CIT paper dominates trading, takes dive as bailout talks unravel; Spansion catches better bids

By Stephanie N. Rotondo

Portland, Ore., July 16 - CIT Group Inc. "was the only thing that went on today," a trader said Thursday, marking the fourth day in a row CIT has taken over the marketplace.

The financial institution announced late Wednesday that talks with the U.S. government regarding a potential bailout had fallen apart, resulting in a 10- to 25-point loss in the company's debt come Thursday morning.

"Another day, just like all the others," said one trader. "I am sure more than a billion face [value] changed hands.

"Everything else is just taking a backseat," he added, referring to the lack of activity outside of CIT.

Meanwhile, Spansion Inc.'s bonds caught a bid, according to a trader. He noted that the bonds have been moving up nicely, but there was no news to explain the gains.

With the week winding down, a trader speculated that Friday might not be the "typical summer Friday," what with the market still waiting to see what happens with CIT.

"I think people will at least come in in the morning to see if there is any news," he said. "That will really dictate whether something happens or whether nothing happens."

CIT paper dominates, dives

CIT Group's bonds took a dive during Thursday's session, after the company announced late Wednesday that talks regarding a potential bailout with government agencies fell apart.

The company "has been advised that there is no appreciable likelihood of additional government support being provided over the near term," CIT said in a press release.

Upon learning the news, investors hammered on CIT paper, with one trader claiming that the subordinated issues dropped about 25 points and the seniors fell around 10 points on the day.

"They caught a little bit of a bid in the afternoon," the trader added. "That makes me think that some people are not ready to stick a fork in it."

The trader said the 6.1% notes due 2067 fell to a low around 3 in early trading before climbing back up to 5 bid, 6 offered. However, that compared with 28 bid, 30 offered on Wednesday.

"Some people definitely took the shellacking, as they say," he said.

The trader also saw the active floating-rate notes coming due in August closing in the 60s, down from the 90s.

Another trader saw the floaters falling to the low-60s from the mid-80s and said longer-dated issues were trading 51 bid, 53 offered.

"And everything else was kind of in between," he remarked.

At another desk, a market source called the 4¾% note due 2010 at 51 bid, 52 offered, down 17.5 points, while the August floaters dropped 25 points to 56 bid, 58 offered. Both the 5% notes due 2014 and the 5.8% notes due 2036 were seen about 10 points weaker, the former at 47.5 bid, 48.5 offered and the latter at 49 bid, 51 offered.

With no government bailout coming its way, CIT now has to figure out an alternative way to fund upcoming maturities - including the $1 billion coming due next month.

One option the company has to avoid a Chapter 11 filing is a debt exchange. According to news reports, several bondholder calls were held Thursday to discuss such a possibility, though the company has yet to propose such a plan.

Regardless, one thing is clear: CIT needs money - and fast. What is not clear is how much money.

"CIT indicated that it needs at least $2 billion of rescue financing in the next 24 hours or it would likely file," wrote Adam Steer, David Hendler and Pri De Silva, analysts with CreditSights, in a report. "We believe the figure is in the range of $4 to $6 billion plus, making outside capital sources shy away."

Following the news, Moody's Investors Service, Standard & Poor's and Fitch Ratings all dropped CIT's rating.

"The downgrade reflects our belief that there is an increased risk that CIT may declare bankruptcy in the near term or take other actions that will be detrimental to debt holders," said S&P analyst Rian M. Pressman in a statement.

Meanwhile, the retail sector eased some in sympathy with CIT, as the company is a lender to many names in that arena.

But Neiman Marcus Group Inc. managed to hold tight, according to a trader.

"We went out bidding for Neiman Marcus - but we couldn't buy any," he said. The company's 10 3/8% notes due 2015 gained some 2.5 points to end at the 58 level.

He also said that "Macy's traded - but there were buyers for Macy's paper."

And he said that he "didn't see much go on today" in Rite Aid Corp., which had been one of the more active non-CIT names trading around on Wednesday. While its 10 3/8% notes due 2016 gained nearly half a point, to the 91 3/8 level, and its 8 5/8% notes due 2015 were a point better at 66, its 9 3/8% notes due 2015 were unchanged at 65.5 bid.

On the other hand, a market source saw Bon-Ton Stores Inc.'s 10¼% notes due 2014 down a deuce at 37 bid. Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2014 softened more than a point to the 76 area.

Spansion catches a bid

With little else going on away from CIT, a trader said that Spansion's debt was "a little bit better bid," on no news.

"It's not up a lot, but it's enough to get some attention," he remarked. "They have had a nice move."

The trader saw the floating-rate notes due 2013 at 72 bid, versus 69.5 bid on Tuesday.

Spansion is a Sunnyvale, Calif.-based maker of flash memory products. The company filed for bankruptcy on March 1.

Paul Deckelman contributed to this article.

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