Distressed market muted at quarter-end; Momentive unit posts earnings; Toys 'R' Us stays weak

By Stephanie N. Rotondo

Phoenix, March 31 - It was a subdued day for the distressed debt market on Monday, which traders attributed to it being month- and quarter-end.

"There's just not a ton going on," one trader said.

Momentive Performance Materials Inc., however, was on the active side and better after the company's Momentive Specialty Chemicals Inc. subsidiary reported earnings. Toys 'R' Us Corp.'s debt meantime continued to weaken, following the company's dismal earnings report last week.

Elsewhere in the distressed space, iPayment Inc.'s 10¼% notes due 2018 inched up half a point to 771/4.

The company released numbers last week that were better than expected.

The recently bankrupt Global Geophysical Services Inc. saw its 10½% notes due 2017 rise half a point as well to end around 621/2.

Momentive unit's loss balloons

Momentive Performance's Momentive Specialty Chemicals subsidiary - the unit formerly known as Hexion Specialty Chemicals Inc. - reported results for the fourth quarter on Monday.

In response, the company's debt was moving higher.

One trader said the 8 7/8% and 10% notes due 2020 were holding in around 1081/2, though the 9% notes due 2020 were a bit better around 80.

He noted that the latter issue was "down a little bit initially," trading around 79.

Another trader saw the 8 7/8% notes at 108 7/8 and the 9% notes around 80.

He called the 9% notes up a deuce.

In the fourth quarter, Momentive Specialty's total revenues increased 11% to $1.2 billion. However, net loss swelled to $526 million from $11 million the year before.

As of Dec. 31, the unit's debt had increased to $3.8 billion from $3.5 billion. Liquidity was $773 million.

Toys 'R' Us' notes weaken

Toys 'R' Us' bonds remained under pressure as investors continued to react negatively to the company's earnings release on Wednesday.

A trader saw the 7 3/8% notes due 2018 falling over half a point to 80.

Another trader said the debt "continued to be a little bit weaker," seeing the paper fall "about a point" to a 79 to 80 context.

A third market source pegged the issue at 79¾ bid, down over a point.

During the quarter ending Feb. 1 that included the ever-important holiday selling season, same-store sales dropped 4.1% domestically and 2.2% internationally, the company said in its earnings release.

Net sales were down 8.7% to $5.27 billion.

Net loss was $210 million, which compared to a net profit of $239 million the year before. The company said the loss was due in part to a $378 million goodwill impairment charge and a $296 million decline in gross margin dollars, which included a $52 million domestic inventory writedown.

Gross margin fell to 31.8% from 34.1%.

On the positive side, income tax expense fell to $12 million from $212 million. The company also noted that it cut its long-term debt by $322 million in 2013 and that it had amended its $1.85 billion secured revolver to extend the maturity date to 2019.

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