Energy Future bonds stay firm; Gymboree posts wider loss; Momentive DIP facility begins trading

By Stephanie N. Rotondo

Phoenix, April 30 - A distressed debt trader said that "everything was better" during mid-week trading.

The market might have gotten a bit of a boost from the Federal Reserve's statement following its monthly meeting. Citing an improved economy, the central bank trimmed its bond repurchase program by $10 billion to $45 billion.

The cut was the fourth consecutive decrease the Fed has made.

Of the day's dealings, a trader said Energy Future Holdings Corp.'s debt was active following the company's bankruptcy filing on Tuesday. For the most part, traders were seeing the name inching higher.

Gymboree Corp., however, took a hefty hit after the company reported fourth quarter and fiscal 2013 results shortly before the close.

Traders were calling the company's debt down 6 to 7 points.

TXU mostly firm

Energy Future Holdings' bonds remained on an upward tick Wednesday.

One trader said the Texas Competitive Electric Holdings Co. LLC 15% notes due 2021 were trading at 241/4, while the parent company's 10% senior notes due 2020 were pegged at 106 bid, 106½ offered.

Another trader said the 11¼% notes due 2017 were "definitely better," trading up in the high-90s. He said that was up 6 or 7 points from previous levels in the low-90s.

A third trader, however, presented more of a mixed picture.

He said the 10% notes were off half a point at 106, while the 15% notes dipped a quarter-point to 241/4. But the 10¼% notes due 2015 were up some to a 6 3/8 to 6 5/8 context.

Energy Future has been working with creditors for months to develop a plan that would not only speed along the bankruptcy process - given how large the debt structure is - but would also help the company avoid a large tax bill. Part of the plan will spin off the unregulated unit - which lenders will take ownership of in exchange for forgiving debt - allowing the parent company to avoid the tax liability.

However, that part of the plan is conditioned upon approval from the Internal Revenue Service.

Bondholders will then receive majority ownership in the Energy Future that remains post-spinoff. They will also receive some cash.

The company hopes to complete the bankruptcy process within 11 months.

Gymboree takes a beating

Gymboree's 9 1/8% notes due 2018 tanked as the company reported earnings on Wednesday.

One trader deemed the issue down over 6 points at 751/2. Another trader echoed that level.

A third trader called the issue off 6 to 7 points on the day, seeing them at 75 bid, 76 offered.

"They were down a bunch," he said.

For the fourth quarter ended Feb. 2, the San Francisco-based children's clothing retailer reported net sales of $351 million, which compared to sale of $397.6 million for the same quarter of fiscal 2012. However, the previous quarter was positively impacted by an additional week, which resulted in an added $19 million.

Same-store sales fell 9%, including online sales.

Gross profit came to $124.5 million, versus $144.8 million the year before. Net loss was $169.8 million and included a $157.2 million non-cash goodwill and intangible asset impairment charge.

Net loss for the same quarter of fiscal 2012 $5.4 million.

Adjusted EBITDA was $25 million, versus $47.7 million previously.

For the fiscal year, net sales were $1.24 billion, down from $1.28 billion in fiscal 2012. Same-store sales dropped 6%.

Gross profit was $476 million, down from $481.4 million previously. The company reported a wider net loss of $206.4 million, which compared to $10.4 million in fiscal 2012.

Adjusted EBITDA narrowed to $119.7 million from $161.8 million.

Momentive DIP breaks

Momentive Performance Materials Inc.'s debtor-in-possession financing facility began trading, with the $300 million term loan quoted at 99 7/8 bid, par 3/8 offered, according to a trader.

Pricing on the term loan is Libor plus 325 bps with a 0.75% Libor floor and it was sold at an original issue discount of 991/2.

During syndication, the spread on the term loan was lowered from initial talk of Libor plus 400 bps and the Libor floor was trimmed from 1%.

The company's $570 million DIP facility also includes a $270 million asset-based revolver that is expected to be priced at Libor plus 275 bps.

J.P. Morgan Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs Bank USA and UBS Securities LLC are leading the deal that will be used by the Albany, N.Y.-based silicones and advanced materials company to help fund its Chapter 11 restructuring process.

As for the company's bonds, a trader said the debt "continued to move up."

He pegged the 9% notes due 2021 at 77¾ and the 11½% notes due 2016 at 30.

Fannie, Freddie fail test

A stress test designed to see how well Fannie Mae and Freddie Mac would fare in another economic downturn showed that the agencies would need about $190 billion of taxpayer funding to stay afloat in a worst-case scenario.

On the news, the mortgage backers saw their preferreds giving up ground.

Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) slipped 7 cents to $10.86, while Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) lost a dime to $10.30.

The test was designed to be similar to that given to banks and other financial institutions. However, a trader noted that the results were skewed, given that the government currently takes a majority of the agencies' earnings per quarter, leaving them very little to build up any kind of liquidity cushion.

In a more moderate scenario, in which modest growth is assumed, the companies would turn a combined profit of $48 billion in 2014 and 2015.

Sara Rosenberg and Paul Deckelman contributed to this article

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