Kmart's bank debt popped up to 68 by the end of last week from 53 as the smoke has cleared regarding news that certain subsidiaries of the bankrupt retailer have guaranteed the company's bank debt. Dealers said $50 million of its $1.5 billion deal traded over the course of last week with a piece trading early in the week in the 64-66 range. "People think the name will clear 80," said one trader, noting that both banks and distressed funds are more interested in the name now that it is clear some of Kmart's subsidiaries will guarantee J.P. Morgan's loan to the parent company.
A trader explained that the bank debt and bonds were initially believed to be pari passu, but now the market has been informed that guarantees on the paper were part of Kmart's original credit agreement. Calls to officials at J.P Morgan and Kmart were not returned by press time.
In addition to the guarantees, traders said the market is also speculating that the subsidiaries have stronger balance sheets than first thought. Names of the subsidiaries could not be determined by press time. The paper on the original J.P. Morgan deal fell to 95-97 from par in early January and continued its descent to the 50s as dealers anticipated a bankruptcy filing (LMW, 1/21). Calls to the company were not returned by press time.