RadioShack bonds suffer post-numbers; Sears slips as CIT halts vendor loans; Catalyst declines

By Stephanie N. Rotondo

Portland, Ore., Jan. 31 - Many distressed bonds were taking hits on Tuesday, as negative headlines were abundant.

RadioShack Corp.'s debt was on the lower side, as was expected after the company released dismal preliminary results late Monday. Still, the notes did manage to rebound from its intraday lows, a trader said.

Sears Holdings Corp. was also moving downward as CIT Group Inc. said it was again halting vendor loans and payment guarantees.

Meanwhile, Catalyst Paper Corp.'s subordinated paper fell after the company said it was unable to come to terms on a consensual reorganization plan and it would therefore begin bankruptcy proceedings in Canada.

There were, however, some positives for the day. Energy Future Holdings Corp. was not particularly active, but did trade a bit higher on news the company was launching a new issue. Proceeds from the sale will be used to pay down debt.

And, Residential Capital LLC gained some ground as the company sought waivers from lenders regarding its tangible net worth covenants.

RadioShack falls on numbers

RadioShack's 6¾% notes due 2019 fell to 83 bid, 84 offered from levels of 84 bid, 85 offered on late Monday, a trader said.

The bonds did rebound from Tuesday's low around 82, he noted.

Late Monday, the Fort Worth-based purveyor of electronics released disappointing preliminary results for the fourth quarter, prompting market players to opine that the debt would decline come Tuesday.

For the quarter ending Dec. 31, RadioShack's unaudited results showed total net sales and operating revenues gaining 6% to $1.39 billion. Same-store sales were up about 2%.

Earnings per share were expected to be between 11 cents per share and 13 cents per share.

The real bad news was that gross margins were on the decline. RadioShack attributed the decrease to "a shift in mix within mobility sales towards certain lower margin smartphones and mobile devices; a higher percentage of mobility sales in the overall revenue mix, largely driven by the company's expansion of Target mobile centers; and the impact of a more promotional holiday season," according to a press release.

The company also pointed to the "underperformance" of Sprint Nextel Corp.'s postpaid wireless business and further "unanticipated" changes in Sprint's customer and credit models.

RadioShack ended the quarter with about $590 million of cash and equivalents, up from $569 million the year before. There was also $421 million available under its $450 million revolving credit facility.

Final results will be reported Feb. 21.

Sears notes drop

A trader said Sears Holdings' 6 5/8% notes due 2018 slipped on news that CIT Group was again halting loans to the Hoffman Estates, Ill.-based retailer's suppliers.

He saw the notes close at 81 bid, 81½ offered, down from levels around 82¾ earlier in the day.

CIT is waiting for more information on Sears' overall financial health, according to sources cited in a Reuters report. The company has posted 18 consecutive quarters of losses.

This marks the second time this month that CIT has halted supplier loans. Sears will report earnings on Feb. 23.

Catalyst seeks bankruptcy

Richmond, B.C.-based papermaker Catalyst Paper said Tuesday that it will file for bankruptcy protections in Canada in order to restructure its business.

The filing follows a Chapter 15 filing in the U.S. just last month. The company had previously been working to develop a plan that would not require it to file for bankruptcy, but failed to do so.

A trader said the 11% senior notes due 2016 were "not much different" at 59 bid, 60 offered. However, the 7 3/8% notes due 2014 were a point weaker, trading around 5.

Another trader placed the subordinated issue around 4 7/8.

On the news, Moody's Investors Service downgraded Catalyst to D from Ca/LD.

Among other papermakers, bankrupt NewPage Corp. saw its 11 3/8% notes due 2014 ending around 651/2, which a trader said was "down a little bit."

TXU firms

Energy Future Holdings, or TXU as it is more commonly referred to, announced a $400 million new issue on Tuesday.

The Dallas-based power producer will use proceeds to pay down intercompany debt that hedge fund Aurelius Capital Management LP claims violates the company's credit agreement. Aurelius had brought up the issue in February 2011.

But the news didn't generate too much action in the company's debt. A trader said the 10% notes due 2020 were slightly better, trading around 108.

ResCap seeks waivers

Residential Capital's 9 5/8% notes due 2015 were "up a few points," a trader said.

The trader pegged the paper around 84.

On Tuesday, parent company Ally Financial Inc. said it was taking a $270 million charge in the fourth quarter for regulatory penalties. The charge is mostly related to its Residential Capital LLC unit and "foreclosure related matters." The charge will also result in the lowering of ResCap's tangible net worth to below $250 million, which would create a covenant breach. As such, ResCap is having to seek waivers from its lenders.

The charge is also expected to result in a quarterly net loss for Ally. Results are expected Thursday.

Ally is a Detroit-based bank. ResCap is its Minneapolis-based mortgage lending unit.

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