Retailers slip on low sales; Movie Gallery stable; Fedders dips; Primus unchanged

By Stephanie N. Rotondo

Portland, Ore., July 10 - Consumer products and retail companies were weighed down Tuesday, spurred by a general weakness furthered by lowered second-quarter expectations from big-name retailers Sears and Home Depot.

Retail sales have been slipping of late, which has put pressure on names like Spectrum Brands Inc. and Linens n'Things Inc. Consumer spending has waned in the face of rising oil prices and overall concerns regarding the state of the economy.

Also hurt by a lag in consumer spending is Movie Gallery Inc., which recently said it had failed to meet certain financial covenants under its credit facility due to lower-than-expected earnings in the first quarter.

Still, the company's bonds have stabilized after falling from around 80 to the mid-20s in less than a week.

Elsewhere, Fedders Corp.'s bonds are back in the game after seeing little to no trading in the last few months. A trader said the bonds are softening as market players wait to see what the company's second-quarter figures show.

After completing its PIPE deal last week, a trader expected Primus Telecommunications Group Inc.'s bonds to get busy, given that the company said it could take out some debt with the proceeds. He said the bonds were unchanged on Tuesday's session but have been slowly edging higher in recent weeks.

Consumer products, retailers down

Companies that sell or produce consumer products are reeling, as general market weakness combined with an already low expectation for second-quarter numbers spur many retail-based bonds to slip.

Spectrum Brands, the maker of Rayovac batteries as well as other consumer goods, saw its bonds "down a good bit," a trader said. He pegged the 11¼% notes due 2013 at 88.5 bid, 89 offered.

"Certainly when you see Sears and Home Depot, consumer-driven type companies [which lowered second-quarter expectations], I think there is a caution factor there," he said.

The trader also saw Linens n'Things floating-rate notes due 2014 lower at around 70. Names like Bon-Ton Stores Inc. and Burlington Coat Factory Warehouse Corp. were also deemed weaker, with the 10¼% notes due 2014 and the 11.125% notes due 2014 at 94 bid, 95 offered, respectively.

At another desk, a trader attributed the sector's weakness to less consumer spending.

"Retail sales are the worst they have been since 1991," he said.

He said he saw Linens n'Things bonds trading at 69 bid, 71 offered, while Claire's Stores Inc. dipped 3 points from Monday, with the 10½% notes due 2017 at 87 bid, 89 offered.

Retailers are expected to post June same-store sales results on Thursday, while the government will release its gauge of June retail sales on Friday.

Movie Gallery stable

Movie Gallery's notes are stabilizing after last week's sell-off, with traders reporting that the 11% notes due 2012 are hovering in the 24 level.

A trader said he saw the bonds trade as high as 24.75 during the session, with a low of 23.75. Another trader saw the debt at 23.5 bid, 24.5 offered.

The first trader said he had heard that the Dothan, Ala.-based movie rental chain had attempted to secure a third-lien term loan but was unable to do so - which he said caused "everything to fall to pieces."

But another trader said that was old news, noting that the company had said it was looking to exchange its notes for a third-lien issue plus equity. To do that, he said, the company had to get approval to boost the amount of shares in its stock.

"I don't think they were able to get that," he said.

"But that would not have prevented the bottom falling out," he added.

Fedders slips

Air conditioner manufacturer Fedders is seeing its bonds slip, despite hotter temperatures, which were expected to boost the company's second-quarter performance.

A trader quoted the 9 7/8% notes due 2014 at 26.5 bid, 28.5 offered, trading in light volume.

"Nobody wants to play," he said. "Everybody is waiting for second-quarter numbers. Either they show improvement or the company needs to seriously think about doing some restructuring."

"You would think it might have heated up with the heat wave," he quipped.

Primus unchanged

Virginia-based Primus Telecommunications' notes have slowly been inching up, but remained unchanged during the last few sessions, which surprised one trader.

The trader quoted the 3¾% notes due 2010 at 72 bid, 74 offered - also the market for the 8% notes due 2014 - while the 12¾% notes due 2009 were seen at 96.5 bid, 97.5 offered.

Though the bonds have been firming of late, the trader was surprised that more people were not getting involved in the name - especially the 3¾% and 8% notes - given the company's recent PIPE deal.

"Those would certainly be issues that company would want to look at, I would think," he said, noting that proceeds from the PIPE deal may be used to take out old debt. "They can get more face value for less dollars."

Last week, Primus completed the deal, netting $18.9 million from the sale of 22.5 million shares of its common stock. In an 8-K filing with the Securities and Exchange Commission, the company said it would use the proceeds for general corporate purposes, including repaying outstanding debt.

InSight Health debt quiet

Trading was light to non-existent in InSight Health Services Corp.'s debt, despite receiving approval on its pre-packaged bankruptcy plan.

A trader said the 9 7/8% junior notes due 2011 saw a market of 33 bid, 40 offered but did not trade. The floating-rate senior notes due 2011 did see some trades, he said, at a 95 bid, 97 offered, with most trades between 95 and 96.

As the company looks to emerge bankruptcy on Aug. 1, the trader said it is the when-issued stock that will be interesting. Holders of the junior notes will receive 90% of the new common stock in the reorganized company.

"That will be the security to trade going forward," he said.

Doral notes steady

Doral Financial Corp.'s floating-rate notes due 2007 - on July 20, to be exact - were seen offered at 97.75, a trader said, but there were no bids to be found.

The trader, however, said he believed that a takeover deal led by Bear Stearns would go through, despite market concerns to the contrary.

They syndicated that deal," he said. "I don't think it is going to be an issue. I don't think the coupon is in jeopardy, either."

Instead, he thought that weakness in the subprime market was weighing on the Puerto Rico-based bank down.

"I think it is just sympathy with other subprime," he said.

In fact, that could be the case, as ratings agency Standard & Poor's looks to downgrade $12 billion of subprime mortgage-backed securities - a move expected to affect the wider market as well.

Broad market weaker

Calpine Corp.'s bonds have been quiet, a trader said, though weaker. He pegged the 8½% notes due 2011 at 124.5 bid, 125.5 offered.

"[The bonds] have been slowly drifting in," he said. "But I think people have made their bets. If you are in the name, you are not getting out."

Meanwhile, Technical Olympic USA Inc.'s bonds "melted down toward the end of the day," the trader said. He quoted the 7½% notes due 2011 at 68 bid, 70 offered, which he called "off quite a bit in the last couple of days."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.