Idearc dives, takes R.H. Donnelley along; Pilgrim's numbers not bad; Claire's term loan, bonds fall

By Stephanie N. Rotondo

Portland, Ore., July 29 - Idearc Inc. reported a 30% decline in profit Tuesday, sending its bonds down 10 points.

Words like "smoked" and "hammered" were used to describe the day's activity in the phonebook publisher's debt. Intraday, the bonds were seen down 6 to 7 points, but continued to lose weight toward the close. The disappointing showing also put pressure on sector peer R.H. Donnelley Corp.'s bonds, which lost about 5 points on the day.

Meanwhile, Pilgrim's Pride Corp.'s quarterly report surprised investors by beating analysts' expectations. The largest chicken producer in the United States saw its bonds lose ground on Monday on the back of Tyson Foods Inc.'s numbers, which left the market anticipating equally bad figures from Pilgrim's. Instead, the numbers were not so bad, and the company's bonds inched up during the session.

Claire's Stores Inc.'s term loan and corporate debt took a hit during trading. Traders claimed the losses were partly due to nervousness in the retail sector, as well as a Chapter 11 filing by Mervyns.

There was quite literally no trading in WCI Communities Inc.'s bonds, even as the company posted a much wider loss for the quarter. Traders said that while the numbers were terrible, there was nary a quote to be seen.

Idearc dives, takes R.H. Donnelley along

It was "all Idearc, all day," a trader said, as the phonebook publisher's bonds dropped about 10 points.

The losses came on the back of the company's dismal quarterly earnings, which showed a 30% fall in profit.

Early in the session, Idearc's 8% notes due 2016 were called down 6 to 7 points by market sources, around 53 bid, 54 offered. But by the end of the day, the bonds had fallen to 49.5 bid, 50 offered, down from 58.75 bid, 59 offered the night before.

"They opened up down a few points right off the bat," a trader said.

"Idearc got smoked," said another source.

The company's term loan B also experienced quite a fall, quoted at 74¼ bid, 75¼ offered, down from Monday's levels of 77¼ bid, 78¼ offered, a trader said.

Idearc's dive also put pressure on R.H. Donnelley's bonds. The owner of Dex Media saw its bonds fall about 5 points during trading, just half that of Idearc.

"They already had their ugliness," a trader said, referring to that company's disappointing numbers.

The trader pegged the 9 7/8% notes due 2013 at 79 bid, 80 offered, down 3 to 4 points, and the 6 7/8% notes due 2013 at 47.5 bid, 48 offered. Another trader called the 6 7/8% notes 5 points weaker at around 48.

For the quarter, Idearc reported a $76 million profit, versus a $109 million profit the year before. Revenue dipped 5.7% to $759 million, which was lower than the market had estimated. Earnings also came in well below expectations.

"It is clear that we have not made the leap as a division of Verizon to being a stand-alone company," said Scott Klein, Idearc's new chief executive, in a statement. Dallas-based Idearc was spun off from Verizon in 2006.

The weakening economy has hurt the company as advertising dollars are being put to uses considered more fruitful, such as the internet. Idearc is looking to increase its web presence to combat the declines in the print media sector.

Still, some market players are not backing away from the embattled company just yet.

"The bonds are not likely to go much lower without any more good or bad news," a source said, opining that the debt could regain some ground as early as Wednesday. "50 is exactly where it is supposed to be when you have no idea what is going on."

Pilgrim's numbers not so bad

In other earnings news, Pilgrim's Pride came out with its numbers on Tuesday. The company posted a $52.8 million loss for its fiscal third quarter, which was better than expected.

The food processor's bonds had fallen in the previous session after sector peer Tyson Foods reported unhealthy figures. In anticipation of equally abysmal earnings, investors put pressure on Pilgrim's debt.

But the smaller-than-expected loss boosted the company's debt, albeit slightly. A trader quoted the 8 3/8% notes due 2017 at 76.75 bid, 77.75 offered, up from the previous session's levels of 76 bid, 77 offered, but down from the day's high around 78. He also saw the 7 5/8% notes due 2015 at around 86.

At another desk, a trader placed the 8 3/8% notes around 78, compared to 75.5 bid, 76.5 offered the day before.

The Pittsburg, Texas-based company attributed its quarterly loss to higher costs associated with grain. Tyson also said that the price of animal feed contributed to its weaker results.

Revenue increased 5% to $2.21 billion, beating analysts' estimates by about $7 million. The company placed its feed-related costs at $266 million, a 41% gain year over year.

Pilgrim's said it would cut production by 5%, a move others in the industry have also elected to employ as a cost-cutting measure.

Claire's loan, bonds take a hit

Claire's Stores' term loan B headed lower in trading as nervousness about the retail sector in general grew, and the Chapter 11 filing by Mervyns did not help either, traders reported.

The term loan B was quoted by one trader at 67¾ bid, 68¾ offered, down about 2 points on the day, and by a second trader at 68¼ bid, 69¼ offered, down from 71¼ bid, 72¼ offered.

Bond traders also saw Claire's paper declining. One trader said the debt "continued to drift," placing the 10½% notes due 2017 around 32.5 and the 9¼% notes due 2015 around 46.5, down 2 to 3 points.

Another trader said the retailer's bonds were "just offered, not many trading," pegging the 10½% notes at 33, the 9 5/8% notes due 2015 at 35 and the 9¼% notes near 50.

On Tuesday, Mervyns, a mid-tier department store chain in California and the Southwest, announced that it filed for bankruptcy so as to restructure its debt and realign its business.

"Mervyns needs to reorganize its finances and operations due to the state of the economy and difficult operating environment for our industry," said John Goodman, chief executive officer, in a news release.

"After careful consideration of available alternatives, the company's management board determined that a Chapter 11 filing was a necessary and prudent step that allows us to operate our business without interruption as we seek to restructure our debt and other obligations in a controlled, court-supervised environment," Goodman added in the release.

In conjunction with the filing, Mervyns received a commitment for a $465 million debtor-in-possession facility from Wachovia.

Another negative for Claire's came late in the day on Monday, when Moody's Investors Service downgraded the company's ratings, including its senior secured bank debt to B2 from B1 and probability of default rating to Caa1 from B3.

Moody's said that the downgrade reflects the company's weak operating performance over the past two quarters that has led to deterioration in its debt protection measures.

In addition, Claire's long-term ratings were placed on review for further possible downgrade, reflecting the high likelihood that the company's debt protection measures will get worse given the challenging economic environment, which makes the company highly susceptible to further earnings and cash flow pressure.

Claire's is a Pembroke Pines, Fla.-based specialty retailer of value-priced jewelry and accessories.

No move for WCI

WCI Communities was one of several to release a quarterly report Tuesday. But while others saw their numbers have some affect on their bonds - Idearc tanked, Pilgrim's gained - there was almost no reaction in WCI's debt.

"Numbers were bad, but not a quote in the bonds from the Street," a trader said.

"They just don't trade," said another.

In fact, according to the Trace system, the bonds did not trade at all Tuesday and some issues have not traded since last week.

The Bonita Springs, Fla.-based homebuilder reported a wider quarterly loss of $100.2 million, compared to a loss the year before of $33.2 million. Revenue decreased to $230.1 million, a 4.6% decline.

Moody's downgraded the company following the release of the numbers. The company's corporate family rating fell to Caa3 from Caa2, probability of default rating to Caa3/LD from Caa2 and the ratings on its existing issues of senior subordinated notes to Ca from Caa3. The outlook is negative.

Station Casinos deteriorates

Station Casinos' bonds continued to retreat, a trader said. He quoted the 6% notes due 2012 at 69 bid, 70 offered and the 7¾% notes due 2016 at 67 bid, 67.5 offered.

Another trader called the gaming operator's bonds down "a couple more points," with the 6% notes around 70 and the 7¾% notes at "68-ish."

Station's bonds have slipped over the last few sessions. It has been unclear what has prompted the move, though rumors of a debt-for-debt swap could be to blame. The company is scheduled to release its 10-Q on Thursday.

"It should be interesting," a trader said.

Elsewhere in the gaming arena, Isle of Capri Casinos - dubbed "Isle of Debris" by one humorous source - saw its 7% notes due 2014 unchanged at around 69.

Sara Rosenberg contributed to this article.

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