.-based wireless communications provider has lost nearly 6 million customers since 2007, when Dan Hesse took over as CEO.

Still, the article noted that many in the market are not as optimistic, with about three-quarters of analysts polled recommending selling or holding the stock.

GM mixed, sales to come

Market sources gave mixed reports about General Motors on Wednesday.

One source saw GM's zero-coupon notes due 2036 at 19, which he called up half a point. However, the 8 3/8% notes due 2033 and the 7.20% notes due 2011 were unchanged at 37½ and 363/4, respectively.

"They are all in that 35 [bid], 37 [offered] range," he said of the automaker's various issues.

At another desk, a trader said that GM's benchmark 8 3/8% notes were off slightly at 37½ bid, 38 offered.

According to a Bloomberg report, U.S. auto sales for the month of March are expected to increase at the fastest rate since the "cash for clunkers" program in 2009. The widely accepted reason for that has to do with Toyota Motor Corp.'s incentives, which it enacted as an effort to counter the bad press associated with its recent recall debacle.

Sales reports from GM and Ford are expected to hit the market Thursday.

Broad market mixed

In the broader market, a trader called McClatchy Co.'s 4 5/8% notes due 2014 "up a couple" at 76.

Smurfit-Stone Container Corp.'s 8% notes due 2017 were a half-point better at 891/2.

And Lyondell Chemical Co.'s 7.55% notes due 2026 finished unchanged at 93.

Another trader saw Realogy Corp.'s 10 ½% notes due 2014 at 86 bid, 87 offered, "not particularly different than where it has been." He noted that about $20 million of the paper changed hands.

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