Toy’s ‘R’ Us tumbles on renewed bankruptcy talk; Rite Aid gains as Walgreens tweaks deal; iHeart improves

By Paul Deckelman

New York, Sept. 18 – Distressed-debt market participants were watching the continued destruction of Toys ‘R’ Us Inc.’s bonds on Monday.

That paper – already on the slide since just after Labor Day -- continued to cascade lower on during Monday’s session amid renewed speculation that the troubled retailer could file for Chapter 11 protection from its bondholders and other creditors, with some news reports predicting such a step was imminent.

Also among the retailers, Rite Aid Corp. notes were up slightly, and its shares up as well, as news reports that bigger sector rival Walgreens Boots Alliance, has expressed a willingness to modify its planned acquisition of more than 2,000 current Rite Aid stores in order to gain approval from federal antitrust authorities.

iHeart Communications Inc. paper moved up in Monday trading, although there seemed to be no fresh news out about the radio and outdoor advertising conglomerate that might explain that rise.

Toys ‘R’ Us trades off

A trader said that “the big news of the day was Toys ‘R’ Us. Those bonds have fallen precipitously, since it could file [for Chapter 11 bankruptcy protection] at any moment.”

Indeed, CNBC – quoting “sources familiar with the matter – reported on Monday that the troubled Wayne, N.J.-based retailer of children’s toys and games and other child-oriented products “could file for bankruptcy as soon as this week.”

And a Bloomberg news story Monday afternoon indicated that the company “is preparing a bankruptcy filing as soon as today,” [i.e., Monday], although as of late Monday evening, no news of any official filing of bankruptcy papers had surfaced.

The debt-laden retailer’s bonds have fallen sharply since just after Labor Day, when news that it had hired the law firm of Kirkland and Ellis – known for its work in restructuring debt, sometimes via bankruptcy proceedings – sparked speculation that such a filing to deal with its $400 million of bond debt due Oct. 15, 2018 might be on the horizon.

Those 7 3/8% notes due 2018, which had started off the month trading in the upper 90s, fell around 20 points on Sept. 6, and continued to slide further in the days that followed. They ended that week just under 71 bid, and had deteriorated to around 44 bid by the end of last week.

On Monday, those notes nosedived further, tumbling down to a closing price of 18 bid – although a trader said that “it was all small retail investors” making numerous odd-lot transactions in the bonds to chop them down to that level. He saw “at most, one or two” sizable round-lot trades during the day.

Another trader said the only Toy’s issue to generate any kind of real round-lot volume was the company’s TRU Taj 12% senior secured notes due 2024; those bonds were off by more than 4½ points on the day, ending at around 83½ bid, with over $10 million traded.

Rite aid rises

Elsewhere in the retailing sector, traders saw Rite Aid Corp.’s bonds slightly higher, helped by the news that larger sector peer Walgreens-Boots Alliance has expressed a willingness to government regulators to modify its planned deal to buy more than 2,000 Rite Aid stores, if that is what it will take to make the deal pass muster with federal anti-trust regulations.

Walgreens had originally planned to acquire Rite Aid outright for around $11 billion, but abandoned that plan in June on fear that Washington could turn thumbs down on the deal for competitive reasons. It instead offered to purchase some 2,186 of Rite Aid’s more than 4,000 nationwide stores, for $5.2 billion in cash. Rite Aid plans to use at least some of any sale proceeds for debt repayment.

The Camp Hill, Pa.-based drugstore chain operator’s most actively traded issue, its 6 1/8% notes due 2023 edged up by 1/8 point, a trader said, to 100 7/8 bid, on volume of over $14 million.

He saw “just a handful” of its 7.70% notes due 2027, perhaps $4 million, having traded. They gained ¼ point, ending at 98¼ bid.

Rite Aid’s New York Stock Exchange-traded shares improved by 10 cents, or 3.80%, ending at $2.23, on volume of over 50 million shares, nearly twice the norm.

iHeart heard higher

Traders said that iHeart Communications’ 9% notes due 2022 moved up by 3 points on the day, to 72 bid, on volume of over $9 million.

One said “that was the only one” of the San Antonio, Texas- based broadcasting and outdoor advertising company’s bonds seen moving around, with its other bonds “Moving in only dribs and drabs.”

There was no fresh news out on the company that might explain the gain the 9% bonds saw.

iHeart’s over-the-counter shares jumped by 17 cents on Monday, or 11.89%, to end at $1.60, though on smaller-than-normal volume.

© 2015 Prospect News.
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