Men’s Wearhouse plagued; iHeart debt wanes; Hexion firms post-numbers; Mallinckrodt drops

By Stephanie N. Rotondo

Seattle, Nov. 9 – It was a “slow Monday” in the distressed debt market, a trader reported, but that did not stop investors from continuing to pressure recently topical names.

The Men’s Wearhouse Inc.’s debt remained under pressure Monday. Late last week, the company released preliminary quarterly results for its Jos. A. Bank brand, which were disappointing enough to push the company’s debt down by as much as 15 points on Friday.

Come Monday, the bonds drifted down a few more points, according to traders.

iHeartMedia Inc.’s paper was also softer again. Those bonds have been dropping ever since the San Antonio-based multimedia company reported earnings on Thursday.

However, not all earnings seemed to displease investors.

Hexion Inc. reported its results on Monday, showing a profit for the first time in three years. In response, the company’s debt improved as much as 3 to 4 points.

Away from earnings, Mallinckrodt plc bonds took a beating as Citron Research – the short-seller that was behind Valeant Pharmaceuticals International Inc.’s recent rout – said the drugmaker had “significantly more downside” than Valeant.

Men’s Wearhouse remains weak

The Men’s Wearhouse bonds were “down again,” a trader said Monday.

He saw the 7% notes due 2022 closing around 84.

Another trader said the issue was “very active,” falling nearly 3 points to 85¾.

The company reported preliminary results for its Jos. A. Bank brand late Thursday. In that update, the company also lowered it earnings per share forecast for the year.

In the third quarter, same-store sales at Jos. A. Bank declined by 14.6%, well below what the company had previously anticipated. The drop was blamed on a decline in traffic due to the company moving away from its “Buy One, Get Three Free” promotions.

Still, same-store sales at Men’s Wearhouse and K&G improved, by 5.3% and 3.7%, respectively.

The gains were attributed to higher transactions per store.

But as sales at Jos. A. Bank are expected to recede 20% to 25% in the current quarter, the company lowered its earnings per share forecast to 46 cents to 51 cents in the fourth quarter, down from 87 cents previously.

For the year, EPS is expected to be between $1.75 and $2.00, down from $2.70 to $2.90.

Men’s Wearhouse is scheduled to release its full quarterly report on Dec. 9.

iHeart limps along

iHeartMedia paper was once again weak, as investors remained concerned about the company’s latest quarterly results.

A trader said the 9% notes due 2021 “retreated” over 3 points to 71¾. The 9% notes due 2019 meantime slipped a point to 76¼.

iHeart reported third-quarter earnings on Thursday. For the quarter, consolidated revenue was about $1.58 billion, down from around $1.63 billion in the comparable quarter in 2014.

Operating income in the third quarter was roughly $267 million, down from about $347 million in the prior year, and net loss was about $222 million, compared to a net loss of around $115 million in the 2014 quarter.

Also, consolidated OIBDAN for the quarter was around $458 million, versus about $479 million last year.

Hexion rises

While many names have been declining in the wake of earnings of late, Hexion bonds got a boost from its numbers.

A trader said the 8 7/8% notes due 2018 rose 2½ points to 77.

A second trader said the issue was “somewhat active,” moving up 3 to 4 points to a 77 to 78 context.

For the quarter, the Columbus, Ohio-based manufacturer of resins and specialty coatings reported net income of $7 million. That compared to a loss of $26 million the year before.

The profit was the first seen since 2012.

Still, sales were down at $1.07 billion from $1.35 billion.

As of Sept. 30, total debt was $3.9 billion, up from $3.8 billion at the end of 2014. Liquidity was $562 million, including $187 million of cash and equivalents, $337 million under an asset-backed loan facility and $38 million available from time drafts and various credit facilities.

Mallinckrodt targeted

After taking Valeant Pharmaceuticals down, Citron Research has a new target: Mallinckrodt.

On Monday, Citron – led by shortseller Andrew Left – tweeted that “At these prices [Mallinckrodt] has signif [sic] more downside than [Valeant] – far worse offender of the [reimbursement system] – more to follow. [Valeant] can’t live in a vacuum.”

On the heels of the tweet, the 5½% notes due 2025 dropped “close to 10 points,” a trader said, ending around 82.

Mallinckrodt has previously been scrutinized for similar issues as Valeant, such as acquiring older drugs and then increasing the prices. Mallinckrodt does not have any stakes in specialty pharmaceutical companies but does have certain contractual agreements with such parties for its H.P. Acthar Gel.

In August, management said during a conference call that it was catching flack from some insurers over reimbursements for the gel and some other products.

Goodrich pops on exchange

Goodrich Petroleum Corp.’s preferred shares were gaining ground in response to word of an exchange offer.

The company announced the swap – 10% series E cumulative convertible preferred stock for all outstanding 5.375% series B cumulative convertible preferreds and up to 2.39 million shares each of the 10% series C cumulative preferreds and 9¾% series D cumulative preferreds – late Friday.

The Cs (NYSE: GDPPC) were up 65 cents, or 27.5%, at $3.03, while the Ds (NYSE: GDPPD) improved by 32 cents, or 13.33%, at $2.72.

The 5 3/8% convertible preferreds (OTCBB: GDPAN) increased 95 cents, or 35.19%, to $3.65.

For each of the series B preferreds exchanged, holders will receive 1.2 of the series E preferreds. Holders of the C and D preferreds can exchange their shares on a one-for-one basis.

The Houston-based oil and gas producer said the higher number of shares given to series B holders was due to the “current trading price and the higher liquidation preference.”

The series E convertible preferreds have a liquidation preference of $10.00 per share. The preferreds are convertible into common stock at an initial conversion price of $2.00 per share.

Goodrich hopes that the exchange will reduce its fixed dividend obligations, among other things.

The exchange offer expires at 5 p.m. ET on Dec. 8.

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