CIT worries abound, bonds get hit; Neiman notes lower on June sales; Seitel continues to quake

By Stephanie N. Rotondo

Portland, Ore., July 9 - CIT Group Inc. was Thursday's most active name, as the company - and the market - waits to hear if a government bailout is coming.

Traders saw the bonds trading "all over the place" and mostly lower, though up from the intraday lows. One trader remarked that at least $300 million - if not more - of the company's debt had traded.

In the retail sector, Neiman Marcus Group Inc.'s debt experienced some losses. The move came after the high-end retailer posted a 19.4% decline in sales for the month of June.

Seitel Inc. continued to rack up losses. The company's notes were seen softening for at least the past two sessions, though it was unclear what was causing the dip. The company did post dismal preliminary second-quarter results earlier in the month.

CIT worries abound

CIT Group paper traded "all over the place; some fared better than others," according to a trader, as worries regarding the company's application to the Temporary Liquidity Guarantee Program remained.

The trader saw the floating-rate notes due 2009 at 95 bid, 96 offered, while the 5.2% notes due 2015 traded between 62 and 63, on $25 million and $30 million traded, respectively.

The trader also saw the 5% notes due 2014 trading in a wide range between 45.5 and 55.5, with $20 million changing hands.

"It got whacked, but came up off its lows," said another trader, who noted that the longer issues were trading in the mid-50s.

At another desk, a trader quoted the 5.3% notes due 2010 at 71 bid, 72 offered, deeming that a few points softer.

Another trader said that the CIT paper was "obviously very active." He said the company's shorter issues "dominated" the day's activity.

There was, he said, "a lot of selling in the morning - they beat it down hard, by several points, depending what maturity you were in." However, he said those same bonds, for the most part, "sort of came back hard" later in the day to end either about unchanged or down relatively modestly, "particularly in the shorter items" like the 2010, 2011 and 2012 issues.

For instance, he saw the company's 4¾% notes due 2010 initially trading down to around the 72 to 73 level, before coming back up to the same 75 to 76 level at which they had already been trading, with "the bulk of the trading between 75 and 76," leaving the paper down about a point. "They were lower," he said but not as low as they started out."

He also pointed out that "these bonds have been going down about a point a day" - on Monday, he said, they were trading around 80, before coming down to the mid-70s levels at which they began the day's action.

He saw the CIT 7 5/8% notes due 2012 trading around 70 earlier in the week. On Thursday, they started around 65 to 66, traded down to round-lot levels around 61 to 62 and "now, they're ticking back up" to around 62.15, "probably only down half a point or so on the day."

With so many issues and so much interest, CIT, he said, "dominated on volume."

The market continues to wait to see if CIT will be approved to receive government funding, though the company desperately needs cash to pay for about $10 billion in debt maturing next year. As the clock ticks, some players have wondered whether the newly formed bank - the company was granted bank status in the fourth quarter of 2008 - is too big to fail.

"It truly is a bet on whether they get bailed out or not," said one market source. "They are not so toxic, they just need funding to continue."

"On the other hand, they are one of the good guys," the source said, remarking that the company was not one of the "complete swindlers" that have already received government bailouts. "It's kind of an injustice."

However, he noted that if CIT were to fail, its demise would not be as tragic as that of something like American International Group Inc. or Lehman Brothers.

In AIG news, the insurer's debt fell about 3 to 5 points on the day, in light trading, after a Citigroup analyst said there may be little value left over for private shareholders once the government takes its share.

A market source quoted the 5 3/8% notes due 2012 at 53.5 bid, 54.5 offered and the 5.85% notes due 2013 at 5 bid, 58 offered.

Another source, meantime, saw AIG-linked bonds mixed, with the parent's own 5.6% notes due 2016 down a deuce at 50 bid, but its International Lease Finance Corp. aircraft leasing unit's 5 1/8% notes due 2010 3 points better on the day, at 91 bid.

In a note to investors sent out late Wednesday, Joshua Shanker of Citigroup wrote that "our valuation includes a 70% chance that the equity at AIG is zero." Shanker cut his price target on the company's equity by more than 50%.

Neiman hurt by June sales

Neiman Marcus Group's debt took a hit after the Dallas-based high-end retailer reported disappointing June sales.

One trader placed both the 9% notes and the 10 3/8% notes due 2015 around 57, while another quoted the bonds at 56 bid, 58 offered. Another source deemed the 10 3/8% notes nearly 3 points weaker at 57 bid.

Neiman's term loan B also posted some losses during the trading session, according to traders.

One trader had the term loan B quoted at 74¾ bid, 75¾ offered, down from 75 bid, 76 offered, and a second trader had the paper quoted at 74 3/8 bid, 75 3/8 offered, down from 75 bid, 76 offered.

For the month of June, total revenues were $323 million, down 19.4% from $401 million last year, and comparable revenues were $317 million, down 20.8% from $401 million last year.

In the five-week June period, comparable revenues in the specialty retail stores segment, which includes Neiman Marcus Stores and Bergdorf Goodman, decreased 23%.

The company said that it experienced weakness across all geographies and merchandise categories in the specialty retail stores segment.

Lastly, comparable revenues at Neiman Marcus Direct in the five-week June period decreased 9.7%.

Elsewhere in the world of retail, Duane Reade Inc.'s 9¾% notes due 2011 gained as much as 2.5 points on the day after the company announced a tender offer.

One trader pegged the issue around 89 and another saw the notes at 89 bid, 90 offered.

"It doesn't trade all that actively, but it did trade today on the back of the news," the first trader said.

The New York-based pharmacy chain said it would bring a tender offer for its floating-rate notes due 2010 and its 9¾% notes. Between the two issues, there is about $405 million worth of bonds outstanding.

Under the terms of the swap, holders of the floaters would be reimbursed at par for every $1,000 principal amount, while holders of the 9¾% notes would get $875 per $1,000 principal amount. Both payments include a $30 consent payment.

Additionally, the company is seeking to amend the debentures to remove all restrictive covenants.

Duane Reade plans to issue new debt to fund the tender. The offer expires at 11:59 p.m. ET on Aug. 4, unless extended.

Meanwhile, Bon-Ton Stores Inc.'s 10¼% notes due 2014 ended unchanged around 41, a trader said.

Seitel continues to quake

Seismic outfit Seitel saw its losses extending into Thursday's session, after losing weight on Wednesday as well.

A trader called the 9¾% notes due 2014 another 3 to 4 points lower at 53 bid, 54 offered.

Earlier in the month, the Houston-based company released preliminary second-quarter earnings, predicting that revenues for the period ending June 30 would be around $21.3 million. That equals a more than 50% decline year over year.

Cash resales dropped 78% from the year before to 47.2 million, as fewer clients were paying for data from the company.

"The absence of large licensing deals and the low number of library card contracts continue to hurt our licensing revenue," Seitel said in a release.

Seitel is also currently in violation of a cash balance covenant on its undrawn $25 million credit facility with Wells Fargo. The company has about $28.7 million in cash on hand.

Seitel has engaged its lender to discuss the next move on the facility.

Sara Rosenberg and Paul Deckelman contributed to this article.

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