Alpha Natural drops as investors see declining recovery hopes; RadioShack downgraded by Fitch

By Stephanie N. Rotondo

Phoenix, May 15 - It was "kind of a weak day," a trader said of the distressed debt market on Thursday.

Alpha Natural Resources Inc. was on the down side of the day. The coal producer's debt has been gyrating all week as the company brought a new deal. And while new issues do tend to cause a bit of volatility in existing debt, it could be that investors have figured out that the new issue means their recovery prospects in the event of a restructuring just declined.

Meanwhile, RadioShack Corp. bonds ended with a softer tone amid a rating downgrade from Fitch Ratings. The agency opined that the electronics retailer is staring down the barrel of a restructuring within the next year - something made all the more likely when the company's lenders last week denied approval to close about 1,100 stores.

Also in the world of retail, J.C. Penney Co. Inc. was lightening up ahead of its after-the-bell earnings release. However, the numbers proved to beat expectations, so the debt could recoup the day's losses come Friday.

Alpha Natural slides

Alpha Natural Resources' debt dropped a fair bit in Thursday trading, according to market sources.

One trader said the 6¼% notes due 2021 fell 1½ points to 75, while the 6% notes due 2019 lost 1½ points to close at 78.

The company's recently priced $500 million issue of 7½% notes due 2020 slipped half a point, he said, to par 1/4.

A second source called the 6¼% notes off nearly 3 points at 75 bid.

The Bristol, Va.-based company is planning to use proceeds from the new deal to retire about $159 million of 2015 maturities. Any remaining funds would be used for general corporate purposes - most likely to bolster liquidity.

But while the new deal allows the company to shed some near-term debt, the results could be bad for other bondholders.

According to Standard & Poor's, the new second-lien deal is being guaranteed by "substantially all" of its assets - something other debtholders do not have. S&P said that as such, recovery prospects in the event of a restructuring are "negligible."

RadioShack downgraded

In a report out Thursday, Fitch Ratings downgraded Fort Worth, Texas-based RadioShack, citing an increasing likelihood that the company will face a restructuring within the next 12 months.

In response, the company's debt was drifting lower.

A trader called the 6¾% notes due 2019 down over 1½ points at 39.

In addition to a heavy cash burn, Fitch pointed to lenders' refusal to allow the company to shutter 1,100 stores. The company had previously said it wanted to close the under-performing locations, but that it needed the OK from lenders, as doing so would result in a covenant breach.

Because lenders did not give the go-ahead, the company is likely to close only about 200 stores, something Fitch believes will weigh heavily on profitability and free cash flow.

As of the end of 2013, RadioShack had about $555 million of liquidity. That compared to almost $1 billion at the end of 2012. Again, Fitch said it did not think that RadioShack had many other cash-generating options, given that most of its assets are backing its credit facilities.

Fitch cut RadioShack's issuer default rating to CC from CCC.

J.C. Penney earnings positive

J.C. Penney bonds were slightly weaker leading up to the company's earnings release after the market closed.

A trader called both the 6 3/8% notes due 2036 and the 7.4% notes due 2037 down a quarter-point at 75½ and 861/4, respectively.

Investors might have been pleasantly surprised by the numbers, which showed a significant increase in same-store sales. A trader said that after the earnings came out, the bonds were up 3 to 4 points.

He pegged the 7.4% notes around 80 and the 7.95% notes due 2017 around 98.

The key sales figure saw its second consecutive quarterly gain, rising 6.2% during the first quarter. Online sales meantime increased 25.7%.

Total sales came to $2.8 billion, above the $2.64 billion reported a year ago and above analysts' expectations of $2.71 billion.

Net loss was $352 million, or $1.15 per share. Overall, that was wider than a year ago when net loss was $348 million, but on a per share basis, it was better than 2013's first quarter per share loss of $1.58.

Excluding certain items, the loss was $1.14 per share. That beat analysts' expectations of $1.24 per share.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.