Sun Products bonds remain in decline; Caesars, Toys 'R' Us weaken ahead of earnings releases

By Stephanie N. Rotondo

Phoenix, May 6 - A trader said most of the day's high-yield bond market activity was centered on Forest Oil Corp. and Berry Plastics Inc.

Forest Oil was actively traded - a total of at least $225 million bonds were exchanged, according to the trader - and all were significantly better than Monday trading levels on news the Denver-based company was merging with Houston-based Sabine Oil & Gas LLC.

For its part, Berry Plastics was active after pricing a new $500 million issue of 5½% notes due 2022 on Monday.

"Without Forest Oil and the Berry new issue, I don't know how much volume we would have had at all," the trader said.

Still, there were some names that stood out in the distressed debt space itself.

Sun Products Corp. bonds - which dropped about 10 points in late trading on Monday - continued to weaken come Tuesday trading. The company recently released its quarterly results to bondholders, prospective investors, broker-dealers and financial analysts. Though not yet available to the public, the giant decline in the debt would indicate that the select group was none too pleased with the results.

Caesars Entertainment Corp. bonds were also on the softer side Tuesday. The dip comes on the heels of a Moody's Investors Service report out Monday that opined the casino operator cannot avoid a restructuring. The company is also slated to report earnings on Wednesday.

Toys 'R' Us Corp. is also scheduled to release earnings on Wednesday, accounting for recent declines in that debt. The company's bonds were off as much as 3½ points ahead of the numbers.

Sun Products' debt dives

Sun Products, the Wilton, Conn.-based cleaning products manufacturer, is holding a conference call on Thursday to discuss its 2013 year-end results and the results of the first quarter.

The financials were previously released to bondholders and prospective investors, among others, on April 30. Though the results have not yet been made available to the public, the company's debt has spent the last two sessions taking a dive.

On Monday, a trader said the 7¾% notes due 2021 dropped 10 points, trading down around 80. On Tuesday, the slide continued, as another trader pegged the issue at 78½ bid, 79½ offered.

The trader noted that the bonds had opened Tuesday's session at 80 bid, 82 offered.

"Sun was basically 79 to 80 after trying to rebound a little in the morning," another trader said.

Back in March, Moody's lowered its view on the company to negative from stable. The ratings agency cited heightened competition and promotional activity, suggesting both would weigh on revenues and EBITDA. Should that prove to be the case, that would make it more difficult for the company to deal with its highly leveraged debt structure, the agency said.

Caesars softens

Caesars Entertainment debt was declining Tuesday, ahead of the company's Wednesday earnings release and after a Moody's report was released on Monday.

In the report, Peggy Holloway, vice president, senior credit officer and the lead Caesars analyst, said that there is no way for the Las Vegas-based casino and hotel operator to avoid a restructuring.

"An eventual restructuring at Caesars is inevitable, considering its weak liquidity and very high leverage," she wrote in the report. "Even if Caesars were to use all asset-sale proceeds to repay debt at 50 cents on the dollar, total debt/EBITDA would remain unsustainable at 14 times and EBITDA would still not cover interest and capital spending needs."

Holloway also opined that the company has just enough liquidity to get through 2015, "at best."

Come Tuesday, the bonds responded negatively.

A trader saw the 11¼% notes due 2017 dropping 2 points to 93. The 9% notes due 2020 were also down a deuce at 85.

However, the 8½% notes due 2020 were just slightly softer at 86 1/8.

At another desk, a market source pegged the 10% notes due 2018 at 44½ bid, off 1¼ points.

Still, some others were optimistic about the nearing earnings release. According to Zacks Estimates, analysts are forecasting a narrower loss of $1.15 per share.

That would compare to a loss of $1.41 per share the previous year.

Revenue is also expected to be at least modestly higher around $2.17 billion.

Toy tanks pre-earnings

Toys 'R' Us' bonds remained weak as investors prepared for the company's quarterly results, due out Wednesday.

One trader deemed the 7 3/8% notes due 2018 off by as much as 3½ points, seeing paper trade around 65. The 10 3/8% notes due 2017 were meantime down 3¼ points around 743/4.

The 8½% notes due 2017, however, managed to pack on half a point, ending around par 1/2, the trader said.

Another market source saw the 7 3/8% notes at 67 bid, down 1¾ points.

As a whole, the retail sector was not performing so well on Tuesday.

Claire's Stores Inc.'s 8 7/8% notes due 2019 were seen losing a point to close around 81, while Gymboree Corp.'s 9 1/8% notes due 2018 dipped a quarter-point to 641/4.

A trader also noted that RadioShack Corp.'s 6¾% notes due 2019 traded "down a couple points" to 38, though he added it was just a single trade.

Numbers help Dex loans

Dex Media East Inc. and Dex Media West Inc. saw their term loan levels rise in trading on Tuesday after the release of first quarter numbers by parent company Dex Media Inc. that showed a year-over-year improvement in revenues, according to a market source.

The East loan was quoted at 75 bid, 76 offered, up from 73¾ bid, 74¾ offered, and the West loan was quoted at 85 bid, 86 offered, up from 83½ bid, 84½ offered, the source said.

For the quarter, Dex Media reported operating revenue of $456 million, up from $288 million in the first quarter of 2013, a net loss of $82 million, or $4.74 per share, versus a net loss of $59 million, or $5.84 per share, in the prior year, and adjusted pro forma EBITDA of $194 million, compared to $230 million last year.

Cash provided by operations for the three months ended March 31 was $100 million less $3 million in capital expenditures, which resulted in free cash flow of $97 million. As a result of the strong free cash flow, the company was able to pay down $74 million of its bank debt during the quarter.

Dex Media is a Dallas-based provider of social, local and mobile marketing solutions through direct relationships with local businesses.

Sara Rosenberg contributed to this article

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