CIT Canada gains as expiry nears; AmAxle sees profit, bond unfazed; Blockbuster under pressure

By Stephanie N. Rotondo

Portland, Ore., Oct. 30 - There was "general softness" in the distressed debt market Friday, as market players were keeping an eye on the declining equity market.

"I think a lot of guys are watching the equities and trading what they can," said one trader. He called the market "lower" overall, which was making it "hard to trade."

He noted that it was "end of the month too."

The market waited to hear the results of CIT Group Inc.'s tender offer that expired at midnight on Thursday. But all they got was an announcement that the ballots were being counted and that CIT had come to terms with Carl Icahn regarding a new $1 billion loan.

Despite all the headlines, traders reported that there was little activity in the name, though the Canadian-linked paper did trend upward.

Meanwhile, American Axle & Manufacturing Inc. reported its first quarterly profit in two years. However, that seemed of little interest to bondholders, as the debt finished the day relatively unchanged.

Blockbuster Inc.'s bonds were among the day's losers, according to traders. The credit has been on the decline for several straight sessions, but traders have been unable to explain why.

Also, YRC Worldwide Inc.'s bonds were affected little by an update on the company's proposed exchange offer.

CIT Canada gains as expiry nears

As CIT Group's tender offer expired for most series involved - the offer was extended to Nov. 5 earlier in the week for holders of CIT of Canada bonds - traders said volume was down considerably.

"There were a lot of CIT headlines, but the bonds weren't doing much," one trader said.

However, the Canadian paper did move up some, he added. Issues like the 4.65% notes due 2010 and the 5.10% notes due 2015 were trading with a 96 handle, he said.

Another trader said that the "Canadian paper always trades better. I think it has more asset protection and they are shorter pieces of paper too."

The New York-based middle market lender's tender offer for "certain outstanding series of notes" expired at midnight ET. In a press release issued early Friday, CIT said it was in process of tabulating the over 150,000 ballots, which also included votes on a pre-packaged plan of bankruptcy.

"The chatter is that they are going to file that pre-pack Sunday or Monday," a trader said.

In addition to the tender expiration, CIT also announced that it had entered into a restructuring plan support agreement with billionaire investor Carl Icahn. Icahn and the board of CIT had previously been battling over whose plan was better, with Icahn urging bondholders to vote against the CIT-proposed plan and CIT responding by calling Icahn's claims fruitless.

But the parties apparently reached an accord, as Icahn agreed to provide CIT with a $1 billion committed line of credit from Icahn Capital LP.

"This new line of credit may be drawn by the company on or prior to Dec. 31, 2009, subject to definitive documentation and other customary conditions, and may be drawn as debtor-in-possession financing in the event of bankruptcy," CIT said in the press release announcing the agreement.

"Together with CIT's $4.5 billion expansion facility, announced on Oct. 28, 2009, and other available sources of liquidity, the line of credit will further enhance CIT's liquidity during the execution of its restructuring plan and ensure its ability to serve its existing small business and middle market customers."

AmAxle returns to profit

American Axle & Manufacturing's bonds finished up the day unchanged to lower following the company's third-quarter earnings release.

A trader called the notes down 1 to 2 points across the board, with the bonds trading generically "closer to 70."

Another trader placed the 5¼% notes due 2014 at 71 bid, 72 offered, which was unchanged, but the 7 7/8% notes due 2017 were a point weaker at 70 bid, 71 offered.

For the third quarter, the Detroit, Mich.-based automotive parts supplier saw sales of $409.6 million, its highest quarterly sales for the year. The company also managed to post a profit for the first time in two years, it said in a press release.

Net income came to $19.6 million, or 35 cents per share.

"We believe the third quarter of 2009 marks a positive turning point for AAM," said Richard E. Dauch, co-founder, chairman and chief executive officer, in the release. "By finalizing new business agreements with General Motors Co. and amending our senior credit agreements, we have successfully resolved the short-term liquidity concerns that were facing AAM.

"We have also preserved the significant value inherent in AAM's unparalleled manufacturing and engineering expertise; product, process and systems technology; and expanding new business backlog for our many key stakeholders.

"With these important objectives successfully achieved and AAM's operational restructuring now nearly complete, we can once again focus on delivering outstanding value to our customers on a daily basis, profitably growing AAM's global businesses and continuing to diversify AAM's customer base, product portfolio and global manufacturing and sourcing footprint."

Blockbuster still under pressure

Blockbuster's 9% notes due 2012 "took another hit," a trader said, as the Dallas-based movie rental chain's bonds have lost some ground over the course of the week.

The trader said the paper fell to around 53 from 56.

He was not sure what had caused the recent declines in the name, but speculated it could be short covering or possibly something else.

"I don't know if it's short covering or guys selling stock to buy the bonds," he said. He added that perhaps it was investors selling off their holdings, which they had bought ahead of the company's new 11¼% notes.

"I am just speculating at this point," he said.

Another trader said the bonds were "still getting whacked," seeing them fall to around 53.

But other retailers, like Neiman Marcus Group Inc., "were doing OK," the trader said.

The source said the bonds - both the 9% and 10 3/8% notes due 2015 - were "holding around that 87 to 88 context."

YRC quiet on exchange update

YRC Worldwide's 8½% USF Corp.-linked debt was largely unaffected as the company provided an update on its proposed exchange offer.

One trader said he "didn't really see any [of the bonds] trade," though he added that an "odd-piece" moved in the low-60s.

"That's pretty much unchanged, but there is no real volume," he said.

Another trader said he was "really just seeing small bids for paper," again in the low-60s.

In its third-quarter earnings release, the Overland, Park, Kan.-based trucking company said that it was still in negotiations with bondholders of the 8½% notes and its contingent convertible debt. The company is hoping to exchange the debt, as it would allow access to its $106 million revolver reserve.

"We have been in active dialogue with our noteholders and feel good about the progress being made," said Bill Zollars, chairman and CEO, in the release. "The exchange will be a key milestone in our comprehensive plan which is expected to improve our capital structure, reduce our debt and increase our cash flow."

Moody's Investors Service said in a statement that it was expected that the exchange would be offered at below face value, resulting in a distressed exchange.

Fitch ratings followed suit, downgrading YRC's issuer default rating to C from CC.

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