RadioShack bonds expected to dip Tuesday following numbers; MF Global weakens in light trading

By Stephanie N. Rotondo

Portland, Ore., Jan. 30 - A "very skittish equity market" resulted in "lackluster" trading for distressed debt, a trader said Monday.

"There was no real volume," the trader said. "It was a very lackluster day, even for new issues."

Another trader said the day was a weak one and that "even new issues were struggling a bit."

The real news came after the bell, when RadioShack Corp. released preliminary fourth-quarter results.

"The numbers sucked," a trader remarked. As such, he expected the bonds to fall come Tuesday, though they were relatively steady on the day.

Meanwhile, MF Global Holdings Ltd.'s debt got pushed down following a news report that indicated the company might have misled ratings agencies about its financial standing just days before the company was forced to file for bankruptcy. But even that news did not result in overly active trading.

And, NewPage Corp. was moderately active, given the overall subdued feel of the day. However, traders could not agree on whether the bonds were better or worse.

RadioShack declines expected

RadioShack, the Fort Worth-based purveyor of electronics, released preliminary fourth-quarter results after the market closed Monday and the dismal figures had market sources speculating that big losses were going to come on Tuesday.

"Looks like those are going to go down," a trader said after viewing the results. He noted that the stock was down "a couple bucks" in after-market dealings.

The stock (NYSE: RSH) fell $1.98, or 19.35%, after the market closed, trading around $8.25.

"I expect those bonds will go down a bit [come Tuesday]," another trader said, pegging the 6¾% notes due 2019 at 88½ bid, 89 offered.

For the quarter ending Dec. 31, RadioShack's unaudited results showed total net sales and operating revenues gaining 6% to $1.39 billion. Same-store sales were up about 2%.

Earnings per share were expected to be between 11 cents per share and 13 cents per share.

The real bad news was that gross margins were on the decline. RadioShack attributed the decrease to "a shift in mix within mobility sales towards certain lower margin smartphones and mobile devices; a higher percentage of mobility sales in the overall revenue mix, largely driven by the company's expansion of Target mobile centers; and the impact of a more promotional holiday season," according to a press release.

The company also pointed to the "underperformance" of Sprint Nextel Corp.'s postpaid wireless business and further "unanticipated" changes in Sprint's customer and credit models.

RadioShack ended the quarter with about $590 million of cash and equivalents, up from $569 million the year before. There was also $421 million available under its $450 million revolving credit facility.

Final results will be reported Feb. 21.

MF action muted, bonds dip

MF Global's 6¼% notes due 2016 fell a couple points to 33½ according to a trader.

However, the trader noted that there was "only one trade" in the name.

Another trader also said that "just a small amount traded," albeit lower around the 33 level.

Bloomberg reported Monday that e-mails sent to Standard & Poor's one week before the New York-based futures broker filed for Chapter 11 protections indicated that the company had "never been stronger." The e-mail was sent to the rating agency by Henri Steenkamp, MF Global's chief financial officer.

S&P provided the e-mails and other information to House Financial Services Subcommittee on Oversight and Investigations. The information also indicated that former head Jon Corzine had met with the agency on Oct. 20 - 11 days before the bankruptcy filing - to reassure them that his over $6 billion bet on European sovereign debt was not going to harm the company.

The panel will next investigate the role of the ratings agencies and its part in the downfall of MF Global.

Traders mixed on NewPage

A trader said NewPage's 11 3/8% first-lien notes due 2014 were "stronger" at 66 bid, 67 offered.

But another trader called the debt weaker at 65 bid, 66 offered.

The second trader noted that there was a late-day print around 66, but added that "most of the activity had a 5-handle on it."

There was no fresh news out on the bankrupt Miamisburg, Ohio-based papermaker.

American Airlines wins big

A trader said that American Airlines Inc.'s 2001-1 enhanced equipment trust certificates "was a big, big story today."

He said that the Fort Worth, Tex.-based airline - which, with its corporate parent, AMR Corp., slid in bankruptcy at the end of November in order to get out from unsustainable debt and labor obligations - "affirmed this deal [as part of the bankruptcy process] - it was expected to be rejected since it's all MD collateral." - i.e, the notes are secured by its older McDonnell-Douglas aircraft.

He said that the A tranche in the deal, its 8.61977% certificates, moved up to 78-80, while the B tranche 7.377% paper, "traded up to 60 at one point, before fading a little bit." Even so, he said that tranche went home at 56-58, which he said was up 35 points on the session.

Hawker flies higher

Elsewhere in the airline and aircraft arena, a market source saw Wichita, Kan.-based aircraft manufacturer Hawker Beechcraft's 9¾% notes due 2017 was among the more active junk bonds traded, with round-lot turnover of over $10 million. Those bonds went out at 13 bid, up about 2 points on the session and three points from the last previous sizable trading, around mid-month.

A trader said its 8½% notes due 2015 and 8 7/8% notes due 2015 were both trading at 27 bid, "but it was only $1 million each."

He saw the 9 3/4s at 13.

He called that "no big change on any of them, and the volume wasn't huge."

The first market source said that there was only limited volume in the two 2015 issues, although the 81/2s were quoted up by several points at 27; however, there had been no recent large-size trading those quotes could be compared to.

The company, which makes business jets, is trying to cope with a sales slowdown due to the still-sluggish economy.

It's military division, meanwhile, recently took the Pentagon to court over the Air Force's decision to exclude Hawker from bidding on a contract for light-attack aircraft, instead awarding the billion-dollar job to the only other eligible company, Brazilian plane-maker Embraer.

Broad market mostly soft

In the rest of the distressed universe, a trader said Dynegy Holdings LLC's 8 3/8% notes due 2016 were "up a little bit" at 60½ bid, 61 offered.

Another trader said that ATP Oil & Gas Corp.'s 11 5/8% notes due 2015 were "down a bit" at 64 bid, 65 offered.

A third trader saw Caesars Entertainment Corp.'s 10% notes due 2018 falling to levels around 76, versus Friday levels of 77½ bid, 78 offered.

Paul Deckelman contributed to this article

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