More than $10 million of Kmart's three-year revolver was sold north of the 40 level last week in a mini-auction out of an original lender. The company's bank debt has been trading as the company nears its exit from bankruptcy. Although the reorganization plan will distribute 40 cents on the dollar to lenders for their exposure, dealers explained that the paper was able to trade higher than 40 because buyers receive net-backs for letters of credit. The three-year loan is trading at a 125 basis point premium to the 364-day revolver, which is changing hands in the 38 1/4 39 range.
Last week, Kmart released its 2002 fiscal year financial results, clocking in a loss of $3.22 billion. "The numbers are ugly, but everyone expected them to be ugly," said one dealer, explaining that the financial results would not affect the company's bank debt levels because lenders have already struck a deal securing their recovery. GE Commercial Finance, Bank of America and Fleet Retail Finance are currently gathering commitments for Kmart's $2 billion exit financing, which mirrors the bankrupt retailer's debtor-in-possession facility (see story, page 3). Kmart officials could not be reached by press time.