WaMu floaters firmer; retailers rally on better sales versus 2009; Massey still easier

By Paul Deckelman and Sara Rosenberg

New York, April 9 - There was a fair amount of trading on Friday in Washington Mutual Inc.'s paper, with the floating-rate notes issued by its savings bank operating unit seen having moved up by several points, although other WaMu paper was steady - either at or above par or down around the $1 level.

Massey Energy Co.'s bonds continued to struggle at levels below par, down by several points from the levels they had held before the catastrophic explosion this past Monday at its Upper Big Branch mine in West Virginia, which killed more than two dozen miners, left several others trapped underground and feared dead, and sparked much criticism of the coal company for its safety record, although Massey denied critics' claims that mine safety took a back seat to profitability.

Bonds of retailers such as Bon-Ton Department Stores Inc. and Neiman Marcus Group were seen better as the store operators were reporting generally stronger same-store sales for March than a year ago, helped by consumer perceptions that the economy may be improving.

A trader said, however, that trading in distressed bonds was limited, with much of the attention in the high yield market taken up by the continuing parade of new issues.

WaMu floaters a winner

A trader said that some of Washington Mutual's paper was higher, with the floating-rate notes issued by its Washington Mutual Bank FA unit trading up to 51, which he said was "up a couple of points."

At another desk, a market source saw over $9 million of the Federal Association unit's floaters due 2011 traded Friday, with the bonds having pushed up to around 51, from prior levels around 49.

However, some of the unit's fixed-rate issues, such as its 5.95% notes due 2013 and 6¾% bonds due 2036, were languishing down around a penny on the dollar, although there was brisk trading of around $10 million. The former bonds were seen to have moved up slightly while the latter eased marginally.

Meanwhile, bonds of the bankrupt Seattle-based parent, Washington Mutual Inc., such as its 4% notes that were to have matured last year, were hovering in a par-101 context.

Traders saw no fresh significant news out Friday about the busted bank, which recently filed its plan of reorganization and disclosure statement with the Wilmington, Del., federal bankruptcy court that is overseeing the restructuring of what was once the largest savings and loan company in the United States. The plan is supported by JPMorgan Chase Bank, NA, which bought WaMu's extensive nationwide branch network after it was declared insolvent and seized by the U.S. Office of Thrift Supervision and the Federal Deposit Insurance Corp. in September 2008, as well as significant creditor groups of the company.

Last month, WaMu had reached an agreement with JPMorgan and the FDIC that paved the way for the March 26 filing of its plan, after resolving a $4 billion dispute with them that arose out of the seizure of the valuable branch network and its transfer to JP Morgan at what some have termed a fire-sale price. The plan implements and incorporates the terms of the settlement agreement.

Retailers on a roll

A trader said that bonds of retailing names "continued strong," helped by improved sales in the face of a recovering economy.

"Look at Limited, Dollar General, and even Bon-Ton," he said, referring to Limited Brands, Inc., Dollar General Corp. and Bon-Ton Department Stores Inc., calling the latter company's bonds "the perfect story."

The York, Pa.-based retailer announced on Thursday evening that in the five-week period that ended April 3, same-store sales - that is, sales at stores open at least one year, considered a key retailing industry economic performance metric - showed an 11.4% gain over March 2009 levels. Bon-Ton said that overall sales, including those generated at stores open less than a year, rose 11.2% to $272.4 million, versus a year-earlier figure of $245 million. Sales were strongest in shoes, children's clothing, sportswear and accessories.

The news gave a boost to its 10¼% notes due 2014.

A couple of weeks ago," he said, "those bonds were trading at 97 or 98 [bid]. We traded bonds [on Thursday] at 1001/2- 1003/4, and today, they were 101 bid.

"All the retailers," he continued, "were strong across the board."

He said that Rite Aid Corp.'s bonds "continued strong" on the recent debt-cutting efforts by the Camp Hill, Pa.-based drugstore operator.

"Limited bonds are up. It's like the world is wonderful, all of a sudden."

He further said that the surge extends even beyond the big, familiar names like Rite Aid to "lesser known companies" such as Chesterfield, Mo.-based branded apparel maker and retailer Kellwood Co.'s 7 5/8% subordinated notes due 2017.

"Two weeks ago," he declared, "you couldn't get a bid on the bonds. Now, people are anticipating good earnings, and the bonds went from 44-45 to 491/2-51½ - if you can find them."

Higher-end Dallas retailer Neiman-Marcus Group's 10 3/8% notes due 2015 were seen trading well above the 104 mark, a gain of about ½ point, presumably helped by strong numbers released on Thursday. Neiman said at that time that total revenues for March were $341 million, up 11% from $307 million in March 2009, and comparable revenues for the month were $337 million, up 9.6% from $307 million last year.

In terms of liquidity, the company's cash balance as of April 3 was approximately $500 million compared to $193 million in the prior year, and there were no borrowings outstanding under its $600 million asset-based revolver.

Massey still struggles

A trader said that Massey Energy's 6 7/8% notes due 2013 "have been fairly active" on the week in the wake of the disastrous explosion on Monday afternoon at a Massey-owned mine in rural West Virginia, which saw

25 miners killed and four others missing despite extensive search and rescue efforts; they are feared dead as well.

He noted that the bonds had begun the month around 1011/2. By Tuesday, the first full trading day after the blast, the notes had retreated to around the par level, and "they dropped throughout the week," down to around a 98-handle. The bonds firmed a little off their lows on Friday, he said, going out in a 991/4- 99¾ context, but overall, he said it still "looked like they dropped" about 4 points, give or take, from pre-accident levels around 1011/2-102.

Market sources had seen the Richmond, Va.-based coal company's bonds fall as low as 96 bid in small-lot trades during the week, before coming back up to around or just under par.

"They were down a couple of points, but probably rebounded a couple from their lows," the trader said.

At another desk, the bonds were quoted going home on Friday at just over 99, giving up the more than 1 point gain off the lows seen on Thursday.

On Friday, Massey - considered the fourth-largest U.S. coal operator by revenues - said that it plans to produce more coal from other mines to help recover from the business damage caused by the deadly explosion.

Massey said in a regulatory filing that its Upper Big Branch mine - which has been shut down indefinitely pending completion of the rescue and/or recovery efforts and then after that what is expected to be a lengthy federal investigation of the mining disaster - had been expected to produce 1.6 million tons of coal over the final nine months of the year. The company said that it can likely make up for that lost production by transferring miners from Upper Big Branch and spare equipment to other mines.

Massey projected in the filing that at an anticipated price of $91 per ton for the rest of the mine's 2010 output, some $146 million in expected revenues would not be realized by the company.

GM gets busy

A trader said that General Motors Corp.'s bonds were still "fairly active," culminating a week which saw the Detroit-based top U.S. automaker's benchmark 8 3/8% bonds due 2033 slide into the middle 30s from around 37 earlier in the week, slipping as GM at midweek reported a $4.3 billion loss for the 2009 fiscal period running from its July 10 emergence from Chapter 11 until the end of the year.

Pickup in Blockbuster activity

A trader said that Blockbuster Inc.'s 9% notes due 2012 were "a little more active" than they had been on Thursday, with "a 23-handle," up slightly from the 22ish levels at which the Dallas-based movie-rental company's senior subordinated bonds had been quoted at on Thursday, when no real trading in the credit had been seen.

Market participants were digesting Thursday's news that billionaire Carl Icahn had once again reduced his holdings in the company's stock. According to a regulatory filing, Icahn - who before last week had owned 17% of the company's class A stock, cutting that big position down to just 3.77% - cut that stake further, to 3.5%. And he completely liquidated what had formerly been his 5.65% stake in Blockbuster's class B stock.

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