RadioShack notes slide though DIP approved; oil, coal names busy; Fortescue paper pressured

By Paul Deckelman

New York, March 6 – Distressed bonds were seen generally easier on Friday, in line with a downturn in the larger junk bond market – which in turn took its cues from the bloodletting on Wall Street in both the stock and Treasury markets that occurred after a stronger-than-expected February non-farm payrolls figure sparked investor fears that the positive economic indicator would push central bank policymakers to raise interest rates sooner rather than later.

Among specific names, RadioShack Corp.’s already-battered bonds fell several points further, into single-digit territory, despite seemingly good news – the bankruptcy court overseeing the faltering consumer electronics retailer’s reorganization gave final approval to the company’s $285.33 million debtor-in-possession facility that will provide operating cash while RadioShack dismantles its far-flung empire of more than 4,000 stores in the United States.

There was activity in the energy sector, including names like Energy XXI Gulf Coast, Inc., whose existing bonds lost ground in the wake of the company’s big new junk bond deal, and Halcon Resources Corp.

In the coal space, Cliffs Natural Resources Inc.’s bonds were actively traded, and traders also saw markets in sector peers such as Alpha Natural Resources, Inc. and Arch Coal, Inc.

Australian resources company Fortescue Metals Group’s $7.39 billion bank loan debt, which launched at a Friday bank meeting, was putting pressure on the company’s existing term loan paper, as well as its junk bonds.

RadioShack in retreat

A trader said RadioShack’s 6¾% notes due 2019 “had a large percentage move,” down 2 3/8 points to 9 1/8 bid.

“They didn’t trade a ton – but that’s a big move, isn’t it?” he asked rhetorically.

He noted that the drop came even in the wake of the news that the bankrupt Fort Worth, Texas-based consumer electronics chain retailer plans to sell more leases of its stores as part of its bankruptcy and received final court approval of a $285.33 million debtor-in-possession facility.

“It looks like it’s good news – but yet the bonds traded down something like 30%,” he said.

According to an order filed Friday with the U.S. Bankruptcy Court in Wilmington, Del., which is overseeing the company’s restructuring, the DIP facility includes a rollup of the company’s prepetition revolving credit facility, letters of credit and first-in, last-out facility and will also provide up to $20 million of incremental borrowing capacity.

The company, which filed for Chapter 11 protection from its creditors on Feb. 5, will pay interest on the facility at Libor plus 650 basis points, with a 1% Libor floor. The DIP loan will mature on the earlier of one year after the entry of a final order approving the DIP financing and the effective date of a Chapter 11 plan.

Cantor Fitzgerald Securities is the administrative and collateral agent.

RadioShack has more than $1.387 billion of liabilities against $1.2 billion of assets.

The 94-year-old company hopes to sell between 1,500 and 2,400 of its more than 4,000 stores in the United States, with the remainder slated for closing.

Energy credits active

World crude oil had another down day on Friday, with the April contract for the benchmark U.S. crude oil grade, West Texas Intermediate, down 98 cents, or 1.93%, in trading on the New York Mercantile Exchange, finishing the session at $49.76 per barrel.

Among the energy credits, in the wake of Energy XXI’s big new deal, the Houston-based E&P company’s existing 6 7/8% notes due 2024 were unchanged at 47 bid, while its 7½% notes due 2021 “were very active,” a trader said, finishing down ¼ point at 47¼ on volume of over $10 million.

Halcon Resources’s 9¾% notes due 2020 were among the most active junk credits on the day with almost $20 million changing hands.

A trader saw the Houston-based E&P company’s notes trading down 1¼ points on the day, closing at 73¾ bid, while its 8 7/8% notes due 2021 were “quite less active,” down 1 point to 72 7/8 bid, on “a couple of trades.” There was just a single trade in its 9¼% notes due 2022, which went home unchanged at 73 bid.

Elsewhere in the energy patch, a trader said, Quicksilver Resources Inc.’s 9 1/8% notes due 2019 were up ¾ point to 13¾, although the trader saw just a single round-lot trade in the Fort Worth-based independent oil and gas exploration and production company’s notes.

He saw more activity in the company’s 11% notes due 2021, calling them up around 1 point on the day at 14 bid.

Goodrich Petroleum Corp.’s 8 7/8% notes due 2019 were down 1 point at 15½ bid. A trader said there was only one trade in the Houston-based energy company’s paper.

In the coal space, a trader saw “a bunch of trades” in Arch Coal’s various bonds.

He saw the St. Louis-based coal company’s 7% notes due 2019 trading at 27 bid, “down 1¾ points over the last day.”

He saw Arch’s 7¼% notes due 2021 also trading at 27, although he said that was only down about ¼ point from their recent levels.

The company’s 7¼% notes due 2020 were at 36 bid and were “a little more active,” with around half a dozen round-lot trades, taking the bonds up by ½ point.

He saw Bristol, Va.-based Alpha Natural Resources’ 6¼% notes due 2021 ending at 26½ bid, unchanged on the day, on “just a couple of [large] trades.”

Cliffs Natural Resources’ 4.8% notes due 2020 were the most active issue in the Cleveland-based coal and iron ore producer’s capital structure “by a long shot,” the trader said, with the company’s other bonds, in contrast, just seeing “a handful of trades.”

The 4.8s ended at 68½ bid, up 1½ points from their levels earlier in the week.

Among the company’s other paper, the 6¼% bonds due 2040 gained 2½ points to end at 64 bid on “a couple of trades,” its 5.90% notes due 2020 were down ½ point at 67 bid, again on just a couple of trades, while its 4 7/8% notes due 2021 were unchanged at 70 bid. Cliffs’ 5.95% notes due 2018 were ½ point lower at 84½ bid, “on just a handful of trades.”

Fortescue paper pressured

Australian resources company Fortescue Metals Group held a bank meeting Friday morning to roll out about $7.39 billion of bank loan debt, according to a market source – putting pressure on both its junk bonds and its existing bank paper.

Fortescue’s 6 7/8% notes due 2022 slid by more than 2 points on the day to 81¼ bid on volume of more than $17 million.

Its 8¼% notes due 2019 lost 1 5/8 points to end at 95¾ bid on volume of over $12 million.

In the bank debt market, Fortescue’s existing loans were trading off, according to a trader who said that the negative price moves may reflect apprehensions on the part of investors that the new deal won’t get done.

Fortescue’s existing loan was at 93 bid, 93¾ offered on Friday, the trader said, adding that elsewhere it was seen trading in the 92s.

The existing loan was as high as 95½ bid on Thursday, the source added.

Prior to the announcement of the new deal, the existing loan was in the high 80s “and it rose with the tide,” the source added.

The new bank debt deal, which is being led by Credit Suisse Securities (USA) LLC, is comprised of a new $2.5 billion seven-year senior secured term loan and a $4,888,000,000 tack-on that will extend its existing term loan due June 30, 2019 to a seven-year maturity.

Some accounts that are in the existing paper and are being invited to roll into the new seven-year deal may have maturity constraints, despite the fact that the new paper is not expected to be out there too long in any case, the trader said.

Both tranches are talked with 425 to 450 basis points Libor spreads and 1% Libor floors.

The new term loan is talked at 99. Investors will roll into the extension at par, and receive a 25 bps fee.

“Essentially it’s 5¼% at 99,” said the trader. “Some people are wondering if that price captures the risk and wondering whether it’s realistic to bring another $2.5 billion.”

Commitments for the tack-on are due on March 13. Commitments for the new loan are due on March 18.

Proceeds will be used to extend the term loan maturity and refinance senior unsecured notes.

-Paul A. Harris and Caroline Salls contributed to this review.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.