Gymboree, Toys ‘R’ Us stay strong post-earnings; iPayment downgraded, but debt ends higher

By Stephanie N. Rotondo

Phoenix, June 13 – Distressed bonds were firm as the week came to a close.

The Gymboree Corp. and Toys ‘R’ Us Inc. remained topical, just one day after the companies reported quarterly results. Though both posted wider losses, the bonds rose in the previous session and continued to do so on Friday.

Even iPayment Inc. paper moved into higher territory, despite a rating downgrade from Standard & Poor’s.

While the market had a generally positive tone, a trader said liquidity was a bit muted. He attributed the lack of activity to it being a Friday, as well as to the U.S. Open and the World Cup.

“There’s not a lot of [people] paying attention,” he said.

Gymboree strong

Gymboree’s 9 1/8% notes due 2018 remained strong Friday, just one day after the company reported first-quarter earnings.

“They were trading around a good bit today,” a trader said, seeing the issue at “plus/minus” 73.

“That’s up a little bit more,” he said.

Another market source pegged the notes in a 73 to 74 context, which compared to Thursday’s closing levels in a 71½ to 72½ range.

For the first fiscal quarter ended May 3, the San Francisco-based retailer reported net sales of $272 million, down from $292.8 million the year before. Same-store sales were meantime down 10%, including online sales.

Net loss was $13.4 million, which compared to a loss of $2.5 million for the same quarter of fiscal 2013.

During the quarter, the company burned through $14.6 million of cash, leaving it with $24.8 million in its coffers.

The company also had $128 million available under its various credit facilities.

Gymboree also provided guidance for fiscal 2014, stating that it expects adjusted EBITDA to stay relatively in line with that seen for the whole of fiscal 2013. The company also said it believed it had sufficient liquidity for the year.

Over the course of the year, Gymboree plans to open about 50 new stores, while shuttering 25 to 30 other stores. Capital expenditures are expected to be in the range of $35 million to $40 million.

Toys ‘R’ Us rises

Toys ‘R’ Us debt was also gaining strength, though one trader noted that the name was “not trading that much.”

He saw the 7 3/8% notes due 2018 around 78 and the 10 3/8% notes due 2017 in an 86 to 87 ZIP code.

A second source placed the 7 3/8% notes around 78, versus around 74 previously. The 10 3/8% notes meantime moved up to 87 from 84.

For the quarter ended May 3, the Wayne, N.J.-based toy retailer posted consolidated net sales of $2.5 billion, a 2.9% gain year over year. Domestic same-store sales rose 4%, while international sales increased 1%.

Net loss was $96 million, versus a loss of $111 million the year before.

At the end of the quarter, the company had $1.5 billion of liquidity, including $372 million of cash and equivalents and $1.1 billion available under a committed line of credit.

iPayment downgraded

iPayment’s 10¼% notes due 2018 managed to firm up, even as S&P downgraded the company.

A market source quoted the issue at 79 bid, 79¼ offered, up from 78¾ as of Thursday’s close.

S&P dropped the New York-based credit and debit card payment processing company’s credit rating to CCC from B-.

The outlook is negative.

The ratings agency said the downgrade was due to weak liquidity. There were also concerns about its senior secured leverage covenant.

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