Tropicana, Trump losing ground; Fannie, Freddie concerns hurt mortgage sector; Retailers lower

By Stephanie N. Rotondo

Portland, Ore., July 11 - Distressed bonds got "ugly" during Friday's session, according to a source. But by the end of business, the market pared its losses though still closed largely lower.

Traders attributed the day's "ugliness" to concerns about Freddie Mac and Fannie Mae. Talk that the companies could be eligible to borrow from the U.S. central bank, however, brought about a rally, albeit a small one.

Still, there was no relief for Tropicana Entertainment LLC's debt. The casino operator's bonds fell as much as 10 points on the day. The dive was blamed on the recent revenue numbers out of Atlantic City, which showed Tropicana losing 15%, and casinos overall down 11%. Trump Entertainment Resorts Inc.'s bonds were also weaker.

In the mortgage sector, Countrywide Financial Corp., Residential Capital LLC and GMAC LLC ended heavier. Declines in the sector were attributed to the Freddie/Fannie debacle, as those companies combined own or guarantee more than half of the mortgages in the United States.

On Thursday, new data showed that retail sales gained more than analysts had been expecting. But distressed retailers - or even those on the fringes - have not fared as well. Specialty stores like Claire's Stores Inc., Michael's Stores Inc. and Rite Aid Corp. were all softer over the week.

Tropicana, Trump lose ground

The gaming sector continued to suffer during the last trading day of the week after both Las Vegas and Atlantic City revenue numbers were released Thursday.

But it was Tropicana Entertainment's 9 5/8% notes due 2014 that got hit the hardest, losing about 10 points on the day. One trader pegged the notes at 35.5 bid, 36.5 offered, while another placed the debt around 36, down from the low-40s previously.

"They got smoked," a trader said.

On top of a 15% decline in revenue for June, Tropicana has been dealing with a pending asset sale and a loss of its gambling license. The casino is under the control of a court trustee, though the former owner, Columbia Sussex, is said to be aiming to regain control.

Meanwhile, Trump Entertainment's bonds were also weaker, with the 8½% notes due 2015 at 53, according to a source. At another desk, the bonds were seen at 54 bid, 55 offered.

Harrah's Operating's 10¾% notes due 2016 hit a low of 75 during the session, a trader said, before coming off those lows to end at 76.5 bid, 77 offered.

Another market source deemed Boyd Gaming's 7¾% notes due 2013 down 3 points at 78.5 bid, Isle of Capri Casinos' 7% notes due 2014 off 2.5 points to 34 bid and Station Casinos' 6% notes due 2012 at 76.5 bid, just over 2 points lower.

On Thursday, Atlantic City casinos reported an 11% drop in revenue overall. Las Vegas posted a little more than 16% decline.

Fannie, Freddie worries hurt mortgage sector

Concerns about Freddie Mac and Fannie Mae weakened the mortgage sector, but talk that the mortgage-backers might be able to use a Federal Reserve discount window "brought us back from the edge of despair," a trader said.

A trader quoted Countrywide Financial's 6¼% notes due 2016 1 to 2 points lower at around 88.5. Elsewhere, a source called Residential Capital's 8 7/8% notes due 2015 down 3 points to 34 bid and GMAC's 6 7/8% notes due 2012 half a point weaker at 63 bid.

The general marketplace has come under pressure as investors worry that Freddie and Fannie do not have enough capital to cover losses associated with the mortgage crisis. Together, the companies own or back almost half of $12 trillion of U.S. mortgages.

But late in the day, Sen. Christopher Dodd said that the government, as well as the companies, are considering "a number of options," including borrowing from the Fed, or as Dodd put it, "the discount window."

Retailers still under pressure

Though consumers came in out in bigger-than-expected droves in June, retailer debt has remained weak.

"Retailers keep drifting in," a trader said. He saw Claire's Stores' 10½% notes due 2017 down to 39.5, while Michael's Stores 10% notes due 2014 slipped to 83 bid, 84 offered. The trader also saw Rite Aid's 10 3/8% notes due 2013 at 91.5, off from 92.5 bid, 93 offered.

Another trader pegged Blockbuster Inc.'s 9% notes due 2012 at 81.5, 82 offered and Rite Aid's new issue at 91.25 bid, 91.75 offered.

At another desk, Rite Aid's 8 5/8% notes due 2015 fell nearly a point to 64.5 bid.

For June, retail sales gained more than 4%, boosted by good numbers from discount retailers such as Wal-Mart and Costco. But department stores, such as Bon-Ton Stores Inc., did not fare as well. On its part, Bon-Ton's same-store sales fell more than 6% for the month.

Still, the gains were more than what analysts had been expecting and were attributed to summer closeouts and the government's economic stimulus checks.

GM loan slips

General Motors Corp.'s term loan lost some more ground in trading as the debt was possibly still being affected by recent bankruptcy speculation, or the rest of the market, according to traders, could also have just pulled it down.

The Detroit-based automotive company's term loan was quoted at 79 bid, 81 offered, down from 80 bid, 82 offered, one trader said.

On Thursday, the loan had dropped by about half a point to a point on the day as grumblings about bankruptcy were circulating. Reports later emerged that the company called the speculation inaccurate.

Meanwhile, the cash market in general, at its low on Friday, was down about a half a point to a point, and then it rebounded a little as the day progressed to end only down about a quarter to a half a point depending on the name, a second trader added.

Elsewhere in the autosphere, Ford Motors Co.'s 5.8% notes due 2009 closed at 95.25 bid, 95.75 offered.

Sara Rosenberg contributed to this article.

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