Toys ‘R’ Us debt gains as CFO ousted; American Apparel bonds up as CEO, founder given the boot

By Stephanie N. Rotondo

Phoenix, June 20 – The retail space was notable in the distressed debt market on Friday, driven by fresh news.

Toys “R” Us Inc. announced that it had terminated its chief financial officer. The company did not disclose why F. Clay Creasey Jr. was fired, but the company has been struggling recently to keep afloat.

That news came on the heels of the ouster of American Apparel Inc.’s founder and chief executive officer, Dov Charney.

That decision was announced late Thursday.

In response to the management changes, Toys’ debt was mostly higher on the day and American Apparel ended strong.

Other retailers were also faring better during the day’s session. Gymboree Corp.’s 9 1/8% notes due 2018 gained almost a point to close around 71, a trader said.

Even RadioShack Corp.’s 6¾% notes due 2019 inched up despite its stock falling below $1 for the first time ever.

A trader called the bonds up nearly a point at 35.

As for the stock (NYSE: RSH), it closed down 11 cents, or 10.43%, to 92 cents.

Toys ‘R’ Us fires CFO

Toys “R” Us said that effective Thursday, it had terminated the employment of F. Clay Creasey Jr., CFO.

Creasey had held the post since May 2006.

Taking his place is Michael J. Short, formerly the CFO of AutoNation.

Investors took the news as a positive sign that the company was doing all it could to improve sales and its bottom line, pushing the bonds higher.

One trader said the 7 3/8% notes due 2018 gained 1¼ points to close around 81¼.

Another market source pegged the issue at 81 bid, a point better on the day.

However, the first trader noted that the 10 3/8% notes due 2017 fell 1½ points to 85½.

Like many other retailers, Toys “R” Us has struggled to keep up with places like Wal-Mart Stores, Inc. and Amazon.com, Inc. As such, its earnings have come under pressure.

In the most recent quarter, the company reported a wider-loss due in part to investments made in e-commerce and store maintenance. Sales were improved, though that was largely due to a clearance of inventory via sales and price cuts.

American Apparel rises

American Apparel got a good bounce after the company announced that it had ousted Dov Charney, founder of the retailer and CEO.

The board of directors fired Charney “with cause,” pointing to his often controversial lifestyle, which includes allegations of sexual misconduct with employees.

Because he was fired “with cause,” Charney is not entitled to any compensation related to this termination.

John Luttrell, CFO, will take over as interim CEO.

The company has been struggling to entice customers and has come under fire recently for overtly sexual advertisements and in-store displays. But the news seemed to increase investors’ optimism.

One market source said the 13% notes due 2020 rose to a 95 to 95½ context, which compared to previous round-lot trades with an 89 handle.

However, with the good news comes the bad. The management shakeup may trigger a default under its indentures, the company said. In order to avoid that, the company has engaged in talks with lenders to secure a waiver.

© 2015 Prospect News.
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