TXU unchanged after tender results; Coinstar numbers raise concerns; broad market holds steady

By Stephanie N. Rotondo

Portland, Ore., July 30 - Distressed bonds finished the week mostly unchanged as "month-end kind of skewed anybody wanting to transact," a trader said Friday.

Even Energy Future Holdings Corp. bonds saw little action price-wise. The company announced the early tender results of a previously reported debt exchange, which though favorable, wasn't enough to move the debt.

Meanwhile, Coinstar Inc. - the operator of RedBox movie rental kiosks - published its quarterly results, which missed analysts' estimates. The performance of the industry as a whole continues to cause concern for Blockbuster Inc., whose bonds - and company executives - have been suspiciously quiet. Coinstar's, however, traded on the active side.

TXU unchanged on tender results

Energy Future Holdings' debt was largely unchanged following the release of early tender results for the company's planned debt swap.

A trader placed the 6½% notes due 2024 around 43, the 6.55% notes due 2034 around 42½ and the 5.55% notes due 2014 around 57.

At another desk, a trader pegged the 6½% notes at 43 bid, 44 offered and the 6.55% notes at 42 bid, 44 offered, on the wide side.

The second trader noted that Energy Future - or TXU, as it is more commonly known as - had received over 99% in tenders for the 11¼%/12% toggle notes due 2017 and the 10 7/8% notes due 2017.

"So the exchange is taking place," he said. "I don't think much is going to happen [in the bonds] until the new securities [being issued in connection with the exchange] start to trade."

In the meantime, he said, the toggle notes and the 10 7/8% notes will "start to trade in stub pieces" and the remaining issues will "trade in a tight band."

As of 5 p.m. on Thursday, the Dallas-based energy company had received early tenders for approximately 99.51% of the notes. Participating holders will receive new debt - a 10% note maturing in 2020 - and cash.

The company undertook the debt swap as a way to wipe a large amount of debt from its overleveraged balance sheet.

Coinstar numbers raise questions

Coinstar, the operator of RedBox movie-rental kiosks, reported weaker-than-expected earnings late Thursday, which brought about new questions surrounding the movie rental business.

A trader said the 4% convertible notes due 2014 closed at 133½ bid, 134 offered, but he added that it was "hard to say" whether those levels were better or worse than the previous day.

"They were all over the place" on Thursday, he explained, trading at a low in the high-120s and at a high in the high-130s.

Another trader said the bonds were on the active side, with some "$20-odd million" changing hands.

For the second quarter, the Bellevue, Wash.-based company posted sales of $342.4 million, a 35% increase year over year. Still, it was less than analysts were expecting, as a Bloomberg poll placed expected sales around $381.3 million.

Industry trends pose concerns

The earnings miss follows NetFlix Inc.'s quarterly report that came out last week. Though that company did see an uptick in earnings, it also reported a decline in average revenue per subscriber.

While the economy is no doubt playing a role in the figures, investors are now faced with some serious questions about the future of the movie rental business.

It had been previously believed that the recent demise of Movie Gallery Inc. would mean good things for companies like Coinstar and NetFlix, especially as Blockbuster - one of the few remaining "bricks-and-mortar" style businesses left in the industry - was also on the downhill slide. The lackluster numbers, however, raise concerns.

For its part, Blockbuster will release its second quarter results on Aug. 12, just one day before a forbearance agreement on the recently missed coupon payment is set to expire.

The Dallas-based movie rental chain has been attempting to work with bondholders to recapitalize its debt, but thus far, there has been no word on how talks are going. In the meantime, the bonds have been practically radio silent.

"Blockbuster has been completely kind of useless of late," a trader said. "It goes days without trading."

In his view, he said, Blockbuster was likely to be one that would "fade into oblivion...eventually."

Broad market mostly steady

Elsewhere in the world of distressed debt, Great Atlantic & Pacific Tea Co., Inc.'s 6¾% notes due 2012 ended around 53, according to a trader.

Another trader said General Motors Corp.'s 8 3/8% notes due 2033 were about half a point softer at 343/4.

The second trader also called Harrah's Entertainment Inc.'s 10% notes due 2018 unchanged around 841/2.

And, Nuveen Investments Inc.'s 10½% notes due 2015 were also seen holding steady at 981/2.

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