AIG firms on CEO comments; First Data debt recoups losses; Rite Aid notes end up with market

By Stephanie N. Rotondo

Portland, Ore., May 26 - Distressed debt was mostly firm during Wednesday trading, though traders noticed a bit of softness toward the end of the day.

"In general, the market was up but gave back some of the gains late in the day as equities faded," a trader said.

American International Group Inc. was one of the day's big movers, gaining as much as 5 points as the company's top executive addressed a Senate oversight committee. The executive told the panel that AIG hoped to pay back taxpayers, while others expressed concern about how the insurance company could do so.

Also in the financials, First Data Corp.'s debt shrugged off Tuesday's news regarding a management shakeup and headed for higher ground. The bonds had previously lost weight on word the company's chief financial officer had resigned.

As the market inched its way up, so did Rite Aid Corp. A trader speculated that Rite Aid was one of the names that got pushed around with the general marketplace and, as the day was more firm than not, so Rite Aid bonds finished higher.

Blockbuster Inc., however, was not as lucky, with traders seeing the notes end unchanged to slightly weaker. The company is currently in talks with its bondholders regarding a potential recapitalization, but rumor has it that those talks are not going so well.

AIG firms on CEO comments

American International Group's debt gained as much as 5 points on the day as the company's top executive told a government oversight committee that taxpayers would see a profit on the $182.3 billion received in a government bailout.

"Pretty generically, across the board I'd say AIG was up 2 to 5 points, that covers about 95% of it," a trader said.

The trader saw the "biggest trading in the long one," the 8.175% notes due 2058, with about $100 million changing hands. He said the bonds traded in a range between 70 and 731/4, calling that "probably up a solid 5 points from yesterday's lower trades."

The trader also saw the 4¼% notes due 2013 up 4 to 5 points around 92 and the 6.9% notes due 2017 "up a couple" at 771/4.

Another trader said the 8.175% notes "seemed to be the most active issue," seeing the paper trade between 71½ and 731/2, closing the day around that 73 mark.

Even AIG's subsidiary's improved, as another market source deemed the 8¾% notes due 2017 of International Lease Finance Corp. - the aircraft leasing unit the New York-based insurance giant - more than 3 points better at 88 bid.

At a meeting of the Congressional Oversight Panel in Washington on Wednesday, Robert Benmosche, AIG's CEO, said the company was confident it would repay the funds received from taxpayers in 2008 and 2009.

"I'm confident you'll get your money, plus a profit," Benmosche said. "We are a strong, vibrant company."

In order to pay back at least part of the funds, AIG is attempting to sell off two of its non-U.S. life insurance divisions. That should generate about $51 billion, which the company intends to use to retire a Federal Reserve credit line.

"AIG is now on a clear path to repaying taxpayers," Benmosche told the panel. "In recent months, we have become less reliant on government aid and have been able to instead tap the capital markets."

Still, some officials had concerns about a full taxpayer recovery.

The U.S. Treasury's chief restructuring officer, Jim Millstein, noted that while the government's common stock stake would likely bring a benefit, it was not clear if its preferred share stake would pay out.

First Data recoups losses

Elsewhere in the financial realm, First Data's debt regained some of the ground lost in the previous session, following news of a leadership change.

In the bonds, a trader saw the 9 7/8% notes due 2015 moving up a couple points to close around 80. Another source called the issue up more than 2 points at 80½ bid.

At another desk, a trader said First Data's bonds "ended a bit stronger," placing the 9 7/8% notes at 791/4, on about $50 million traded.

The trader also saw the 11¼% notes due 2016 at 631/2, "up probably 3 points from the low."

First Data's term loan debt also recouped most of the losses that were seen on Tuesday after the company revealed a number of changes in management, since the market had a day to mull over the events, according to traders.

The term loan B-1 was quoted by one trader at 84 bid, 84½ offered, up from 83½ bid, 84, and by a second trader at 83 7/8 bid, 84 3/8 offered, up from 83½ bid, 84 offered.

The term loan B-2 was quoted by the first trader at 83 7/8 bid, 84 3/8 offered, up from 83 3/8 bid, 83 7/8 offered, and by the second trader at 83 7/8 bid, 84 3/8 offered, up from 83½ bid, 84 offered.

And, the term loan B-3 was quoted by the first trader at 83 7/8 bid, 84 3/8 offered, up from 83 3/8 bid, 83 7/8 offered, and by the second trader at 83½ bid, 84 offered, up from 83¼ bid, 83¾ offered.

As was previously reported, First Data announced on Tuesday that Pat Shannon, chief financial officer, would be leaving the company. Shannon agreed to remain employed by the company through June 30 to assist in the transition of his duties.

Controller Ray Winborne has been promoted to acting chief financial officer.

Prior to the news, First Data's term loan B-1 was quoted in the 84 bid, 84 7/8 offered context, the term loan B-2 was in the 84 bid, 84¾ offered context and the term loan B-3 was in the 83¾ bid, 84¾ offered context.

First Data is an Atlanta-based processor of electronic credit card payments.

Rite Aid up with the market

Rite Aid bonds followed the day's trend, according to traders - that is, "stuff beaten down the most [on Tuesday] had the best bid this morning," in the words of one trader.

The Camp Hill, Pa.-based drugstore chain's debt had lost about 3 points on Tuesday. Come Wednesday, the trader saw the 9½% notes due 2017 inching up a couple points to the "79 and change [to] 80 level," which compared to levels around 78 previously.

The trader also saw the 7½% notes due 2017 up a point around 89.

Another trader saw about "$20-odd million" of the 9½% notes turning over. He also deemed it up a couple points around the 80 mark.

Rite Aid is one of those credits that tends to be volatile with the market, even with a lack of news. When asked if he had heard anything about the company recently - anything that might explain its recent wobbly performance - the trader noted that "Rite Aid has been plodding along like this for the last 10 years.

"When the world looks good, they get bid up," he said. "When the world looks bad, they get pushed down."

And, unlike fellow retailer Blockbuster Inc. - for which the trader expressed nothing but disdain for - he opined that Rite Aid "probably has a reason to exist. They have some value certainly."

Blockbuster steady to softer

Speaking of Blockbuster, the Dallas-based movie rental chain's debt was unchanged to "a little bit softer," a trader said.

The trader pegged the 9% notes due 2012 just under 13½ and the 11¾% notes due 2014 at 59 bid, 60 offered.

Another trader said the 9% notes "looked like they're lower" at 13 bid, 14 offered. However, he deemed the 11¾% notes "probably up a point" at 58 bid, 58½ offered.

Market chatter has it that negotiations with bondholders regarding a recapitalization have hit a few snags and some market players are not optimistic about the outcome.

"We continue to believe that the company's debt needs a principal haircut of at least the amount of the subdebt and should the subdebt receive most of the new equity, it could be worth very little," wrote Gimme Credit LLC analyst Kim Noland.

"While a heightened sense of urgency is necessary to keep the company from running out of cash, contentious negotiations could result in a regular way Chapter 11 filing, which will not only harm the business, it will send bond prices down significantly."

Also in the retail space, a trader saw about "$15-odd million" of Michael's Stores Inc.'s 11 3/8% notes due 2016 trading up a couple points to 1011/2.

"So they are now back over par," he said. "Any time you get a CCC-rated [issue] trading above par, the world can't be all that bad."

Sara Rosenberg contributed to this article

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