Distressed liquidity constrained ahead of Fed minutes; Toys "R" Us posts wider loss, bonds dip

By Stephanie N. Rotondo

Phoenix, Dec. 18 - There were "no real monster trades" in the distressed debt market on Wednesday, as investors waited to see what minutes from the latest Federal Reserve meeting would indicated.

Around mid-afternoon, the central bank announced that it had modestly reduced its bond repurchase program, cutting its monthly buys to $75 billion from $85 billion. The Fed cited a slowly improving economy, specifically an uptick in jobs. Additional tapering is expected to take place come 2014, though Ben Bernanke, chairman of the Fed, said in a news conference that the program would more likely be wound down by the end of 2014, not by mid-year.

Additionally, the Fed maintained that interest rates will be low for the foreseeable future, perhaps even longer than anticipated.

As for the day's distressed dealings, Toys "R" Us Inc. reported a wider loss late Tuesday. Come the midweek session, the retailer's debt was dropping significantly, with traders seeing the bonds off as much as 7 points.

Away from that, distressed investors remained focused on the typical "go-to" names.

A trader said Caesars Entertainment Corp.'s 10% notes due 2018 were on the active side, rising half a point to 45. Another market source said the issue was up over a point at 45¼ bid.

NII Holdings Inc. was meantime mixed. A trader saw the 10% notes due 2016 falling slightly to 491/2, but the 8 7/8% notes due 2019 pushed up 1¼ points to 401/4.

The 7 5/8% notes due 2021 were also higher, ending up half a point at 38.

Toy earnings disappoint

Toys "R" Us reported third quarter earnings late Tuesday, showing a much wider loss than the year-ago period.

On the news, the bonds were on the decline. A trader said the 10 3/8% notes due 2017 took a fair beating, falling 7 points to 86.

The issue had traded around 93 on Tuesday, he said.

The 7 3/8% notes due 2018 were also weaker, the trader said, though by much less. He deemed the debt down just over a point at 733/4.

Another market source pegged the 7 3/8% notes at 73½ bid, calling that down 5 points on the day.

For the quarter ended Nov. 2, the retailer said same-store sales dropped 5.2% in the United States and 3% abroad. Net sales came in 4.5% lower at $2.49 billion.

Gross margin dipped to 36% from 37.1%.

Net loss was $605 million, versus a loss of $105 million the year before.

The wider loss was attributed in part to an income tax expense, while the year before had represented a tax benefit.

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