Rite Aid narrows losses; Solo refinancing helps bonds; Spectrum, Six Flags gains baffle market

By Stephanie N. Rotondo

Portland, Ore., June 24 - The distressed debt marketplace remained subdued Wednesday, traders reported, and one went so far as to call the day "dull."

"Guys are looking at the numbers, shrugging, looking at the Fed, shrugging," he said.

Still, investors could not shrug off Rite Aid Corp.'s improved quarterly report, which came out early in the session. The company posted a narrower loss, which then resulted in an at least 2- to 3-point gain in the bonds.

Solo Cup Co.'s bonds were meanwhile helped by the company's refinancing news. The company launched its new bond issue Wednesday.

But there was no news in Spectrum Brands Inc. or Six Flags Inc. to explain good-sized gains in both names. Spectrum ended the day about 10 points better, while Six Flags increased by about 5 points. Traders were at a loss to explain what had caused the movements. After the market closed, word came out that Spectrum had reached a settlement with its term lenders.

Rite Aid posts smaller loss

Rite Aid bonds ended the mid-week session higher after posting a narrower quarterly loss.

One market source had the 8 5/8 notes due 2015 gaining 3.5 points to end at 64.5 bid.

Another source said the news of the smaller loss helped to lift "a couple offerings," but added that "then it went quiet." He pegged both the 9½% notes due 2017 and the 9 3/8% notes due 2015 at 64 bid, 65 offered, up from 63 bid, 65 offered.

At another desk, the 9½% notes were seen 2 to 3 points better, also around 64.

For the quarter ending May 30, the Camp Hill, Pa.-based drugstore chain posted a net loss of $98.4 million, or 11 cents per share. That compared with a 20-cents-per-share net loss in 2008. Revenues came in at $6.5 billion.

Adjusted EBITDA came to $249.2 million, or 3.8% of revenues.

"We are pleased with our first-quarter results as we continued to build on the improvements we made in the last several quarters," said Mary Sammons, Rite Aid's chairman and chief executive, in a statement. "We grew pharmacy sales, improved adjusted EBITDA by operating more efficiently and continued to take costs out of the business while at the same time our customer satisfaction ratings improved.

"We are in a much stronger financial position today with the significant improvement in cash flow and liquidity we achieved in the first quarter and the progress we have made refinancing a major portion of our September 2010 debt maturities," Sammons continued. "The increase in liquidity gives us ample funds to execute our business plan and the extended maturities give us more time for our initiatives to continue to improve our performance. We are not just changing our business to weather the current economic storm. We are changing the way we operate for the long term."

The company also said it was well on its way to complete its refinancing effort of its September 2010 maturities.

Solo refinancing helps bonds

Solo Cup's debt got a boost as the company launched its new $300 million bond issue.

A trader called the 8½% notes due 2015 up half a point at 80 bid, 82 offered, while another placed the issue at 80.5 bid, 81.5 offered, also up half a point.

On Wednesday, Solo Cup priced its new issue. The new 10½% notes due 2013 mature in 4½ years and came to market at 97.928, yielding 11¼%.

Earlier in the week, the food service packaging supplier said in a regulatory filing that it was forecasting "an improving business climate."

"We believe these improvements are due to customer de-stocking activity, seasonal demand increases, increased sales of new products, sales to new customers and the sale of additional items to existing customers," the filing said.

Still, the Highland Park, Ill.-based company is not fully out of the woods. Solo Cup said it expected to see second-quarter sales decline by 20% to 30% over year ago figures.

Spectrum, Six baffles market

"Something is going on," traders reported about both Spectrum brands and Six Flags notes, but none had any answers as to what that "something" might be.

A trader saw Spectrum's 7 3/8% notes due 2015 trading actively and 10 points higher, placing the issue around 70. Another trader said the bonds experienced "a pretty good pop from the day before," at 69.75 bid, 70 offered, compared with 61 bid, 62 offered on Tuesday.

The second trader also saw the 12¾% notes due 2013 around 63, "but that's probably unchanged."

A third trader said the 7 3/8% notes "popped at the end of the day" to 70 bid, 71 offered.

"Obviously something is going on there, but there is nothing on the tape," he said.

In Six Flags, the first trader said the bonds were "up a lot," the 12¼% notes due 2016 firm by 5 points around 68. The trader said he was "not aware of any news."

Another source also placed the notes around 68. Like other market players, he was not sure what had caused the bounce.

"I don't think it had anything to do with the Chrysler news," he said, referring to an announcement that the amusement park operator had extended its corporate alliance agreement with the struggling automaker. "Something else has to be going on."

It was not until after the market was closed that Prospect News learned from sources familiar with its bankruptcy case that Spectrum had reached a deal with term lenders during its plan confirmation hearing.

Under the terms of the settlement, Spectrum can keep its $1.4 billion secured term loan and its lenders have agreed to drop their objections to the company's reorganization plan. The interest rate on the loan, however, will be increased by 250 basis points, with a Libor floor of 150 bps. The maturity of the loan was also decreased by 9 months.

"We are very pleased to have reached this mutually agreeable settlement with our senior term lenders which we believe represents a major step forward in our efforts to implement our proposed plan of reorganization and ultimately emerge from Chapter 11 protection later this summer," commented Kent Hussey, CEO of Spectrum, in a press release. "We believe the plan of reorganization, including the proposed amendment to the senior term credit facility, will significantly improve the financial profile of the company."

WaMu gains on judge decision

Washington Mutual Inc.'s senior holding company paper gained 2 points, according to another trader, closing around 89. The trader said there were court hearings - and subsequent decisions - that were "positive for the holdco, that's why they rallied."

Another trader saw sizable activity - more than $14 million traded at mid-afternoon - in the 4% notes that were to have come due this past January. He said that 88 to 89 "covers all of" the senior holding company bonds.

"I don't know how much different that was from [Tuesday]," seeing the 4s at 89, up a point, "post-news headlines today," referring to the stories about the latest developments in WaMu's bankruptcy case - including the judge's denial of JPMorgan Chase & Co. Inc.'s motion to dismiss a complaint in which Washington Mutual seeks to force JPMorgan to turn over more than $4 billion in deposits.

Broad market mixed

Among other distressed debt issues, Hovnanian Enterprises Inc.'s 7¾% notes due 2013 "got hit in the morning," a trader said, pegging the notes at 46.5.

A trader saw General Motors Corp.'s bonds mostly trading around 11 to 12, with GM's 8.3/8% benchmark bonds due 2033 "always trading a point higher" than the rest of the structure, at 12.25 bid, 13.25 offered. However, he called the activity in the troubled carmaker's bonds "a lot of nothing."

He also saw Ford Motor Co.'s 7.45% bonds due 2031 "maybe only half a point lower," at 56 bid, 57 offered, but "not a lot of volume - there was not a lot of volume in the long Fords."

He saw the company's shorter issues, like the Ford Motor Credit Co.'s 7 3/8% notes coming due in October "holding up," right around 99.

Paul Deckelman contributed to this article.

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