Sears declines as loan hits obstacle; Toys ‘R’ Us debt gives up gains; coal sector takes hit

By Stephanie N. Rotondo

Phoenix, Sept. 25 – Distressed bonds were “pretty weak throughout the afternoon, then it just died,” a trader said Thursday.

“The whole market was weaker,” another trader said.

Sears Holdings Corp. dipped on word the company might be having trouble securing participation in a new $400 million loan the company needs to continue to limp along.

But Sears wasn’t the only retailer taking a dip. Toys ‘R’ Us Inc.’s bonds gave back some of the gains they got on Wednesday when the company announced a new refinancing plan.

Meanwhile, the price of metallurgical coal hit a new low Thursday, putting pressure on coal companies like Cliffs Natural Resources Inc. and Walter Energy Inc.

Sears debt dips

Sears might be struggling to get investors to participate in its new $400 million loan secured from ESL Investments, a hedge fund controlled by Sears chairman and chief executive officer Eddie Lampert.

Bloomberg reported Thursday that talks between Sears shareholder Fairholme Funds Inc. and its affiliate St. Joe Co. failed to bring about a deal.

“The St. Joe Co. was unable to agree on terms for such a participation in light of its investment criteria and has declined the opportunity to participate,” Fairholme said Thursday in a regulatory filing.

On the news, the Hoffman Estates, Ill.-based retailer’s 6 5/8% notes due 2018 “cracked 90,” a trader said, seeing the issue close at 89 7/8.

While St. Joe declined to participate, Fairholme said it is continuing to discuss a smaller level of participation.

Toys ‘R’ Us retreats

Among other retailers in the news, Toys ‘R’ Us debt gave back some gains it had incurred on Wednesday when the company announced a refinancing plan.

A trader said the 10 3/8% notes due 2017 dropped 3 points to 80 and the 7 3/8% notes due 2016, an issue that will be called under the refinancing plan, dipped to par.

The Wayne, N.J.-based company intends to redeem the 2016 paper on Oct. 24 at 101.844 plus accrued interest.

To redeem the notes, as well as refinance $646 million of secured term loans due fiscal 2016 and a significant portion of the $583 million of incremental secured term loans due 2018, Toys ‘R’ Us is looking to ink a new $1.38 billion credit facility via Goldman Sachs & Co.

A bank meeting is set for Monday.

Also in the retail realm, Gymboree Corp.’s 9 1/8% notes due 2018 were deemed down 2¾ points at 29, according to a trader.

Another trader pegged the issue in a 28 to 29 context.

Coal sector tanks

The price of metallurgical coal hit a six-year low on Thursday, putting even more pressure on the coal and mining space.

Cliffs Natural Resources’ 6¼% notes due 2040 dropped nearly 6 points to 73¾, a trader said, while the 3.95% notes due 2018 lost almost 4 points to 87.

The 4.8% notes due 2020 declined just over 3 points to 80¼.

Walter Energy was also again weaker. A trader saw the 9 7/8% notes due 2020 losing over 2 points to close around 28¾.

Another trader said the 9½% notes due 2019 traded down to 89, while the 11% notes due 2020 fell into the mid-40s.

Also suffering were Peabody Energy Corp.’s bonds.

One trader deemed the 6¼% notes due 2021 down nearly a point at 92¼. Another source placed the 6½% notes due 2020 at 91¼, down over 3 points on the day.

Metallurgical coal fell to $119 per metric ton for the fourth quarter, down $1 from the third quarter. Coal companies are already dealing with declining prices as well as dwindling demand. Recently, Goldman Sachs released a report on the sector speculating that the price of the commodity has yet to hit a floor.

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