ResCap bonds gain on tender offer; Tembec bonds rally; Swift notes slip

By Stephanie Rotondo

Portland, Ore., Nov. 21 - It was yet another weak day in the distressed market, though many players were already preparing for the Thanksgiving holiday.

Early in the trading day, Residential Capital LLC's bonds gave up some of the gains they had incurred in the previous session. But as the market started to shut down early, ResCap announced a tender offer for $750 million of its notes. That news prompted the bonds to gain as much as 12 points on the day.

It was also announced Wednesday that GMAC Corp., the parent of ResCap, was looking into the possibility of selling part of the mortgage lender's business.

Meanwhile, Tembec Inc. reported a profit for the fourth quarter, despite a downturn in the housing sector, which has resulted in several mill closures for the Canadian company. The better numbers were attributed to an after-tax gain.

Swift Transportation Co. Inc.'s bonds slipped as traders heard there was news out on the trucking company. But given the company's private status, some were unable to say what the news was. One trader, however, said the news was related to the departure of a member of the management team.

Calls made to Swift were not immediately returned Wednesday.

The bond market will be closed Thursday in observance of Thanksgiving. The market will reopen Friday, but traders are expecting very light activity.

ResCap rallies on tender offer

Residential Capital paper got a boost late in the day after the company announced a partial tender offer.

Early in the day, however, traders reported that the bonds had given back some of the gains they had seen in the previous session. Before the news, a trader quoted the longer dated issues, such as the 6 7/8% notes due 2015, around 53.

"It was up a little yesterday, giving it back today," he said.

Post news, the bonds moved up 6 to 7 points to around 60, while the floating-rate notes due June 2008 gained about 12 points to 82 bid, 83 offered. The floaters due November 2008 were also up in the low-70s.

Another trader said the paper due in June 2008 - the first-priority bonds in the tender offer - zoomed to the 83 takeout price from prior levels around 71.5.

A trader said the 6 1/8% notes due 2008 went up 14 points at 76 bid, 78.5 offered, although another market source quoted the bonds perhaps 8 points higher at 73. The floaters due in November 2008 were seen up about 5 points to 70.5, while the floaters due in April 2009 - lowest in the priority pecking order - were essentially unchanged at 61.

Other ResCap bonds not included in the tender offer were also higher, presumably on the idea that, as a trader said, "this is a big positive" for the company. The 8 3/8% notes due 2015 were seen up 6 points at 61.5.

The GMAC subsidiary said it would repurchase up to $750 million of its debt securities, including the floaters of June and November 2008, the 6 1/8% notes and the subordinated floating-rate notes due 2009.

Since the mortgage meltdown, ResCap has been struggling to keep afloat, given its exposure to the subprime market. Parent company GMAC has already attempted to bail out the company once this year, and the likelihood that they - or Cerberus Capital Management, for that matter - will do it again decreases every day.

"It has become rather obvious that Cerberus is experiencing issues on multiple purchases they made at [the] peak of the mortgage mess," a trader said. "Thinking they will come in and add equity if needed has become a less confident fact."

In fact, GMAC said Wednesday that is was looking into the possibility of selling part of the ResCap business as well as the possibility of purchasing another non-US mortgage lending institution. The plan would be to combine the leftover ResCap business with the acquired company.

Tembec gains on profit

Forest products company Tembec posted a fourth-quarter profit Wednesday, prompting its bonds to regain some of their previous losses.

A trader called the debt "up a couple," its 8 5/8% notes due 2009 at 44.5 bid, 45.5 offered, its 8½% notes due 2011 at 38.5 bid, 39.5 offered and its 7¾% notes due 2012 at 37.5 bid, 38.5 offered.

At another desk, a trader said the 8 5/8% notes were "up maybe a little bit" at 43 bid, 44 offered, while another called the 8½% notes a point better at 39.

The Canadian company reported a profit of C$22 million for the quarter ended Sept. 30, compared to a loss of C$52 million for the same quarter the previous year. The gain was attributed to an after-tax gain of C$71 million due to the translation of foreign debt. Without the after-tax inclusion, Tembec would have posted a net loss of C$43 million.

The company also said it is continuing to explore its options in its quest to improve its capital structure and liquidity.

Swift notes drift lower

Trucking company Swift Transportation's bonds lost ground Wednesday, with one trader attributing the move to fresh news.

But, as the institution is private, the trader said he had not seen what the news was. Another trader, however, said the buzz was that the chief financial officer had resigned.

The first trader pegged the 12½% notes due 2017 at 48 bid, 49 offered, adding that the bonds hit "new lows."

The second trader quoted the notes down 3 points around 50.

Elsewhere, a trader said the notes due 2017 fell to 49 bid, 51 offered from 54.5 bid, 56.5 offered.

Retailers slip

The retail sector took another hit, as big box stores like Target and Lowe's both posted lower quarterly numbers.

A trader said names like Bon-Ton Stores Inc., Burlington Coat Factory Warehouse Corp. and Linens n'Things were all lower at 76 bid, 77 offered, 85 bid, 85 offered and 55 bid, 57 offered, respectively.

Another trader called Burlington's 11 1/8% notes due 2014 down 3 points at 84.25, down from 87 bid, 88 offered.

With "Black Friday" just around the corner, it seems likely that holiday sales with be lower.

""They may not sell as much as they thought they were going to," a trader said.

Another trader said that as 65% of Bon-Ton's EBITDA and about 40% of Burlington's EBITDA comes from the fourth quarter, retailers are heavily dependant on holiday sales.

"I think the numbers are going to be horrible," the trader said. "But I think everybody knows that already and it is already priced in."

The question remains, however, about how the numbers will fare in relation to the market's expectations.

"Anybody that doesn't think we are going into a slowdown or recession hasn't woken up," the trader said. With gas and energy prices soaring and consumer spending decreasing, it is hard to believe that this holiday season will help many retailers' balance sheets.

Broad market lower

Equipment rental companies continue to slide, a trader said. He quoted Ashtead Group plc's 9% notes due 2016 at 85.5 bid, 86.5 offered and its 8 5/8% notes due 2015 at 84.5 bid, 85.5 offered.

The trader also saw Rental Service Corp.'s 9½% notes due 2014 lower at 88 bid, 90 offered.

Calpine Corp.'s debt was "probably a little weaker," just one day after a new valuation report was released. The trader pegged the 8½% notes due 2011 at 101.5.

Buffet's Inc.'s 12½% notes due 2014 were seen falling to 46 bid, 48 offered from 47 bid, 49 offered.

Remy International Inc.'s bonds were unchanged, a trader said, despite the automotive parts supplier winning bankruptcy court approval of its reorganization plan on Tuesday. The trader quoted the 11% subordinated notes due 2009 at 82 bid, 87 offered and its 8 5/8% senior notes coming due on Dec. 15 at 110 bid, 112 offered.

Paul Deckelman contributed to this article.

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