SuperValu bonds off again, while sale now more likely; coal bonds, convertibles trade around

By Paul Deckelman

New York, July 16 - SuperValu Inc.'s battered bonds were seen on the downside for a third straight session on Monday, still reeling from last week's report of poor quarterly numbers.

However, news reports indicated that the company, which said it would explore strategic alternatives, will open its books soon to would-be buyers.

Coal names continued to take their lumps in both the junk bond and the convertible debt markets, with activity seen in such credits as Alpha Natural Resources Inc. and Arch Coal Inc. - both of whose shares were downgraded by BMO Capital Markets - as well as Peabody Energy Corp. and the recently bankrupt Patriot Coal Corp.

Nokia Corp.'s bonds were seen fairly active, as the Finland-based cellphone maker tries to fight back against entrenched rivals Apple Corp., the maker of the popular iPhone, and Samsung.

There was also some trading around in the bonds of Overseas Shipholding Group Inc. and Caesars Entertainment Corp., although no news was seen on either name.

In the bank-debt market, Tribune Corp.'s loans rose after the judge in the media company's more-than three-year-old bankruptcy case said that he would approve its reorganization plan, despite objections from some creditors.

SuperValu struggle continues

Among specific names, a trader said that SuperValu's bonds "were pretty active today - and they just keep going down."

It was the third consecutive session in which the Eden Prairie, Minn.-based No. 3 U.S. supermarket operator's bonds have been getting clobbered following its announcement late last Wednesday of considerably less-than-anticipated quarterly earnings.

He saw the most active issue, the 8% notes due 2016, down another two points, to 83¼ bid, on volume of some $30 million, making it one of the busiest Junkbondland issues of the day while its 7½% notes due 2014 lost 1½ points to close around 89¾ bid.

And its shortest-dated issue, the 7¼% notes due 2013 originally issued by Albertsons Inc. before that store chain was absorbed by SuperValu several years ago, also lost 1½ points to close at 97 bid, on volume of $11 million.

All three of those issues were trading at or above par before the earnings news hit the market last Thursday.

"SuperValu continued to get weaker," a second trader said, seeing similar levels. He said the 71/2s "got as low as 89, but went out straddling 90," quoted at 89¾ bid, 90¼ offered.

"They were definitely off the lows, but were still down for the day."

"They lost a couple of points across the board," another trader declared.

But SuperValu's New York Stock Exchange-traded shares, which got hammered mercilessly last week after the company reported sharply lower quarterly earnings, were actually up on the day Monday, gaining 16 cents, or 6.90%, to close at $2.48, on volume of 34.6 million, about four times the norm.

The company reported after the close Wednesday that it had net earnings of $41 million, or 19 cents per diluted share, on net sales of $10.6 billion during the fiscal quarter ended June 16 - badly missing Wall Street expectations of earnings in the 38- to 40-cents per share range. It's year-ago earnings were considerably better, at $74 million, or 35 cents per share, on revenues of $11.1 billion.

SuperValu, which is fighting to retain market share against upstart rivals Wal-Mart Stores Inc. and Costco, said last week that it would explore possible strategic alternatives, including the sale of part or all of the company.

The Wall Street Journal reported Monday evening that SuperValu will open up its books for possible buyers within the next several weeks, one of the first steps needed to facilitate a potential sale.

Citing unidentified sources, the newspaper reported that potential buyers for some or all of SuperValu could include C&S Wholesale Grocers Inc., which is interested in buying Supervalu's distribution operations, as well as such large private-equity firms as Cerberus Capital Management, Kohlberg Kravis Roberts & Co. and TPG Capital.

Nokia notes active

Elsewhere, traders saw Nokia's paper trading fairly actively - one pegged the Finnish cell phone maker's 5 3/8% notes due 2019 at 75 bid, 76 offered for most of the day with more than $10 million of the bonds changing hands

He saw its 6 5/8% bonds due 2039 at 74 bid, 75 offered, on volume of $6 million.

He called the bonds largely unchanged on the session.

Another trader saw their price "down a smidge on both," estimating them a quarter-point easier.

He put the 2019 bonds at 75½ bid and the 2039s at 741/2.

Nokia's NYSE-traded shares were off by 4 cents, or 2.17%, ending at $1.80. Volume of $40 million was a little more than the usual turnover.

Senior analyst Dave Novosel of the Gimme Credit investment advisory service said in a research note Monday that Nokia, which has been fighting to hold on to market share against such larger rivals as Samsung and Apple Corp. will cut the price of its Lumia 900 phone to $50 from $100 with the signing of a two-year contract with AT&T, hoping to undercut its competitors.

He said the move "suggests that sales of the Lumia have not been as robust as originally expected, despite reviews that were generally positive."

The analyst also warned that second-quarter results are due out Thursday. "We do not expect them to be pretty," the analyst said.

Coal gets clobbered

There was more carnage in coal, with bonds seen lower pretty much across the sector after BMO Capital markets downgraded the shares of two operators, Alpha Natural Resources and Arch Coal.

Alpha's 6% notes due 2019 fell by 1½ points, to 84½ bid, on round-lot volume of more than $6 million, while its 6¼% notes due 2021 lost about three-quarters of a point, though in light trading of just a couple million.

Arch's 7¼% notes due 2020 eased by about a half-point to 82½ on volume of $5 million.

Among other sector players, Peabody Energy's 6½% notes due 2020 dipped nearly a point to 100¾ bid with more than $5 million traded.

As for Patriot Coal, which recently filed for Chapter 11 protection, a trader saw its 8¼% notes due 2018 actually "up a couple of points" to 42½ bid going home, but only on trading of $2 million to $3 million.

"There was not a lot of price action or trading today," a second trader agreed.

Those bonds were whacked down into the 30s on the news that Patriot would seek bankruptcy protection.

A week after that filing, the coal companies also continued to be a focus of the convertible bond market Monday.

Traders said that Patriot's convertibles traded in odd lots, up in line with the shares at 11 bid, 11¼ offered, which was higher outright compared against a 10¼ bid, 11 offered range Friday.

A second trader said that Patriot's convertibles were a little higher by about a quarter-point, but were in line with the underlying Patriot Coal shares. Those over-the-counter traded shares lost 4 cents, or 14.51%, to end at 23 cents. Volume was 6.3 million shares, or about half the norm.

The latest bit of news in the coal sector was more of a rustling than the bombshell of last week's bankruptcy, in terms of the downgrade of Arch Coal and Alpha Natural Resources by BMO to "underperform" from "outperform," knocking Alpha's 2 3/8% converts due 2015 down a deuce to 85½ on Monday, versus 87.5½ on Friday.

Alpha Natural shares fell 78 cents, or 10.2%, to $6.85 in heavy volume.

BMO cut its share price target to $5 from $18, citing weak demand for Appalachian coal, the company's high debt levels and deteriorating margins.

Elsewhere in the convertibles market, Eastman Kodak Co.'s 7% convertibles traded at 18, which was in line with trades late last week.

Caesars's, Overseas busy

Back among the bonds, a trader said that Caesar's Entertainment Corp.'s 10% notes due 2018 lost 1¾ points Monday to close at 66 bid.

He saw $6 million or $7 million of the Las Vegas-based casino giant's bonds traded, but saw no fresh news out on the company.

He saw Overseas Shipholding Group's 7 1.2% notes due 2024 off a half-point, at 55½ bid, on volume of $8 million.

A second trader saw the New York-based oil tanker operator's bonds "down 1 or 2 points" to that level - but no fresh news about the company, whose ratings were cut to CCC+ last week by Standard & Poor's with a negative outlook.

Tribune loan on the rise

In the bank-debt market, Tribune's paper was better Monday on the heels of a ruling that its reorganization plan will be confirmed, once some final modifications are completed. And any remaining objections to the plan were overruled, according to a trader.

The term loan B was quoted at 69½ bid, 70½ offered, up from 68¾ bid, 69¾ offered, the incremental loan and term loan X were quoted at 69 bid, 70 offered, up from 67¾ bid, 68¾ offered, and the revolver was quoted at 74 bid, 76 offered, up from 73 bid, 75 offered, the trader remarked.

Under the reorganization plan, the Chicago-based media company would transfer its broadcast licenses to a new ownership group that includes senior creditors Oaktree Capital Management, Angelo, Gordon & Co. and JPMorgan Chase.

Tribune believes that it will be able to emerge from Chapter 11 by the end of the year and that creditors will get about $7 billion in recoveries.

Rebecca Melvin and Sara Rosenberg contributed to this report

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.