Bon-Ton reports poor sales, bonds decline; Best Buy loses ground; Dynegy debt gives up gains

By Stephanie N. Rotondo

Portland, Ore., April 5 - it was a quiet day for distressed bonds on Thursday, as market players got a jumpstart on the three-day Easter weekend.

Bon-Ton Stores Inc. was the nom du jour, seeing the most action in the secondary. Bonds were off a couple points after the company reported March sales that trailed analyst estimates.

Best Buy Inc. was also retreating again. The electronics retailer's debt has lost ground in the last couple of sessions, due in part to a downgrade threat from Standard & Poor's. The threat was a response to recent news that the company planned to shutter some of its stores.

Meanwhile, Dynegy Holdings LLC's paper was giving up some of the gains incurred on Wednesday on news the company had reached a settlement with creditors that would allow it to move forward with its bankruptcy case.

Bon-Ton down on sales

Bon-Ton Stores' 10¼% notes due 2014 took a hit Thursday after the company released weaker than expected March sales.

One trader said the name was "by far the big trader," with about $32 million in bonds changing hands. He called the notes down "a couple points" at 853/4, down from 88.

Another trader also called the debt down a deuce at 85 7/8.

The York, Pa.-based retailer's March sales were down for the month, according to the company's latest report. For the five weeks ending March 31, same-store sales dropped 0.1% to $254.1 million.

Analysts polled by retail Metrics Inc. had expected a 1.7% gain.

Best Buy retreats further

Also in the retail world, Best Buy Inc.'s 5½% note due 2021 - currently rated as investment grade, though that could soon change - continued to lose ground on Thursday.

A trader pegged the issue at 911/2, down "another 2 points or so" from 93 bid, 94 offered on Wednesday.

As previously reported, Standard & Poor's said in the previous session that it placed the BBB- ratings on watch with negative implications, citing the company's plan to decrease its big-box store base and reduce costs by $800 million over the next five years.

"In our view, these actions underscore that its current business model is not working and that the steps taken to date have not been enough to improve performance," S&P said in a statement.

Gimme Credit LLC analyst Carol Levenson said in an afternoon report out Wednesday that S&P's action was belated and that Gimme Credit has been thinking the company had issues for some time. The independent research firm placed Best Buy on their "Bottom Ten" list last year.

"There is no pressing need for the company to tap the capital markets," Levenson said. "But we worry that if Best Buy loses its investment grade status, management would have less of a motive to maintain conservative financial policies, perhaps becoming more aggressive with share buybacks to boost the stock price."

Best Buy is a Minneapolis-based electronics retailer.

Dynegy gives up gains

A trader said Dynegy Holdings' 7¾% notes due 2019 were down over 2 points, ending around 64.

The bonds had been closer to 66 previously.

Another market source deemed the notes down a deuce at 64½ bid.

On Wednesday, Dynegy Holdings - the bankruptcy subsidiary of Dynegy Inc. - said the parent company had agreed to alter its reorganization plan for the subsidiary if creditors agreed to drop about $2.5 billion in claims.

The settlement will put an end to the fight about whether or not the parent company fraudulently transferred assets from the subsidiary, thereby stripping the unit of assets and practically ensuring a bankruptcy would occur.

A court-appointed examiner asserted last month that a fraudulent transfer had in fact taken place.

Under the settlement, the plan will give unsecured creditors common stock in the reorganized company. The original plan called for those creditors to receive new senior secured notes and preferred stock.

Upon implementation, the unsecured creditors will hold a 99% stake in the company.

Hawker loan loses altitude

Hawker Beechcraft Inc.'s strip of institutional bank debt dropped to 66 bid, 67½ offered from 67½ bid, 68½ offered, continuing its week long decline, according to a trader. Last Friday, the debt was quoted at 73½ bid, 75 offered.

The strip of loans have been under pressure this week because of news that the company did not file its 10-K for 2011 by the March 30 deadline, skipped April 2 interest payments on notes and expects 2011 losses from operations at roughly $481.8 million, compared to losses from operations of aournd $173.9 million in 2010.

Last week, the company reached a forbearance agreement through June 29 with about 70% of credit facility lenders to defer interest payments and get covenant relief, and closed on a new $124.5 million senior term loan due June 29 that will be used to fund ongoing operations.

Hawker is a Wichita, Kan.-based manufacturer of business, special mission, light attack and trainer aircraft.

Sara Rosenberg contributed to this article

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