Rite Aid gains on takeover buzz; TXU up ahead of earnings; MGM's weak results weigh on bonds

By Stephanie N. Rotondo

Portland, Ore., Feb. 18 - The distressed debt market continued to be firm on Thursday, giving many names in that arena a 1- to 2-point boost.

Rite Aid Corp. bonds remained on their upward course, as takeover buzz infiltrated the market. The bonds had begun to move up following news Wednesday that Walgreens would acquire Duane Reade Inc.

Meanwhile, Energy Future Holdings Corp.'s debt was one of the day's active credits. The bonds moved up during the session, ahead of Friday earnings release.

And, in other earnings news, MGM Mirage notes were called "reasonably busy" by one market source, though the debt ended the day lower. The slip came as the company reported earnings that were less than what had been expected.

Rite Aid gains on takeover buzz

Rite Aid bonds continued to climb higher on speculation it could be the next pharmacy takeover target.

A trader said the Camp Hill, Pa.-based company's debt was "all up about 2 points," following Wednesday's news that Walgreens would buy New York-based Duane Reade for more than $1 billion. He pegged the 7½% notes due 2017 at 931/2, up from 911/2.

Another market source said the bonds "continued to be a little bit active," seeing about $20 million of the 9½% notes due 2017 trade at 801/2.

Yet another source called the 8 5/8% notes due 2015 up 3 points on the day to 84¼ bid.

With Walgreens taking over Duane Reade, Rite Aid will become "the last remaining major drug store asset in the U.S., with meaningful exposure to dense urban markets," UBS Securities analyst Neil Currie said in a note to clients. Interested parties could include Wal-Mart, Walgreens or CVS Caremark.

However, some believe that Rite Aid could be pieced out instead of getting acquired whole.

"We don't think Rite Aid will be acquired as a whole in the near term - although certain of its geographic locations might be of interest to an acquirer (eg. its California stores)," wrote Gimme Credit analyst Kim Noland in an afternoon comment.

Duane Reade's notes were meantime on the quiet side after the midweek rush. A trader called the 11¾% notes due 2015 unchanged around 124.

Standard & Poor's said it was considering upgrading the company on the back of the Walgreens acquisition.

TXU up ahead of earnings

Energy Future Holdings - also referred to as TXU - saw its bonds gaining ground in active trading, according to traders.

One trader said that about $100 million of the company's debt traded during the session. Of those, the 10 7/8% notes due 2017 ended better at 78 bid, 79 offered, while the 11¼% notes due 2017 closed "in the 73s."

The trader noted that the company is scheduled to release earnings on Friday and that its gains had boosted the energy sector as a whole. Split-rated FirstEnergy Corp., for example, saw its 7 3/8% notes due 2031 improve to around 105, on $50 million traded. The 6.45% notes due 2011 finished the session at 106½ bid, 107 offered.

Another trader called the company's bonds up 1 to 1½ points across the board. He saw the 11¼% notes end around 711/4, after hitting a high around 73, while the 7% notes due 2022 closed at 112 bid, 113 offered. He also saw the 10¼% notes due 2015 at 771/2.

TXU will hold a conference call to discuss its fourth-quarter earnings on Friday at 11 a.m. ET.

MGM's weak results weigh on bonds

In other earnings news, MGM Mirage reported weaker-than-expected fourth-quarter results, which resulted in some losses for the company's bonds.

A trader said the bonds were "reasonably busy," with about $20 million of the 6¾% notes due 2012 trading at 92 bid, 93 offered.

At another desk, a source saw the 6 5/8% notes due 2015 slipping over appoint to 78¾ bid.

For the quarter, the Las Vegas-based casino operator posted a loss of 98 cents per share, versus a loss of $4.15 per share the year before. Though the 2009 figures were better than 2008, the opening of MGM's CityCenter in December was expected to yield even better results.

"This has been a challenging but momentous year for MGM Mirage, culminating with the opening of CityCenter in December," said Jim Murren, chairman and chief executive officer, in the earnings release.

"We generated significant cash flows and kept our buildings occupied at 90% even in a brutal economy because we are equipped with the highest quality resorts, the preeminent brands, and the finest employees in the industry. We have profoundly improved our cost structure and are actively building revenue to maximize operating leverage as the economy shifts into recovery mode. Our forward convention booking pace accelerated again in the fourth quarter with over 440,000 future room nights booked.

"We are keenly focused on strengthening our financial foundation and made historic progress last year."

GGP interest dying down

Activity in General Growth Properties Inc.'s debt was all but at a standstill Thursday, a trader said.

The trader remarked that only one small trade went through on the 5 3/8% notes due 2013 at 1081/2.

Earlier in the week, it was learned that Simon Property Group - the largest U.S. shopping mall operator - had made a $10 billion unsolicited bid for bankrupt GGP. GGP later rejected the deal, resulting in a scathing response from Simon. The interaction continued Thursday when GGP once again responded to Simon.

"As we have previously stated, our objective is to maximize value for the company and its stakeholders and we are engaging in a process that is intended to accomplish that result in an expeditious manner," the letter said. "Understandably, your objectives are not aligned with ours. We hope you will, nonetheless, participate in our process."

GGP is based in Chicago.

Broad market: No news is good news?

In the broader distressed market, it seemed that no news was good news for some credits.

Clear Channel Communications Inc., for one, "looked like the most active bond," a trader said, seeing the 11% notes due 2016 jump 4 points to the 67 level.

Blockbuster Inc.'s 9% notes due 2012 were also inching upward, even with no fresh news - at least no fresh positive news - to act as a catalyst. A trader placed the issue around 19, up from 17 bid, 18 offered.

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