Distressed energy bonds lead market downward; Toys ‘R’ Us improves on forecast, restructuring news

By Stephanie N. Rotondo

Seattle, Feb. 2 – The distressed bond market “got shot to hell,” a trader said Tuesday, as the broader markets fell in tandem with declining oil prices.

Further pressuring the markets were fresh earnings from oil giants Exxon Mobil and BP plc. Such larger oil producers have been holding up better than their sector peers as oil prices have plummeted, but the latest quarterly results showed a $3.3 billion loss for BP and a 58% decline in profit for Exxon.

Domestic crude oil fell 5.34% on Tuesday, ending sub-$30 a barrel.

Oil’s decline and the weak earnings from BP and Exxon didn’t do much to help distressed oil producers either.

A trader said Energy Transfer Partners LP’s 5 7/8% notes due 2024 lost 2¼ points, ending at 74¼. EP Energy Corp.’s 9 3/8% notes due 2020 were meantime off 4 points to 38.

In Whiting Petroleum Corp. paper, the 5% notes due 2019 weakened 4½ points to 60½, as the 6¼% notes due 2023 dropped 2½ points to 59.

Energy XXI Ltd. saw its debt losing ground as well. The 7½% notes due 2021 slipped nearly a point to 3. The 9¼% notes due 2017 also closed a 3, a decline of 3 points.

While the distressed space was trending lower, led by the energy arena, Toys “R” Us Inc. was an outlier for the day. Its debt improved significantly after the company released higher expectations for its fiscal year and also said that it was working with advisers to deal with its capital structure.

Toys hires advisers

Toys “R” Us’ term loan B-4 jumped to 80 bid, 83 offered from 77 bid, 79 offered following the company’s disclosure that it has commenced a process to refinance its capital structure, a trader remarked.

In the bonds, a trader saw the 8½% notes due 2017 gaining 3 points to 95½, on “a handful of trades.”

Another market source pegged the 7 3/8% notes due 2018 at 74 bid, up 9 points.

“Toy bonds were a bit better,” yet another trader said, seeing the 8½% notes climbing 3 points to 95.

In a statement out Tuesday, the company said that it is working with BofA Merrill Lynch, Goldman Sachs and Lazard to assist in the refinancing process.

In the news release, the company also disclosed that adjusted EBITDA for the fiscal year ended Jan. 30 is expected to be about $780 million, an improvement of 21% from the prior year’s reported adjusted EBITDA of $642 million.

Same-store sales were up 2% during the holiday season.

The refinancing process is underway “in light of the positive business momentum reflected in the estimated financial results for the fiscal year,” the release added.

Though leverage is still on the high side at over 7x and over $1 billion in debt maturing in 2017, Gimme Credit LLC analyst Kim Noland said things were looking up for the retailer in an afternoon comment published Tuesday.

“Importantly, management said it will begin to address a capital structure refi in the first half of this year and the outlook is more positive given the decent holiday performance,” she wrote.

Toys “R” Us is a Wayne, N.J.-based toy and baby products retailer.

Sara Rosenberg contributed to this article.

© 2015 Prospect News.
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