Another busy day for CIT; Sinclair eases on bankruptcy warning; Freedom Group talk emerges

By Paul Deckelman and Paul A. Harris

New York, July 14 - For a fourth straight session and the second this week, CIT Group Inc. was clearly the dominant name in Junkbondland on Tuesday, with its literally dozens of issues trading busily and dominating the most actives lists. However, while the New York-based commercial lender's bonds had been solidly on the downside on Monday, that turned around on Tuesday as the name was seen trading mostly higher on Tuesday, on investor speculation that a federal bailout could be in the works.

Sinclair Broadcast Group Inc.'s bonds were seen easier, in line with a slide in its stock price, as the company warned on a conference call that it could face bankruptcy absent a debt restructuring.

Bonds of another media name, Gannett Co. Inc. were meanwhile seen better, ahead of the McLean, Va.-based USA Today publisher's release Wednesday of second-quarter results - even though most analysts believe those numbers will be lackluster at best, reflecting the tough industry environment as advertising revenues decline.

In the primary market, participants heard price talk on Freedom Group Inc.'s upcoming $200 million offering of six -year secured notes.

Overall the high-yield market remains becalmed by the traditional summer slowdown, sources said on Tuesday.

"There is not much going on," a trader remarked.

The secondary market felt better - up ¼ point or so, with wireline names such as Frontier Communications Corp., Qwest Corp. and Windstream Communications each better on the day.

Market indicators turn firmer

The CDX Series 12 High Yield index - which had gained about ½ point on Monday, moved up another 1/8 point Tuesday, a market source said, to 83 7/8 bid, 84 1/8 offered.

The KDP High Yield Daily Index, which had lost 9 basis points on Monday, eased by another 4 bps on Tuesday to end at 62.45, while its yield rose by 1 bp to 10.64%

But in the broader market, advancing issues - which had lagged decliners for a sixth consecutive session on Monday - broke out of that recent funk on Tuesday, taking a better than seven-to-six lead.

Overall market activity, measured by dollar-volume totals, jumped 31% from Monday's level.

CIT panic eases

"What a difference a day makes," a trader opined, noting that while CIT bonds "were the most active name, it was nothing like the free-for-all [Monday]. There was definitely a sense of panic just in CIT on Monday. Today was more of a calm storm."

He saw CIT's most active issue, its floating-rate notes slated to come due this Aug. 17, having moved up to 84 bid from 79 on Monday, on volume of $73 million. Its 5.40% notes due 2016 firmed to 58¾ bid from 57, with $36 million traded.

CIT's 4 1/8% notes maturing this coming Nov. 3, on the other hand, dipped to 76½ bid - a yield of 108% - from prior levels at 77, on volume of $35 million. But its 5% notes due 2015 finished at 60 bid, up from 571/4, on volume of $34 million.

Another trader said that "all morning, everything was CIT." The company's bonds, he said, "traded up a lot in the morning, and then calmed down," rising "on speculation on how the government might bail them out."

That speculation, he said, "still doesn't answer how" the government might do this. He said "they might keep them in business, but wipe out the bonds, like what they pretty much did to GM." On the other hand, he also allowed that a bailout could proceed among more traditional lines, wiping out the shareholders and leaving debtholders alone.

After the upside flurry, he said, "they didn't come [all the way] back down, but settled in a little lower.

He saw CIT's floating-rate notes coming due in August having risen to a high of 86 from 80 on Monday, before going out at around 831/4. The bonds were "all over the place" and were the most active issue.

CIT, he said, made up "one-quarter of all high-yield volume," and grabbed nine of the top 10 spots on the Trace most actives list.

CIT "whipped around on a lot of volume across the whole capital structure," another trader said. Asked if a particular bond was "up, down or sideways," he responded "all of the above."

He saw the 7 5/8% notes due 2012 ending up around 66 bid, 67 offered, up a lot from [Monday] when they had finished in the lower 60s. He saw "a lot of gyrations" in the credit, which got as good as 69 during the session and at one point dropped to 60. "Some of those weren't real volume trades," he said, seeing most of the size trading around that 66-67 region.

The short end, he said, "also had a lot of volume," seeing the 4¾% notes due 2010 ending at 68 bid, 70 offered. "There was '09 paper that was trading as well, on "a lot of volume" all day.

News reports on Tuesday indicated that the bank was in talks with government officials regarding a bailout. The Federal Deposit Insurance Co. reportedly has said that its Temporary Liquidity Guarantee Program - which CIT wants to gain access to in order to issue low-cost, federally backed bonds to strengthen its balance sheet - is not the right cure for CIT's ills.

But CIT is claiming that if it is allowed to fail, many small and mid-sized businesses could be in jeopardy, mainly in the retail and restaurant industries. Those sectors are already facing peril with the economic declines and a decrease of discretionary spending.

And, without some form of aid, CIT could be doomed, as about $10 billion of the company's debt is set to mature through the end of 2010.

Still, there remains debate about whether or not the company's demise would mean disaster and some have gone so far as to say that, even with a bailout, its problems would still exist.

"We believe CIT's funding model is broken and have our doubts over whether an additional capital injection would cure the problem," wrote a CreditSights analyst in a morning report published Tuesday.

'Barometers' turn mixed

Apart from CIT, a trader said, Tuesday's session was "kind of blah. Call it a waste of a clean shirt."

The most actively traded non-CIT issue was - as usual - Freeport-McMoRan Copper & Gold Inc.'s 8 3/8% notes due 2017, in what one trader called "a mirror image" of Monday's session, when those notes were also the busiest non-CIT credit. In Tuesday's dealings, they lost 3/8 point from Monday's level to end at 101 1/8 bid. Trading in the Phoenix-based metals mining company's paper reached $18 million.

Some of the widely followed issues that function for some participants as barometers measuring overall market trends, were on the upside Tuesday with Franklin, Tenn.-based hospital operator Community Health Systems Inc.'s 8 7/8% notes due 2015 having moved up to 98 ¼ bid, a ¾ point gain from Monday's 97½ level. Turnover was $6 million.

A trader said that he was "surprised, because I really didn't think our market had traded up ¾ point, so I'm not sure if that was an outlier, or what.

Also on the upside, although more modestly so, Aramark Corp.'s 8½% notes due 2015, which gained 1/8 point to end at 96. However, only $2 million of the Philadelphia-based food service concern and uniform provider's bond changed hands.

First Data Corp.'s 9 7/8% notes due 2015 eased by ¼ point to 68 bid, on $10 million of turnover.

Gannett gains despite looming results

Elsewhere, newspaper publisher Gannett Co. was making some news in the junk market, with its 6 3/8% notes due 2012 rising more than 4 points to a 72ish context.

That gain comes a day before Gannett is scheduled to release its second quarter earnings, which will be put out in the morning Wednesday before the stock market opens.

With advertising sales soft industrywide, Wall Street is looking for lackluster results of around 35 or 36 cents per share, excluding unusual one-time losses or gains, on revenues about $1.45 billion.

Sinclair sinks on bankruptcy warning

A trader saw Sinclair Broadcast Group's bonds easier following a conference call on which the company warned that it faces bankruptcy if can't restructure its debt, particularly two issues of convertible notes which are putable to the company next year and in 2011. As of March 31, it had $1.33 billion of total debt outstanding, and holders of its 3% and 4 7/8% converts may force Sinclair to buy back nearly $500 million worth of that debt within the next 18 months - a financial feat which Sinclair has warned that it is not up to.

The trader saw the 8% notes, which had traded at 65 on Monday, get as low as 631/2, although he noted it was a single trade of 100 bonds -- well below round-lot size. More representative, he said the bonds "didn't trade off much," moving in a 64-65 context.

Another trader said there was "some trading there," quoting the 8s as low as 62 bid, 64 offered, but most of the trades at 64 bid, 65 offered, "pretty much unchanged."

Another trader saw the bonds last at a round-lot level of 63, versus 65 on Monday, on $4 million traded.

Among the convertible bonds, a trader saw the 4 7/8% notes due 2018 at 68, off from 68 7/8 on Monday, strictly on a round-lot basis, on $5 million of turnover.

Another trader saw them at 661/2-681/2, said "the bid side was down 1½ points, the offered side was up 1½ points, so maybe they're down a point."

A trader saw its 3% converts drop to 75 bid from 79 previously.

Hunt Valley, Md.-based Sinclair's Nasdaq-traded shares slid by 36 cents, or 24.66%, to $1.10. Volume of 3.9 million shares was almost nine times the norm.

Freedom Group price talk

In the mostly quiet primary, Freedom Group, Inc., the parent of Remington Arms Co., set price talk for its $200 million offering of six-year senior secured notes (B1/B+) at 10¾% to 11% on Tuesday.

The notes are expected to price with an original issue discount of approximately 3 points.

Books close at noon ET on Wednesday, with the notes expected to price after that.

Banc of America Securities, Deutsche Bank Securities Inc. and Wells Fargo Securities are joint bookrunners for the debt refinancing deal.

That was the extent of the hard news out of the new issue market on Tuesday, sources said.

However, Duane Reade Holdings, Inc. could launch offerings of new senior secured notes and new senior subordinated notes on Thursday, an informed source said.

Goldman Sachs will lead the deal. Banc of America Securities will be involved in the syndicate.

The New York City-based drugstore company wants to raise cash to help fund a tender for $210 million of its Libor plus 450 basis points senior secured floating-rate notes due 2010 and $195 million of its 9¾% senior subordinated notes due 2011.

In addition to the bonds, the consent is being financed with $125 million of preferred equity from Oak Hill Capital Partners, LP.

Stephanie N. Rotondo contributed to this report

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