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USD CDS Summary: Rite Aid blows on dim forecast
Informa Global Markets - CDS Morning Insight (US) (August 29, 2006)

In its first chance to show how physically fit it is after its decision to purchase Eckerd and Brooks drugstore chains last week from Jean Coutu Group for a hefty USD3.4bln, Rite Aid exhibited some flabby muscles. The retail chain reaffirmed its fiscal 2007 guidance with sales expected to be USD17.4bln to USD17.65bln. But earnings per share could arrive at a loss of USD 7 cents to a profit of 2 cents a share. This is on top of a first quarter that saw net income slip 67%. Though its share price rose again today by almost 1.5% to USD4.32, its default jumped to a mid of 530 from 495.

The auto sector also extended in default, reversing some of the positive sentiment this group felt earlier in the week when it looked as if a stake sale in Ford Motor Credit would be on the horizon. But nothing is ever concrete with the auto names and any sale of Ford Motor Credit will not come easy. Protection buyers, who expressed this view, were out in front today taking off trades put on last week when Ford looked further along in its restructuring efforts. The prospect of long and drawn out wrangling over buyouts to younger employees has also added to the worries by investors. Five-year CDS in Ford Motor Credit widened to 335/340 from 325/335, while CDS in Ford Motor Co extended to 645/655 from 635/645. Similarly, GMAC edged outward to 198/203 from 196/200. GMAC parent General Motors was left at 620/630 from 615/625.

Parts makers also had some active play as TRW Automotive saw a market of 135/160, compared with a mid of 143. ArvinMeritor was at 405/435, out from 415. Lear was at 545 from 535.

Elsewhere, sporadic trading occurred in headline makers. H&R Block extended to 41/49 from 35 as the firm continues to take heat over losses at its mortgage unit, Option One Mortgage. On the heels of Boeing's new share repurchase plan announced yesterday up to USD3bln, default in Boeing Capital Corp eased to 13/14 from 12/16.

In food names, Dole Foods eased 20 basis points to a mid of 565 from 585. Cruise firm Royal Caribbean eased to 111 from 116.

Kathleen Fitzpatrick Hoffelder



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