Toys ‘R’ Us firms as debt called; coal, mining sectors remain under pressure; Nortel bonds dip

By Stephanie N. Rotondo

Phoenix, Sept. 24 – The distressed debt market was once again soft, even as the equity markets rallied.

“A lot of stuff was down today,” one trader said. “[Things] definitely feel better for sale.”

“There were not a ton of winners today,” another trader said.

Toys ‘R’ Us Inc.’s debt was topical after the company announced it was calling its 7 3/8% notes due 2016. The bonds were mostly better on the day.

Elsewhere, the mining sector as a whole was also on the softer side, though on no fresh news.

And, Nortel Networks Corp. is currently in process of giving closing arguments as bankruptcy judges in Canada and the U.S. look to divide the company’s remaining assets. With the hearings ongoing, the bonds were weaker in midweek trading, according to a trader.

Toys ‘R’ Us calls debt

Late Tuesday, Wayne, N.J.-based Toys ‘R’ Us announced that it was redeeming its $350 million of 7 3/8% senior secured notes due 2016 on Oct. 24.

Come Wednesday, the name was being actively traded.

One trader said the 7 3/8% notes put on 1¼ points to close at par ¼, with about $30 million bonds changing hands. Another $40 million “or so” of the 10 3/8% notes due 2017 moved, with the trader calling the paper up a deuce at 83.

The trader also saw the 7 3/8% notes due 2018 ending around 68½, on about $20 million traded.

Another trader also placed the 2016 maturity at “par-ish and a quarter.” He said “the other [issues] were pretty active,” as well. But he said the bonds were down, though they had recovered from their lows around 81 to close around 83.

The trader said the 2016 notes were trading up to around the call price – 101.844 plus accrued interest – as there was “some risk of the deal actually getting done.”

Toys ‘R’ Us also said Tuesday that it was seeking up to $1.38 billion of new secured term loans. Part of the proceeds from the new financing will fund the redemption.

Elsewhere in the world of retail, Gymboree Corp.’s 9 1/8% notes due 2018 were seen off a quarter-point at 31¾.

Coal, mining decline

Mining companies – whether they be coal or other commodities – have been sliding for a few weeks, as concerns have risen about demand for coal and for steel.

However, there has been very little credit-specific news to move names around.

A trader saw MolyCorp Inc.’s 10% notes due 2020 falling “just about 5 points” to 75, a level echoed at another desk.

The first trader also noted that Cliff’s Natural Resources Inc.’s paper “fell off a cliff,” seeing the 4.8% notes due 2020 weaken 2½ points to 83¼. The 5.9% notes due 2020 dropped 2 points to 89½ and the 6¼% notes due 2040 declined 1½ points to 77.

But Quicksilver Resources Inc.’s 7 1/8% notes due 2016 “had a nice rebound,” a trader said, pegging the notes at 42, a 2-point gain day over day.

In the coal arena, Walter Energy Inc.’s 9½% notes due 2019 were deemed unchanged at two desks, with both sources seeing the bonds with a 91 handle.

Alpha Natural Resources Inc.’s 6¼% notes due 2021 “bounced a little bit” as well, a trader said.

He placed the debt at 61¾, up a quarter-point.

But Arch Coal Inc.’s 7% notes due 2019 followed the sector’s latest downward trend, sliding 4 points in a single trade to end around 58½.

Nortel notches down

A trader said Nortel Networks’ 10¾% notes due 2016 were weaker as the company’s bankruptcy court case winded down.

He saw the issue at 13½.

The Canadian and U.S. bankruptcy courts have been hearing closing arguments this week via video link. The final arguments are centered around how to divvy up $7.3 billion in remaining assets.

The now defunct telecommunications company has been under Chapter 11 protection since January 2009.

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