Toys ‘R’ Us active as company gets OK to start liquidation process; Sears trades amid ratings downgrade

By James McCandless

San Antonio, March 22 – Amid turmoil in equity markets, traders reported a dearth of activity in distressed trading Thursday as investors remained reluctant to act.

Toys “R” Us, Inc. notes became active as the company won approval in bankruptcy court to begin the liquidation process.

Issues in Sears Holdings Corp. entered a second day of high activity Thursday as it received a ratings downgrade.

Community Health Systems, Inc. paper continued its run of high volume trading. The company announced its intention to refinance 2019 and 2020 bond maturities.

Frontier Communications Corp. and Intelsat SA provided a majority of the day’s volume in the distressed telecom sector. Mallinckrodt plc continues to provide a lot of the activity in the healthcare space. A dip in oil futures precipitated activity for Northern Oil and Gas, Inc. and Ensco plc.

Toys ‘R’ Us liquidation OK’d

Reports confirmed that recently bankrupt Wayne, N.J.-based toy retailer Toys “R” Us has gained approval to begin its liquidation process, as it plans to close the remainder of its U.S. locations (see related story elsewhere in this issue). The company announced the liquidation process for all U.S. assets last week after failing to find a buyer, though talks are still ongoing for selloffs of the Asian and Canadian business arms.

The 7 3/8% notes due 2018 gained 1 point to close at 8 bid.

Sears downgraded

Hoffman Estates, Ill.-based retailer Sears saw its issues trade heavily a second day, traders confirmed, amid a ratings downgrade. Standard & Poor’s lowered the company’s corporate credit rating (see related story elsewhere in this issue.)

On Wednesday, the company announced the results of a private exchange for some notes, including a portion of its 6 5/8% senior second-lien notes and $625 million 8% senior subordinated notes due 2019 in exchange for newer debt.

The 6 5/8% issues due 2018 shaved off about 2 points to close at just below 68 bid. The 8% issues due 2019 jumped up 6 points to close at 34 bid.

Community Health trades

Franklin, Tenn.-based hospital operator Community Health Systems paper continued its run as one of the most traded in recent weeks, a market source confirmed. On Wednesday, the company announced plans to facilitate refinancing of its near-term bond maturities with term revisions. It also plans to repay term loan debt with proceeds from divestitures.

Last week, it hired asset management firm Lazard, Citibank and JPMorgan Chase to help manage its debt while warning investors about possible asset sales.

The 7 1/8% paper due 2020 rose about 1¾ points to close at around 76¾ bid. The 6 7/8% paper due 2022

Volume favorites active

Norwalk, Conn.-based wireline telecom name Frontier Communications continues to trade heavily in the telecom space, trending positively since scrapping its quarterly dividend to focus on debt service.

The 7 5/8% notes due 2024 lost ¼ point to close at 61½ bid. The 10½% notes due 2022 dropped 1 point to close at 87 bid. The 11% notes due 2025 fell about 1¼ points to close just above 79 bid.

Elsewhere in telecom, Luxembourg-based satellite communications company Intelsat provided more volume.

The Intelsat Jackson SA 5½% issues due 2023 fell about ½ point to close under 80½ bid. The 7¼% issues due 2020 fell 2¼ points to close at 92 bid.

Britain-based drug maker Mallinckrodt was another healthcare name receiving attention in the healthcare space.

The 4¾% paper due 2023 shaved off about ¼ point to close at around 80½ bid.

A down day for oil futures spurred activity in distressed energy names.

Minnetonka, Minn.-based independent oil and gas name Northern Oil and Gas saw its 8% notes due 2020 trade down about ¾ point to close near 94½ bid.

Britain based oil driller Ensco’s 5¾% bonds due 2044 rose about 1½ points to close at just under 67¾ bid.

“With equity markets tanking, people were jittery and wouldn’t move their money into risky stuff,” a trader said. “That is the trend that will continue until we see less volatility in equity markets.”

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