Chemtura notes gyrate on CDS auction; retailers rally despite sales data; Nortek bonds firmer

By Stephanie N. Rotondo

Portland, Ore., April 14 - Chemtura Corp.'s bonds spent Tuesday's session "jockeying" for a position after the company's credit default swaps auction placed settlement at 15.

As a result of the auction, bonds ended the day weaker.

Meanwhile, distressed retailers were seen continuing to get better, despite an unexpected drop in March retail sales. Names like Burlington Coat Factory Warehouse Corp., Neiman Marcus Group Inc. and Rite Aid Corp. all closed on a positive note.

Nortek Inc. held its quarterly conference call Tuesday and management's comments might have spurred gains in the company's debt. The bonds finished up as much as 5 points on the day as the company said it was focused on shoring up its bottom line during the difficult economic environment.

Over in the autosphere, General Motors Corp.'s notes remained under pressure as the company's chairman speculated that time was running out for the carmaker. But the term loan continued to gain ground, as investors expect recoveries in that debt level to be good.

Chemtura gyrates on CDS auction

A trader said there was some "jockeying" in Chemtura bonds Tuesday, as the company's credit default swap auction got under way.

The final result of the auction placed the swaps at 15%, meaning that protection sellers would have to pay 85% of the bonds insured. The legacy debt of Great Lakes' debt was placed at 18¼%.

By the end of the session, the trader said Chemtura's 7% notes due 2009 had fallen 7 to 8 points to 18 bid, 20 offered, with "a fair amount trading."

"Paper had been closer to the mid-20s," he added.

Another market player pegged the issue at 18 bid, 19 offered, a decline of nearly 8 points, while the 6 7/8% notes due 2016 slipped just a point to 46 bid, 47 offered. However, the 6 7/8% notes due 2026 dropped more than 9 points to 17 bid, 18 offered.

Chemtura, a Middlebury, Conn.-based chemical manufacturer, filed for Chapter 11 protections on March 18.

Retailers rallying

Distressed retailers "are continuing to rally," a trader said, despite a drop in March retail sales.

The trader saw Burlington Coat Factory's 11 1/8% notes due 2015 moving up to 44, while Neiman Marcus' 10 3/8% notes due 2015 inched up to 43. Rite Aid's 9½% notes due 2017 also gained, closing at 36 bid, 37 offered.

Another trader placed Burlington's debt at "43 and change," while Rite Aid's notes were seen improving by more than 3 points to 37.

At another desk, a source deemed Rite Aid's 8 5/8% notes due 2015 firmer by 3.5 points at 36.5 bid, 37.5 offered.

In less distressed names, Macy's Inc.'s 5.90% notes due 2016 traded actively, ending better at 71, a gain of a point.

Retailers saw an unexpected drop in sales during the month of March, the first decline in sales in the past three months. In its monthly report, the U.S. Commerce Department said that sales fell 1.1% from February and 10.6% year-over-year.

Additionally, the National Retail Federation said sales dropped 0.6% from February and 3.7% from the year before.

"A chilly start to spring and a late Easter combined for dreary March sales," said Rosalind Wells, the retail federation's chief economist, in a statement. "To compensate for the Easter shift, retailers typically look at March and April together to get a better look at how their stores performed. Easter should give a much needed boost to April sales."

In other retailing news, Neiman Marcus once again chose to pay-in-kind its interest coming due on its 9% and 9¾% notes.

Nortek paper boosted

Nortek paper gained as much as 5 points on the day following the company's fourth-quarter results conference call.

A trader quoted the 10% notes due 2013 at 54.75 bid, 55 offered, up from bids around 52 earlier in the session. However, he added that not a lot of trading was occurring in the name.

Another trader also saw the issue driving up to the mid-50s, noting that the bonds had been in the low-40s not so long ago.

Yet another source deemed the 8½% notes due 2014 stronger by 5 points at 18 bid.

During its quarterly conference call, Nortek management said it remained focused on trimming its balance sheet through 2009.

"Balance sheet management is an extremely important priority for all of our businesses so we can maximize our cash flow from operating activities," said Richard Bready, chief executive officer.

Still, Nortek expects first-quarter sales to continue to be pressured, forecasting a 20% decline year over year.

Nortek is a Providence, R.I.-based manufacturer and distributor of building products for residential, light commercial and commercial applications.

In other homebuilding-related names, a trader saw Ply Gem Industries Inc.'s bonds "up a couple of points," noting that the Cary, N.C.-based building products maker's 11¾% notes due 2013 having risen to 50 bid.

The rise comes in the wake of Ply Gem's announcement that it plans to consolidate production at several of its manufacturing facilities to improve efficiency and reduce operating expense by more than $6 million a year.

Ply Gem said it will shift the majority of production from its Kearney, Mo., vinyl siding plant to its other three vinyl facilities and cut 140 jobs, with the Kearney plant slated to run on a limited basis until the housing market rebounds.

Ply Gem will also close its window and door manufacturing facility in Tupelo, Miss., eliminating 23 positions, and will and consolidate all window lineal production into its Rocky Mount, Va., plant. It said production of its West Coast window and door facilities in Sacramento, Calif., and Auburn, Wash., will also be realigned.

GM bankruptcy fears mount

As its chairman reportedly said a bankruptcy was looming, General Motors' bonds dropped another couple of points.

A trader called the Detroit automaker's debt "all lower, all like 8 [bid], 10 [offered]."

He noted that the "really short ones," such as the 7.2% notes due 2011, were trading at 11 bid, 13 offered. He also pegged the 7 1/8% notes due 2013 at 9 bid, 10 offered.

"But most of the others are 8 to 10," he said.

The trader added that the levels reflect that recoveries in the event of a Chapter 11 filing were not expected to be good.

But the company's term loan continued to gain ground, as recoveries in that part of the debt structure are in fact expected to be decent.

The term loan was quoted by one trader at 52 bid, 54 offered, and by a second trader at 51½ bid, 53½ offered, with both traders agreeing that it closed out Monday at 46½ bid, 48½ offered.

And, the company's revolver was quoted by the first trader at 44 bid, 46 offered, up from 40½ bid, 42½ offered on Tuesday, and by the second trader at 43 bid, 46 offered, who placed the revolver at 36½ bid, 39 offered on Tuesday.

"Closer you get to some sort of resolution, the market reacts positively. Seems like bankruptcy is more imminent," the first trader added.

In a Wall Street Journal article on Tuesday, GM's interim chairman said that time was quickly running out as the company tried to come up with an out-of-court restructuring plan.

"This is a very difficult thing to do," Kent Kresa said in the Journal report. "We have some deadlines rapidly approaching and the probabilities are decreasing we can do [this] outside of bankruptcy."

Broad market stronger

Among other distressed bonds, First Data Corp.'s 9 7/8% notes due 2015 moved up a couple points to the 65 level, a trader said.

Royal Caribbean Cruises Ltd.'s 7% notes due 2013 moved up to 63.75 bid, 64 offered from "60-ish," a trader said. The company announced that its earnings release and subsequent conference call for the quarter would take place April 23.

"I don't know if people are covering shorts ahead of earnings or what," the trader said of the day's gains.

Overall, traders have reported that the distressed marketplace has held its ground, despite declining equities.

"The market is very strong," said one market player. "Overall volumes look up about 25%."

The trader added that cash was continuing to come into the market and that investor interest in distressed names seemed to be increasing.

"A lot of this stuff in the low end has pretty much doubled since February," he said, noting that there is "more appetite for risk."

Sara Rosenberg and Paul Deckelman contributed to this article.

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