Harry & David steady post-bankruptcy filing; Horizon Lines debt cracks on going concern doubts

By Stephanie N. Rotondo

Portland, Ore., March 29 - The distressed debt market was "more active," a market source said Tuesday, though he noted there was "nothing driving it."

Another source said the market was "for the most part better," with trading being "broad based."

Harry & David Holdings Inc. continued to trade, though at the same levels seen Monday on the back of the company's Chapter 11 filing.

In the shipping arena, Horizon Lines Inc. said in a regulatory filing that its ability to continue as a going concern was in question. As a result, the company's debt dropped about 10 points on the day.

General Maritime Corp. meantime continued to gain ground.

Elsewhere, Rite Aid Corp. closed the day mostly lower, as the market waited for the company's March sales report, due out Thursday.

Harry & David hold steady

After filing for bankruptcy on Monday, Medford, Ore.-based Harry & David saw its bonds falling about 3 points.

Come Tuesday, traders saw the bonds holding in at Monday levels.

The 9% notes due 2013 traded at 23 bid, 23 offered, according to a trader.

The specialty foods retailer warned earlier this year that it might have to file for bankruptcy, as earnings declined amid the financial crisis and never fully rebounded.

In a press release announcing the filing, Harry & David said it had reached an agreement with investors holding 81% of its senior notes. Under the "pre-arranged" plan, the company will exchange some of its senior notes for equity. Those holders that have agreed to the exchange have also agreed to backstop a $55 million rights offering.

Other noteholders and creditors will be allowed to participate and, if successful, the proposed plan would result in the full conversion of the $198 million in senior notes, "as well as a significant amount of the company's pre-petition general unsecured obligations."

Harry & David is seeking approval on a $100 million first-lien debtor-in-possession revolving credit facility from its existing secured lenders, as well as a $55 million second-lien DIP from its senior noteholders.

The company has also secured $100 million in exit financing.

On Tuesday, Moody's Investors Service dropped Harry & David's probability-of-default rating to D from Ca.

Horizon cracks, GenMar gains

Charlotte, N.C.-based shipping company Horizon Lines said in a regulatory filing on Tuesday that it expects to fall out of compliance with its debt covenants at some point this year.

Concerns about the company's ability to therefore continue as a going concern resulted in a 10-point drop for the company's bonds, traders reported.

One trader placed the 4¼% notes due 2012 at 80 bid, 82 offered, down from 91 bid, 92 offered.

Another saw the issue at 81 bid, 82 offered, down from previous levels in the low-90s.

Horizon said in the filing that a $45 million fine - a Department of Justice settlement regarding its domestic ocean shipping business - would likely cause a covenant breach on its senior convertible notes. The breach will come despite the company amending its senior credit facility earlier this year.

The company said it was in refinancing talks with creditors and other investors to remedy the issue.

On the news, Standard & Poor's dropped its rating on the company to CCC, also citing refinancing risk and its 2012 maturities.

Also in the realm of shipping, General Maritime's 12% notes due 2017 remained stronger, closing around 95.

"I'd like to see them get it done," a trader said, referring to the company's current plan to refinance or restructure.

Rite Aid softens

Rite Aid bonds were mostly weaker ahead of a monthly sales report expected later this week and quarterly results expected next week.

A trader said the 7½% notes due 2017 were the day's "most active," calling them "relatively unchanged" around par.

However, the 9 3/8% notes due 2015 were slightly softer, bracketing 91, while the 9½% notes due 2017 fell a point to 883/4.

Another market source pegged the 8 5/8% notes due 2015 at 91 bid, down a point.

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

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