Residential Capital skips coupon, bonds gain as speculation grows; Bon-Ton paper drifts higher

By Stephanie N. Rotondo

Portland, Ore., April 17 - Distressed bonds were "pretty firm" on Tuesday, according to a trader, even as overall volumes remained "very lackluster."

Subdued trading on both Monday and Tuesday could be attributed to Tax Day, one source opined.

Residential Capital LLC was a topical name, after the company's parent, Ally Financial Inc., said the unit had missed a $20 million interest payment on its 6½% notes due 2013. The news further fueled rumors that a bankruptcy could be on the horizon for ResCap.

Meanwhile, Bon-Ton Stores Inc.'s debt was "very active," a trader said. There was no news out on the retailer, but that didn't stop the bonds from "drifting higher."

ResCap misses coupon

Residential Capital missed a $20 million interest payment on its 6½% notes due 2013 on Tuesday, giving rise to chatter that the company could soon be filing for bankruptcy.

However, despite the missed coupon, ResCap bonds were gaining on the day.

One trader called the 9 5/8% notes due 2015 up 5½ points at 901/2.

Another market source saw the issue opening around 86 and trading with an 86-handle for most of the day. There were a few trades with a 90 handle - including the last of the day - according to the source. Still, the debt was deemed up only a point or so.

Ally Financial, the parent of the money-losing mortgage lending unit, made the announcement regarding the missed payment on Tuesday. Though technically a default has not yet occurred, the skipped coupon could be yet another sign that Ally is lining ResCap up for Chapter 11.

Last week, Ally gave ResCap an extension on $2.1 billion in secured financing until May 14. The shorter-than-usual extension also indicated that perhaps a filing could come within the next few weeks.

"It could end up being very good news for Ally," a preferred stock market source said of the missed payment. "If they pay [within the 30-day grace period], everybody is all fine and dandy at least from a legal standpoint."

However, if the payment goes unpaid, thus triggering a default, it will then have to be decided if ResCap is separate enough from its parent that Ally itself can avoid falling into bankruptcy.

The source said creditors will probably attempt to go after the "deeper pockets" of the parent company, but noted that, unlike the Bank of America Corp.-Countrywide Financial Corp. debacle, there is a "reasonable argument" that "ResCap is much more on an arm's length basis."

As previously reported Ally has been struggling to figure out what to do with ResCap for some time. In recent months, talk of a bankruptcy has escalated, though other options - such as selling the unit whole or in pieces - has also gained traction. Fortress Investment Group has been touted as the most likely buyer and the deal has been valued at over $1 billion.

ResCap is based in Minneapolis. Ally is based in Detroit.

Bon-Ton gains strength

A trader said Bon-Ton Stores' 10¼% notes due 2014 were "very active" and "drifting higher" Tuesday, though without any credit-specific news to prompt the move.

He called the notes up nearly 1½ points to 83 5/8, with "almost" $30 million of paper changing hands.

Another source quoted the debt at 82 7/8 bid, 83 5/8 offered, up from 82 bid, 82½ offered previously.

Bon-Ton is a York, Pa.-based retailer.

ATP, Cemex slip

Elsewhere in distressed debt, a trader said ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 were down slightly at 70 3/8, on about $20 million of bonds traded.

"On any given day, that can be up or down," he said of the volatile name.

Also, Cemex SAB de CV's 9½% notes due 2016 linked to Cemex Financial Inc. were "down a shade" to unchanged at 95.

PDVSA hangs in

A trader saw PDVSA's 8½% notes due 2017 trading around the 85 level, which he called "probably not changed much" from where they were on Monday, but he said that "a ton of them traded," over $40 million.

He said that he did not know if the heavy activity was due to the situation with Argentinian energy company YPF - which is being nationalized by the Argentine government, a regional ally of Venezuelan strongman Hugo Chavez; although he later said that PDVSA's quarterly results and conference call on Tuesday was the more likely explanation.

Traders on Monday cited YPF as the likely cause for a rise in PDVSA's bonds at that time.

On Monday, a trader said PDVSA's 5 3/8% bonds due 2027 were down 1 point at 59 bid, although he said that "it wasn't a very active credit - but most of the trades were around there, although the last few trades of the day" went off in a 58-59 context. He estimated volume at $7 million or $8 million.

Tribune loan gains

The Tribune Co.'s bank debt was stronger on Tuesday as investors are optimistic that the bankruptcy process is moving along now that court approval has been obtained for the supplemental disclosure statement related to the fourth amended joint plan of reorganization, according to a trader.

The term loan B was quoted at 67 bid, 68 offered, up from 65¾ bid, 66¾ offered, the incremental loan and term loan X were quoted at 65¾ bid, 66¾ offered, up from 64½ bid, 65½ offered, and the revolver was quoted at 70½ bid, 72½ offered, up from 69½ bid, 71½ offered.

Assuming the fourth amended joint plan of reorganization is confirmed, the company anticipates that it will distribute more than $7 billion to creditors.

Tribune is a Chicago-based media company.

Sara Rosenberg and Paul Deckelman contributed to this article

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