Bon-Ton Stores' debt gains ground; GMAC paper continues to rise; Georgia Gulf gets downgraded

By Stephanie N. Rotondo

Portland, Ore., May 21 ­ Bon-Ton Stores Inc. was the name of the day Thursday, following the company's earnings release.

Market sources saw the retailer's debt gain a point or so after the numbers. During its conference call, the company maintained its goal of reducing debt and generating cash.

Meanwhile, GMAC LLC paper continued to gain ground, traders reported. The bonds had begun to move up on Wednesday on reports that the government was considering another investment in the bank holding company.

A rating downgrade left Georgia Gulf Corp.'s bonds relatively unaffected, according to traders. The downgrade came as a result of missed interest payments.

Bon-Ton debt gains ground

Bon-Ton Stores' bonds improved after the company released its first-quarter results, traders reported.

A trader called the 10¼% notes due 2014 "a little better, about a point," around 44, with $20 million trading.

Another trader quoted the bonds at 48 bid, 50 offered. He said the bonds had moved up from 42 in active trading. However, he noted that the Trace system showed a trade as low as 44 late in the day.

York, Pa.-based Bon-Ton reported total sales of $644.5 million for the quarter ending May 2. That compared with sales of $700.2 million in 2008.

Net loss meanwhile widened to $45.4 million, or $2.67 per share, from $34.1 million, or $2.03 per share, the year before.

"Our ongoing efforts to carefully manage inventory levels and control costs yielded results in the first quarter of 2009 in line with our previously provided guidance," stated Bud Bergren, president and chief executive officer, in a press release. "We reduced our comparable store and clearance inventories by 11% and 16%, respectively, and generated an 80 basis-point improvement in our gross margin. We also realized a net reduction of $18.9 million in our selling, general and administrative expenses, and we believe we remain on track to achieve our goal of $70 million in annual savings. The combined efforts delivered an improvement in our operating results. In addition, our excess borrowing capacity under our credit facility was $165 million at the end of the first quarter, well above the $75 million minimum availability covenant under our credit facility.

"We will continue to manage our business with an emphasis on maintaining strong cash flow and liquidity," he continued. "Our focus is on driving sales through our differentiated assortment of national and exclusive brands, expansion and enhancement of our eCommerce web site, and our value-oriented marketing campaign."

Furthermore, the company said it was committed to generating cash and reducing debt in its quarterly conference call.

Elsewhere in the retail world, Quiksilver Inc.'s 6 7/8% notes due 2015 moved up 3 to 4 points on the day, a trader said, ending at 63 bid, 64 offered. The bonds have been moving upward over the last few sessions, on no news.

Another trader said there had been "good volume" in the notes. He saw the bonds trade in the morning in a 59 to 61 context, and then push upward to late levels around 64, well up from the 58 to 59 area where they had ended on Wednesday.

Another trader saw the bonds jump to 64.25 bid from 59.75 on Wednesday, calling it "a nice move," on $14 million traded. He saw no news on the company, but speculated that Quiksilver had previously been reported in talks to possibly sell one or more of its business lines - earlier in the year, it was said to be close to a deal with VF Corp. to sell its DC Shoes line, although nothing so far has come of that. Yet another trader saw Quiksilver at 61.5 bid, 63.5 offered, which he said was "up a couple," and said the movement was merely a reversal of the slide the company's bonds had taken last week, also for no apparent reason and on no news, so "they're right back up to where they were" before that downturn occurred.

GMAC continues to rise

Reports that the government is considering another investment continued to help GMAC paper during Thursday's session.

A market source saw the 6 7/8% notes due 2012 gaining another point to 86 bid, while GMAC's subsidiary, Residential Capital LLC, saw its 8 7/8% notes due 2015 jump 5 points to 63.5 bid.

"GMACs are cranking," another source said. He said the bonds were up a point on the shorter end, while the longer issues gained as much as 7 points. He quoted the 7¾% notes due 2010 around 96, compared with 94 bid, 95 offered previously. He also noted that the bonds were the most active issue in the name.

The trader also pegged the benchmark 8% notes due 2031 at 77 bid, 78 offered, from 71 on Wednesday.

On Wednesday, Detroit News reported that the U.S. Treasury Department was considering investing another $7.5 billion in GMAC, which would give the government a majority stake in the company. On Thursday, Associated Press followed with its own report, indicating that a $7 billion investment was being considered.

The Treasury has already invested $5 billion in the company. That investment was made in December and the Treasury received non-voting preferred stock.

Georgia Gulf gets downgraded

A rating downgrade did little to prompt movement in Georgia Gulf's debt, traders said.

A trader said he had seen a quote of 25.75 bid, 26.75 offered for the 9½% notes due 2014 on Wednesday, but nothing on Thursday. Another trader said the bonds remained the 26 context.

The second trader also placed the 10¾% notes due 2016 around 10, though he added that the notes might be changed, as "they haven't traded in a week."

Standard & Poor's cut its rating on Atlanta-based Georgia Gulf to D from CC, citing missed interest payments on April 15 and a subsequent expiration of the 30-day grace period on May 15.

However, in a regulatory filing made on May 18, the company said that it had secured a forbearance from its noteholders regarding the missed coupon. The agreement gave the company until June 15 to cure the problem.

Broad market mixed

In the rest of distressed territory, a trader saw $20 million of WMG Holdings Corp.'s 9½% notes due 2014 trade at 79.75 bid, 80 offered.

Another trader said the 0% discount notes linked to Warner Music had not traded in some time, but once the company released its recent new issue, the bonds went from 58 to 80.

A trader saw no additional movement in Pilgrim's Pride Corp.'s bonds, which had gotten a boost in the previous two sessions on its favorable April operating results, released to the bankruptcy court earlier in the week. He quoted its 7 5/8% notes due 2015 at 86 bid, 87 offered, and its 8 3/8% notes due 2017 at 73 bid, 75 offered, calling those levels "about where they already were."

Paul Deckelman contributed to this article.

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