Quiksilver rebounds; RadioShack slips; J.C. Penney rises ahead of credit facility launch

By Stephanie N. Rotondo

Phoenix, June 4 - The distressed debt market was mixed in Wednesday trading, and one trader commented that there was "a little bit more volume today."

Quiksilver Inc. was notable once gain, as the company's debt rallied after taking a beating on Tuesday on the back of disappointing earnings. One trader opined that the rebound was due to the losses being overdone.

Elsewhere, RadioShack Corp.'s recent run-up came to a halt Wednesday. The company held its annual shareholders meeting on Tuesday and said that it was continuing to negotiate with lenders regarding its plans to close underperforming stores.

Also in the retail space, J.C. Penney Co. Inc. paper remained busy ahead of the company's launch of a new credit facility on Thursday.

Quiksilver rebounds

Quiksilver debt was the day's "big winner," a trader said, just one day after the company's bonds took a pretty serious hit.

The trader saw the 10% notes due 2020 gaining "almost 4 points" to end at 104 3/8.

The bonds had fallen as much as 14 points in the previous session following the company's earnings release late Monday.

Another trader called the issue up 4 points at 104.

"That one definitely rebounded," he said. "Some guys probably looked at it and said [the losses] got overdone."

Even the stock (NYSE: ZQK) rallied a bit, closing up 8 cents, or 2.35%, at $3.49.

The stock ended Tuesday down over 41%.

Late Monday, the Huntington Beach, Calif.-based clothing manufacturer reported second-quarter earnings that were less than stellar, causing investors to question a plan to increase profitability that was unveiled last year.

For the second quarter, Quiksilver reported a net loss of $53.1 million, or 27 cents per share. That compared to a loss of $32.4 million, or 20 cents per share, the year before.

Revenues fell 11% to $408 million.

Analysts were expecting a loss of 2 cents per share on revenues of $448.8 million.

Total wholesale revenue was down 15%, but e-commerce sales increased 23%.

The company is making moves to cut costs and focus on its core brands in an effort to increase its bottom line. However, given the quarter's dismal results, the company said it would take longer to realize its goal.

RadioShack retreats

RadioShack's 6¾% notes due 2019 retreated on Wednesday, just one day after the company's annual shareholders meeting.

"[The bonds] were a little bit weaker after that big run up," a trader said, seeing the notes dip to 48 from levels around 50 previously.

At its annual meeting on Tuesday, the Fort Worth-based electronics retailer said that it hoped to overcome an "impasse" with lenders regarding its plan to shutter 1,100 stores in the next year. Lenders have vetoed that plan, which violates certain covenants governing its debt.

As such, the company said it is currently moving ahead with plans to close 200 stores per year for the next three years.

However, Joseph Magnacca, chief executive officer, said that he is in "almost daily" conversations with lenders in the hopes a compromise can be reached.

Magnacca also said that the company is in talks with landlords in an effort to reduce rents.

J.C. Penney set to launch facility

Among other retailers, J.C. Penney "continued to be pretty active," according to a trader.

He saw the 7.4% notes due 2037 ending at 84½ and the 6 7/8% notes due 2015 - which he said had "a lot of volume" - in a 101½ to 101¾ range.

Another trader said the 7.4% notes were up half a point at 841/2, while the 6 7/8% notes were unchanged at 1013/4.

Another market source deemed the 5.65% notes due 2020 off a point at 861/4.

The Plano, Texas-based retailer is launching a new $2.35 billion credit facility on Thursday. It is expected to consist of a $500 million term loan and a $1.85 billion asset-based revolver.

Proceeds will go toward refinancing an existing credit facility and for general corporate purposes.

Bank of America Merrill Lynch, Wells Fargo Securities, LLC, J.P. Morgan Securities LLC, Barclays and Goldman Sachs Bank USA are the lead banks on the deal, with Bank of America the left lead on the term loan and Wells Fargo the left lead on the revolver.

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