Distressed debt liquidity goes on holiday for Christmas; retail data suggest struggling sector

By Stephanie N. Rotondo

Phoenix, Dec. 24 - With Christmas Eve upon us, many distressed debt players were away from their desks on Tuesday, resulting in very low volume for the space.

"The market never really opened," one trader said.

That lack of liquidity may have staved off some pain for the retail sector. According to Chicago-based researcher ShopperTrak, consumers were not shopping as much this holiday season. In a report released on Monday, U.S. store visits had declined 21% during the week ending Saturday, the lead up to Christmas. Retail sales meantime had fallen 3.1%.

Still, the news wasn't all bad. The numbers indicated that more shoppers were getting their holiday shopping done earlier, with a 2% increase in purchases between Nov. 1 and Dec. 22. With those figures added in, overall sales in the sector are expected to gain by 2.4%, still the smallest rise seen since 2009.

"Retailers are already cautious," a trader said. In recent months, retailers J.C. Penney Co. Inc., Claire's Stores Inc., Gymboree Inc. and Toys "R" Us Inc. have reported disappointing earnings.

"There are a number of retailers' [bonds] that have been pushed lower recently," the trader remarked. "The writing is already on the wall. We'll have to wait and see how the numbers look after the beginning of next year."

But with few people around to get deals done, trading in the retail space was limited. The trader said he did see Toys' 8½% first-lien notes due 2017 around 103, though he noted that its place in the hierarchy of debt typically means that "it's not going to be as volatile as the other ones."

As for J.C. Penney, a trader said the name was "pretty much unchanged," with the 6 3/8% notes due 2036 quoted in 73 to 75 range and a few trades around 73 or 74.

That was "pretty much where they've been, and where they were at the beginning of the week," the trader said.

Paul Deckelman contributed to this article

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