Caesars bonds stay under pressure; Toys 'R' Us debt climbing higher; coal names gaining ground

By Stephanie N. Rotondo

Phoenix, May 8 - Though one bond trader said that "all the trading was new issue-driven" on Thursday, Caesars Entertainment Corp. remained quite active.

The bonds dominated Wednesday trading following the announcement of a recapitalization plan late Tuesday. The debt was mostly weaker on the news and that trend continued into Thursday's session.

Toys 'R' Us Inc. meantime also stayed active - and better - on the heels of an investor conference call on Wednesday. Though there has been no word on what was said during the call, the company's bonds have been heading into higher territory.

Even the coal sector was stronger during the session, despite a rating downgrade for Arch Coal Inc. from Fitch Ratings.

Among already bankrupt companies, Homex Desalladora SAB de CV's 9¾% notes due 2020 were on the active side, but unchanged at 10.95, according to a trader.

The trader also saw Energy Future Holdings Corp.'s 15% notes due 2021 - an issue linked to Texas Competitive Electric Holdings Co. LLC - rising 1¾ points to 311/4.

Caesars stays weak

Caesars debt "continued to trade down a wee bit," a trader said Thursday.

He noted that there was "quite a bit of activity in the name."

He saw the 8½% notes due 2020 losing 4½ points to end around 761/2. The 9% notes due 2020 were off 3½ points to 77 and change, he said.

A second tranche of the 9% notes were down only half a point to 79.

The 11¼% notes due 2017 were then seen at 89 5/8, down 1 3/8 from the previous session. And the 10¾% notes due 2016 dropped 1¾ points to 911/4.

The trader noted that the 10% notes due 2018 were up a quarter-point to 45. However, another market source called the issue down a deuce, also at 45.

Late Tuesday, the Las Vegas-based casino operator announced the recapitalization plan late Tuesday. Under the plan, Caesars Entertainment Operating Co. sold a 5% equity stake to institutional investors. The operating company will also secure a new $1.75 billion first-lien term loan, which will be used to redeem 2015 maturities and to repay existing bank debt.

As such, the company also announced a tender offer for the 5 5/8% and 10% notes due 2015.

As for the equity sale, in doing so the parent company released its guarantee of the operating company bonds. That means that bondholders can no longer place a claim against the parent company's assets in the event of a restructuring. It could also give them less bargaining power in a restructuring.

Bondholders are already decrying the company's sale of four properties to its Caesars Growth Partners affiliate - another important feature of the recapitalization plan - alleging that it is a fraudulent transfer that strips assets from the operating company.

The bondholders also claim that the operating company is insolvent.

Caesars then released earnings for the first quarter of 2013 on Wednesday.

At the parent company level, casino revenues fell 8.6% to $1.36 billion. Net revenues were down 1.9% to $2.1 billion.

Net loss was $386.4 million, or $2.82 per share. That compared to a net loss of $217.6 million, or $1.74 per share, the year before.

As for the operating company, net revenues dropped 10.9% to $1.44 billion. Net loss was $492.9 million, versus $254.2 million the year before.

Those figures did not take into account the operating company's continued involvement with the LINQ and Octavius Towers at Caesars Palace.

More gains for Toys

Toys 'R' Us paper continued to climb higher following an investor call on Wednesday.

One trader said the 7 3/8% notes due 2018 rose nearly 3 points to 721/4. Another trader pegged the debt in the low-70s.

A third market source saw the notes at 721/4, up 4¼ points on the day.

Wednesday's call was aimed at discussing the latest quarterly results from the Wayne, N.J.-based toy retailer. There has not been any word on what was said during the call.

Coal space bounces off lows

A trader said that "coal bonds seemed to catch a bid from recent lows."

That included Arch Coal's bonds, even though the company received a rating downgrade from Fitch on Thursday.

The trader saw the 7% notes due 2019 at 80, up half a point. The 7¼% notes due 2021 were a point better at 773/4.

The trader also saw Alpha Natural Resources Inc.'s 6¼% notes due 2021 rising a point to 78.

Another source called the Alpha issue up 1¼ points at 78½ bid.

Fitch downgraded arch Coal to CCC from B- on Thursday, citing the expectation of continued weak earnings and cash burn. This was based on the belief that metallurgical coal prices will stay depressed.

Fannie, Freddie report earnings

Freddie Mac and Fannie Mae preferreds gyrated in Thursday trading as the agencies reported results for the first quarter.

Initially, the preferreds looked like they were going to firm up, given that the companies posted profits - albeit more modest profits, due to a generally weak housing market.

Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were up a nickel at $10.80 at mid-morning. By the close, they were off the same amount at $10.70.

Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were meantime seen steady at $10.23 early in the day. At the bell, paper was off 8 cents at $10.15.

For the quarter, Fannie reported net income of $5.3 billion. Its ninth straight quarterly profit, the quarter still underperformed that of 2013 when the company posted earnings of $58.7 billion.

As for Freddie, its net income was $4 billion, down from $4.6 billion the year before.

Because of its bailout agreement with the U.S. Treasury, Fannie and Freddie will be sending much of those profits to the taxpayer, to the tune of a combined $10.2 billion.

The payment will be made via a dividend in June. Both Fannie and Freddie have already repaid the funds borrowed during the economic crisis and these payments will result in a profit of about $26 billion for the government.

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