Claire's Stores' debt turns positive on narrowed loss; GM bonds end higher after CDS auction

By Stephanie N. Rotondo

Portland, Ore., June 12 - The distressed debt market improved on Friday, though traders noted there was rather subdued trading.

"It was more of the same," a trader said. "People have money to spend but there are fewer names to spend it on.

"Volumes were lower by a fair amount," the trader added. "I think that's a function of less paper being around to mess around with."

Claire's Stores Inc. was the name of the day after the accessory retailer held a conference call to discuss its first-quarter results. Both the company's bonds and debt ended stronger.

Meanwhile, General Motors Corp.'s debt had an up day. A credit default swap auction was held to determine the value of the debt and the result was lower than Friday's closing price.

Claire's debt turns positive

Retailer Claire's Stores reported its first-quarter results late Thursday and, come Friday, the company's debt was seen significantly stronger.

One trader said the 9¼% notes due 2015 jumped 6 to 7 points to around 61.5 on trading of about $10 million. Another trader quoted the issue at 61 bid, 62 offered and added that the 10½% notes due 2017 moved into the low-50s.

Another source also saw the 9¼% notes gaining, noting that they "popped from the mid-50s to 62" on an "earnings surprise on the positive side," speaking of the company's narrowed loss.

Claire's term loan B was quoted at 63 bid, 65 offered, up from 62 bid, 63 offered, a trader said.

For the first quarter, which ended May 2, the company reported a net loss of $29 million, versus a net loss of $35.6 million in the comparable period last year.

Net sales for the quarter were $293.1 million, a 10.4% decrease from $327 million in the 2008 fiscal first quarter.

"We are pleased with our performance in the first quarter relative to other retailers and with the progress we made on our 2009 company priorities. However, our sales continue to be negatively impacted by the difficult global economic conditions," said Gene Kahn, chief executive officer, in a news release.

"After Easter, our business began to soften and fell more in line with other retailers who recently reported their May sales. This trend has continued, as thus far in the second quarter our same store sales have been running in the negative high single digits. We remain committed to prioritizing, simplifying and focusing our efforts to continue to improve our merchandise offense, to drive same store sales performance, and reduce costs which should allow us to maximize cash flow and help us achieve our operating objectives," Kahn continued.

Pembroke Pines, Fla.-based Claire's also said on Thursday evening that its adjusted EBITDA in the fiscal 2009 first quarter improved to $36.3 million from $34.3 million in the fiscal 2008 first quarter.

"In the first quarter, we continued to benefit from our cost savings initiative that began in 2008. We achieved our expense savings objectives during the first quarter, reducing selling, general and administrative expenses by $11 million, net of foreign currency effect. These reductions in costs allowed us to increase our adjusted EBITDA by $2 million, or 6%, compared to last year, despite experiencing a decline in sales. We believe we remain on track to achieve our 2009 cost savings objectives," Kahn added in the release.

At May 2, the company's cash and cash equivalents were $206.7 million and $194 million continued to be drawn under its revolving credit facility. Company management said during its conference call that cash flow remained a focus.

"In light of the ongoing weak global retail environment, we continue to focus on maximizing cash flow in 2009," J. Per Brodin, chief financial officer, told analysts during the call.

An increase in consumer sentiment might have also helped Claire's debt, and was touted as the reason for gains in the retail sector at large.

A trader said the sector was better by "half [a point] to a point, depending on where you're looking."

He saw Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2015 up "half a point or so" at 83.5 bid, 85 offered and Michael's Stores Inc.'s 10% notes due 2014 at 88 bid.

"That's had a nice run this week," he said of the arts and crafts retailer.

The Reuters/University of Michigan Surveys of Consumers' June reading came in at 69.0 for June, up from 68.7 in May. That marks the third straight month the index has increased and at current levels, the reading is at its highest point since September 2008.

GM moves past CDS levels

General Motors' bonds gained "a couple of points," according to one trader, as an auction to settle the company's credit default swaps was held.

The trader saw both the 7.2% notes due 2011 and he 8¼% notes due 2023 in the 14 to 14.5 range, on $15 million and $11 million traded.

Another trader said GM paper was "bouncing around," closing with "a 14 handle."

"That just goes to show that one never knows," a trader said regarding the closing price versus the lower value of the CDS auction.

According to the results of the CDS auction, the initial value of GM's bonds was set at 11 cents on the dollar. The final result was 12.5 cents on the dollar, still well below Friday's closing price.

Elsewhere in the autosphere, a trader said that auto parts makers were "going up like a bat out of hell," propelled by a combination of market relief that the sale of most of Chrysler LLC's assets to Fiat SpA had been completed, avoiding the U.S. carmaker's possible liquidation, and the possibility that the parts makers will get loan guarantees and more federal aid under the TARP program.

He said ArvinMeritor Inc.'s 8 1/8% notes due 2015 rose to 59 bid from 42 ¾ bid, 43 offered as recently as Tuesday, while its 8¾% notes due 2012 were at 71 bid, 72 offered, up from 57 bid, 58 offered last week.

And, he saw American Axle & Manufacturing Holdings Inc.'s 7 7/8% notes due 2017 had risen to 46 ¾ bid from 40 on Wednesday.

CIT, AIG mixed

CIT Group Inc.'s bonds were seen mixed, after Standard & Poor's demoted the company's debt to junk status - completing its fall from investment-grade grace.

While CIT's 5% notes due 2014 rose to 70 bid, up more than 2 points on the day, its 5.4% notes due 2012 were seen down a deuce at the 78 level.

Also mixed was American General Finance Corp. The AIG subsidiary's 5 3/8% notes due 2012 lost 2 points to end at 61 bid, although its 6½% notes due 2017 ended at that same level - but had to rise more than 3 points to do so.

Paul Deckelman and Sara Rosenberg contributed to this article.

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