Claire's structure jumps on numbers; Burlington Coat firms; NXP falls on downgrade, reorganization

By Stephanie N. Rotondo

Portland, Ore., Sept. 12 - Distressed traders reported that Claire's Stores Inc., Burlington Coat Factory Warehouse Corp. and NXP Semiconductor dominated their trading arena Friday.

Claire's released its second-quarter results Friday and the better-than-expected numbers gave the company's debt structure a boost. The term loan gained about 2 points while the bonds, considered to be the most active issue of the day, gained as much as 8 points. The retailer's notes had previously been slipping ahead of the numbers, as most were expecting the worst.

Meanwhile, numbers also helped Burlington Coat gain some ground. The company held a conference call Friday to discuss its financial report and, during the call, said it remained focused on growing the business. Traders saw the bond issue up about 4 to 5 points on the day.

Just as Claire's gained as much as 8 points, NXP's debt fell as much as 8 points during trading.

"There's complete equilibrium there," said one trader. "It certainly gives us a taste of what I think we will see over the next three months, which is anything positive will push things up tremendously and anything negative will do the opposite. It's not going to be 1- to 2-point jumps anymore."

NXP's bonds fell after the company announced a reorganization that would slash its workforce by 15% and cost millions of dollars. According to one trader, a downgrade did not help matters much.

As was the case most of the week, Lehman Brothers Holdings Inc. and their foibles kept the market busy. But a new player was added to the mix: Washington Mutual, Inc.

"A lot of people were focused on Lehman and WaMu," said one source.

Another trader said that the problems with the two financial institutions created a "drumbeat" that left some wondering "when will Lehman close? When will WaMu shut down?"

Claire's structure jumps

Claire's Stores' term loan bounced up by a few points in trading after the company released second-quarter and six-month earnings results, according to a trader.

The term loan was quoted at 69 bid, 69.25 offered, up from Thursday's levels of 66.75 bid, 67.75 offered, the trader said.

The company's corporate debt was called "by far the most active" in the bond market by one source. He called the Pembroke Pines, Fla.-based retailer's bonds up 6 to 7 points on the day, the 9¼% notes due 2015 at 46 and the 10½% notes due 2017 at 41.

At another desk, a trader said the bonds were "definitely the volume leader," the 10½% notes at 40 bid, 41 offered, the 9¼% notes at 45 bid, 47 offered and the 9 5/8% notes due 2015 around 30.

"[Numbers] were down less than expected," he explained. "I think there might have been some short covering going on."

Another trader said the bonds "ran up first thing this morning 7 to 8 points and just kind of held there." He quoted the 9¼% notes at 46 bid, 47 offered, the 10½% notes at 41 bid, 42 offered and the 9 5/8% notes at 31 bid, 32 offered.

For the second quarter ended Aug. 2, the company reported net sales of $360 million, a 1.5% decrease from $365.5 million in 2007. The decrease was primarily attributed to a decline in same store sales, partially offset by the growth in new store base and the effect of foreign-currency translation.

Net loss for the quarter was $16.9 million versus a net loss of $73.4 million last year.

Adjusted EBITDA in the second quarter of 2008 was $58.1 million compared with $64.3 million in the second quarter of 2007.

And, the gross profit percentage was flat at 49.9% for both years' second quarters. A 290 basis point increase in the merchandise margin was offset by an equal increase in occupancy and buying costs.

"In the second quarter, we saw an improvement in the tone of business as our comparable store sales improved during each month of the quarter and our merchandise margin increased," said Gene Kahn, chief executive officer, in the release.

"We also successfully completed phase one of our Pan-European Transformation project. As a result, we now have an integrated team managing our European business and a more focused North American merchandising team, within which there are now dedicated groups responsible for each of our Claire's and Icing brands. We launched our cost savings initiative during the quarter and are on target to achieve our previously announced goals of $15 million of expense reductions this year and an annualized amount in excess of $40 million," Kahn added in the release.

At Aug. 2, the company's $200 million revolving credit facility was undrawn and fully available aside from an ongoing $5.9 million letter-of-credit. Cash and cash equivalents were $35.2 million.

For the first six months of 2008, the company reported net sales of $687 million, down 2.7% from $706.1 million last year.

Net loss for the six months was $52.5 million, compared with $44.6 million in 2007.

And, adjusted EBITDA in the six-month period was $92.4 million, compared with $125 million in the first six months of 2007.

Burlington boosted after call

Burlington Coat Factory's debt also got a boost during end-of-the-week trading, attributed to the company's conference call to discuss its earnings.

One trader said the 11 1/8% notes due 2015 "popped up" to the 69 level, from 65 bid, 66 offered previously. Another pegged the issues at 69.25 bid, 69.75 offered, while another placed the bonds at 68 bid, 69 offered.

"They were up a good bit," a trader said, calling the paper one of the more active issues of the day.

"It certainly made some people happy," said another source about the call.

During the conference call, Burlington's management said that it remained focused on growth, despite a 5.2% decline in same-store sales for fiscal 2008. The company plans to open 40 new stores in 2009, to the tune of $55 million.

"To stay formidable in the marketplace and compete, we really believe that it's imperative that we grow the chain," said Mark Nesci, Burlington's chief executive.

The company also stated that current liquidity is more than enough to meets its goals in 2009, although specifics were not mentioned.

"Obviously, we're looking at the capital structure, we're looking at our true cash obligations, our covenant requirements, and we're taking all of that into consideration, and, obviously, we wouldn't be going forward with this level of capital investment in the company if we weren't comfortable with our ability to meet all of these obligations," Todd Weyhrick, chief financial officer, said during the call.

Burlington Coat Factory is a Burlington, N.J.-based discount retailer.

NXP debt under pressure

A downgrade and reorganization weighed on NXP Semiconductors' bonds, market sources reported.

A trader said the 9½% notes due 2015 hit a new low at 57.75 bid, 60 offered, down 6 points. Another trader said the debt lost 7 to 8 points, the 9½% notes at 60 bid, 61 offered and the 7 7/8% notes due 2014 at 75 bid, 77 offered.

The Eindhoven-based chipmaker announced that it plans to cut 4,500 jobs in an effort to adapt to the changes in the economic environment. The 15% reduction in the workforce is expected to cost $800 million, but will save $550 million a year by the end of 2010. Company management hopes to be cash flow positive by the end of 2009.

However, a trader said that Standard & Poor's cut its rating on the company, placing them on CreditWatch negative.

Broad market mixed

Trump Entertainment Resorts Inc.'s 8½% notes due 2015 closed unchanged at 45 bid, 46 offered.

Harrah's Entertainment LLC's 10¾% notes due 2016 were "up and down" around 65, a trader said, while the 10¾% notes due 2018 ended at 58 bid, 59 offered.

Ford Motor Co.'s long bonds continue to climb, the 7 .45% notes due 2031 finishing the week at 56 bid, 57 offered, up 6 points on the week.

NRG Energy Inc.'s 7 3/8% notes due 2016 were called active and unchanged at 96.5 bid, 97 offered. But another source called the issue down a point to 96.25 bid.

Sara Rosenberg contributed to this article.

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