Idearc slips on potential downgrade; Charter bonds firmer on numbers; Retailers largely better

By Stephanie N. Rotondo

Portland, Ore., Feb. 27 - While certain names in the distressed realm traded actively Wednesday, overall, traders reported a relatively quiet day.

"There is barely anything trading," one trader said, noting that even trading volumes according to Trace were low. "It wasn't that impressive."

"There are very few things trying to get done," he continued, and "very few reasons" for anything to move.

Of the more active names, Idearc Inc.'s bonds fell during the session. The slip was attributed to a potential rating downgrade and the resignation of one of the company's top executives.

Also in that sector, RH Donnelley Corp.'s debt continued to gain ground.

Elsewhere, Charter Communications Inc.'s paper firmed after the cable operator posted its fourth-quarter and full-year results. On the bank debt side, the term loan traded "all over the place," ending the day lower than the previous session. The company reported higher revenues but lower income.

Despite the ever-present threat of recession, distressed retail bonds have slowly been moving higher. Companies such as Burlington Coat Factory Warehouse Corp. and Claire's Stores Inc. continued on that course during Wednesday trading.

Idearc slips on potential downgrade

A potential downgrade and the resignation of one of its top executives pushed Idearc's debt lower during Wednesday trading.

A trader called the 8% notes due 2016 "fairly" active, trading in a 67 to 67.5 "kind of range," from around 69 in the previous session.

Another trader quoted the bonds just a half point lower at 67 bid, 68.5 offered.

Moody's Investors Service placed the directory publisher under review due to the company's recent financial performance.

It was also announced that Idearc's chief executive, John Mueller, resigned his post after only one week, citing "unforeseen health reasons."

Meanwhile, sector peer RH Donnelley, which prints the Dex directory pages, gained about a point, a trader said. The trader pegged the 8 7/8% notes due 2016 at 69.75 bid, 70.75 offered.

Charter bonds firmer

Charter Communications' paper was also "pretty active" after the company released its fourth-quarter earnings.

A trader quoted the "old" 11% notes at 71.5 bid, 72 offered, the 11¾% notes due 2014% at 52 bid, 52.5 offered and the 9.92% notes due 2011 at 49 bid, 51 offered.

At another desk, a trader called the 11% notes "a couple points better" at around 72, though he added the bonds had "settled in from their highs." The trader also saw the 11¾% notes a point stronger at around 52.

The cable operator's term loan B was all over the place in trading as levels were stronger after the numbers came out but weaker by the close, a trader said.

The term loan B was quoted at 88¾ bid, 89¾ offered in the morning, but then it dropped to 88 3/8 bid, 89 1/8 offered, where it closed the day, the trader said. On Tuesday, the debt went out at 88½ bid, 89½ offered, the trader remarked.

For the fourth quarter of 2007, Charter reported pro forma revenue of $1.548 billion, an increase of 10.6% year over year; actual revenue of $1.55 billion, an increase of 9.9%; pro forma adjusted EBITDA of $563 million, an increase of 12.6% from fourth quarter 2006; and actual adjusted EBITDA of $565 million, an increase of 12.3%.

Also in the fourth quarter, actual operating income from continuing operations was $85 million, compared to $163 million in the fourth quarter of 2006, and net loss was $468 million, or $1.27 per common share, compared to a net loss of $396 million, or $1.08 per common share, last year.

For full year 2007, pro forma revenues were $5.97 billion, an increase of $588 million, or 10.9%, from 2006; actual revenues were $6 billion, an increase of 9%; pro forma adjusted EBITDA totaled $2.10 billion, an increase of 11.9% compared to full-year 2006; actual EBITDA was $2.11 billion, a 10.3% increase compared to the year-ago period; pro forma net cash flows from operating activities were $317 million, compared to $267 million in 2006; and actual net cash flows from operating activities were $327 million, compared to $323 million for the full-year 2006.

Other full-year results includes operating income from continuing operations of $548 million, compared to $367 million in the full-year 2006, and net loss was $1.62 billion, or $4.39 per common share, compared to net loss of $1.37 billion, or $4.13 per common share, last year.

During a conference call held Wednesday, Charter chief financial officer Jeffrey T. "JT" Fisher said the company would need to secure additional liquidity sources by early next year to meet projected cash needs. The company has about $300 million in debt maturities in 2009.

Gimme Credit analyst Shell Lombard was pleased with the overall growth numbers Charter posted but did address the liquidity issue. And, she wrote in an afternoon report, even if the company continues its current rate of growth, bankruptcy is not out of the question.

"At some point Charter will need to restructure or sell a considerable amount of assets to avoid bankruptcy," she wrote. "Even in a worst-case scenario, we are comfortable with the asset coverage on the CCH II and CCO bonds and the possibility that those bondholders would receive post-petition interest in a worst-case scenario."

Retailers, restaurants better

A trader said distressed retail names "continue to act well," even as consumer confidence - and thus consumer spending - weakens.

The trader pegged Burlington Coat Factory's 11 1/8% notes due 2014 up at around 82, while Claire's Stores' debt also moved up. The trader saw the 10½% subordinated notes due 2017 "close to 50" and the 9 5/8% notes due 2015 at around 60.

Among restaurants, OSI Restaurant Partners Inc., better known as Outback Steakhouse, saw its bonds improve as well. A trader called the 10% notes due 2015 better by 1.5 points at 61.5 bid, 62 offered. Another trader also saw the issue at around 62, though he said, "It has been kind of in that neighborhood."

Uno Restaurant Holdings Corp., however, continues to see its debt decline. A trader placed the 10% notes due 2011 at 43 bid, 45 offered, adding that the bonds had been at around 70 at the end of January.

On Tuesday, Uno's debt reportedly fell after pizza delivery chain Domino's posted poor earnings. Still, it was unclear what was "comparable" between the two names.

But the trader said that if Domino's attributed its lower numbers to an increase in material costs, then that could drive related names lower. Domino's did in fact attribute its wider loss to rising material costs, though they said it was a small factor.

The retail and restaurant sectors have been one of the hardest hit as consumers prepare themselves for a possible recession. In fact, according to Standard & Poor's Distressed Debt Monitor, "At least a quarter of all speculative-grade rated securities in the retail/restaurants [sic] sector are now trading at distressed levels."

Broad market mixed

Level 3 Communications Inc.'s 9¼% notes due 2014 closed at around 81.5, up 0.75 point.

Tropicana Entertainment LLC, also known as Wymar Operating, saw its 9 5/8% notes due 2014 slip to 49.5 bid, 50 offered.

In the mortgage sector, Residential Capital LLC's bonds were deemed slightly lower, its 5.65% notes coming due June 2008 at 88, compared to 89 previously, and its 6 7/8% notes due 2015 at 58.

Sara Rosenberg contributed to this article.

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