NII bonds dive as company sees bankruptcy as likely; Caesars inks refinancing deal, debt mixed

By Stephanie N. Rotondo

Phoenix, Aug. 12 – The distressed debt market was again generally firm on Tuesday, but the positive tone did not include all distressed names.

NII Holdings Inc. bonds came in as much as a dozen points following the company’s earnings release late Monday. In the release, the company said a trip to bankruptcy court was likely.

Meanwhile, Caesars Entertainment Corp. was making headlines around midday, as the casino operator said it had inked a deal to refinance nearly $550 million of debt linked to Caesars Entertainment Operating Co. Inc. On the news, more liquidly traded issues moved up, while other lesser-traded issues declined.

RadioShack Corp. was another name in the news, as analysts from UBS AG said that a turnaround was “highly in doubt.” Investors kind of shrugged off that assessment, however, as the bonds didn’t trade all that actively.

Still, a trader said the name “keeps drifting a little bit lower.”

NII likely to file

NII Holdings’ debt tanked as the Reston, Va.-based provider of Nextel mobile services in Mexico and Latin America said a bankruptcy was in its future.

One trader said the 7 7/8% notes due 2019 fell 12 points to 67, while the 11 3/8% notes due the same year were pegged at 70 offered.

The trader also saw the 7 5/8% notes due 2021 declining over 8 points to 16¾, as the 10% notes due 2016 lost 6 points, closing around 20½.

At another desk, a trader said both the 2019 maturities were off “a dozen points or so,” trading in the mid-60s. The 7 5/8% notes and 10% notes meantime dropped 5 to 7 points, he said, ending in the high-teens to 20 context.

For the second quarter, NII Holdings had a net loss of 77,000 subscribers, bringing its subscriber base to 9.4 million.

That figure represents a 6% decline year over year.

Consolidated operating revenue declined 23% to $969 million. Net loss widened to $623.3 million, or $3.62 per share, compared to a net loss of $396.4 million, or $2.30 per share, the year before.

Consolidated average monthly churn was 3.39%, versus 2.67% the previous year.

The company noted in its earnings release that its financial performance combined with the likelihood that it will not be able to meet its debt obligations make a bankruptcy filing foreseeable in the near future. In a 10-Q filed with the Securities and Exchange Commission, the company said that it has been speaking with interested parties in regard to acquiring some or all of its assets.

The company has also engaged in talks with bondholders.

As of June 30, NII Holdings was not in compliance with several of its indentures, including on Nextel Brazil’s local bank loans.

Moody’s Investors Service downgraded the company’s credit rating to Caa2 from Caa1, citing the probability of a bankruptcy filing.

Caesars plans debt deal

Caesars Entertainment is meantime hoping to restructure its operating unit outside of bankruptcy, as it inked a deal with certain bondholders to refinance nearly $550 million of debt.

On the news, bonds were mixed, with the more actively traded issues getting the bigger boon.

A trader said the 10% notes due 2018 earned a point to trade as high as 31. Another trader called that issue up over a point at 31¼.

However, the second trader also noted that the 10¾% notes due 2016 were off 18 points – he remarked that the paper hasn’t traded in size for awhile – to 38.

He also said the 12¾% notes due 2018 ended down a deuce at 38.

A third market source pegged the 10% notes at 30¾ bid, up 1½ points.

Under the refinancing plan, the operating company will purchase and retire $237.4 million of 6½% notes due 2015 and 5¾% notes due 2017. In consideration, holders will get $155.4 million in cash and $82.4 million in amended notes.

Also, the parent company will put back and cancel about $393 million of operating company debt.

The plan is expected to reduce Caesars’ annual interest expense by $34 million per year.

RadioShack’s efforts spurned

Try as it might, RadioShack just can’t seem to catch a break.

In a new report from UBS, analyst Michael Lasser compared the Fort Worth, Texas-based company’s attempts to revamp its stores and image to “throwing things against the wall to see what sticks.

“The company is running in a perilous position with dwindling financial flexibility,” Lasser wrote in his report.”

Lasser pointed to the company’s thwarted effort to shutter about 1,100 stores, which lenders put the kibosh on as such a move would have violated certain covenants. That combined with a hefty cash burn makes the company’s attempts to restructure outside of bankruptcy less and less likely.

Still, that news might not have come as a shock to most investors and UBS certainly isn’t the first one to call the turnaround effort into question. In late July, Moody’s issued a report alleging that the company could run through all its cash by late 2015.

A trader said that there “wasn’t much volume” in the company’s 6 ¾% notes due 2019, though he stated that the debt “keeps drifting a little bit lower.”

He said the paper was trading in the mid-30s.

Another trader quoted the issue at 34 bid, 36 offered.

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