Distressed bonds trade lower; all pain, no gain for oil and gas debt; RadioShack eyed

By Stephanie N. Rotondo

Phoenix, Dec. 12 – The distressed debt market was “getting kicked in the teeth,” a trader said Friday.

“Most of the action is in oil and gas,” another trader said.

Oil prices plunged further during the session, hitting a fresh five-year low. That came amid another demand forecast cut from the International Energy Agency.

But away from oil and gas names there were a few bright spots, mainly in the retail space.

On Thursday, RadioShack Corp., Quiksilver Inc. and the Gymboree Corp. reported quarterly results. While the results were mixed – at best – those bonds moved up.

For its part, RadioShack learned Friday that its refinancing agreement with Standard General LP in October had not triggered a default, as alleged by lender Salus Capital.

Also notable on the day was Caesars Entertainment Corp., as senior lenders said it had come to terms with the company on a restructuring plan that would put the operating unit into bankruptcy.

However, senior bondholders have yet to sign on to the deal.

No rally for oil, gas

Oil had yet to find a floor in Friday trading, as prices continued to weaken.

West Texas Intermediate crude hit a fresh five-year low, losing $2.11, or 3.52%, to close at $57.84 per barrel. Brent crude dropped $1.91, or 3%, to $61.77.

That kept the oil and gas industries in focus during trading.

California Resources Corp.’s newest debt – priced Sept. 11 – was “active,” a trader said, seeing the 6% notes due 2024 losing over 1¼ points to 82.

The 5½% notes due 2021 meantime fell over 2 points to 82½, while the 5% notes due 2020 dropped 1¼ points to 83½.

In Linn Energy LLC paper, the 8 5/8% notes due 2020 were seen off nearly 4 points at 80½.

Samson Investments Co.’s 9¾% notes due 2020 weren’t just dealing with declining oil prices and sentiment on Friday – the company and its debt were downgraded by Moody’s Investors Service.

The corporate rating was lowered to B3 from B1, while the notes hit Caa1, down from B3.

A trader said the debt dropped 4 points, ending around 43.

The trader also said that Swift Energy Co.’s 7 7/8% notes due 2022 lost a whopping 20 points from the last trades a week ago, closing with a 52 handle.

And, Midstates Petroleum’s 10¾% notes due 2020 finished 4 points weaker at 41.

Oil and gas preferred stocks were also under pressure.

Goodrich Petroleum Corp.’s bellwether 9.75% series D cumulative preferreds (NYSE: GDPPD), for example, were off 18 cents, or 2.18%, trading around $8.07. However, that was better than the $8.00 opening level.

Vanguard Natural Resources LP’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) meantime declined 83 cents, or 4.96%, to $15.91.

The 7.875% series A cumulative redeemable preferred units (Nasdaq: VNRAP) declined 96 cents, or 5.14%, to $17.72.

No default for RadioShack

After reporting a wider third-quarter loss on Thursday, RadioShack got some good news Friday, as the International Swaps and Derivatives Association’s Credit Derivatives Determinations Committee deemed a default had not occurred when the company refinanced its debt in October.

The decision was reached after three days of deliberations.

In response to the news, a trader called the 6¾% notes due 2019 up 2½ points at 19½.

Another trader pegged the issue in an 18 to 19 context.

A third trader also placed the notes around 19, noting that the credit default swaps were “very active.”

As previously reported, Salus Capital was claiming a default occurred when RadioShack inked a deal with Standard General to refinance the company’s debt. Salus said the move resulted in a breach of covenant on a $250 million term loan it provides.

While the news means that RadioShack does not have to deal with an accelerated repayment of the facility, it is still struggling to turn itself around, as its quarterly report showed.

For the quarter, net loss was $161.1 million, or $1.58 per share. That compared to a loss of $135.9 million, or $1.35 per share, the year before.

Adjusted loss was $1.23 per share, higher than the $1.04 per share analysts polled by Bloomberg were expecting.

Same-store sales declined 13%.

The company also looked to be burning through cash at a rapid rate. It ended the quarter with $43.3 million in cash and equivalents, leaving it with $62.6 million in total liquidity. That compared to $316.4 million of liquidity the previous year.

RadioShack is a Fort Worth, Texas-based electronics retailer.

Quiksilver rises

Investors reacted positively to a narrowed loss that Quiksilver posted late Thursday.

A trader said the name was “rebounding,” seeing the 7 7/8% notes due 2018 rising 3½ points to 86½.

Another trader said the debt was “definitely better,” pegging the 7 7/8% notes in the area of 86½ to 87.

The 10% notes due 2020 then hit a high of 64, which was up from the mid-50s, he said.

Loss for the fiscal fourth quarter narrowed to $49 million, or 29 cents per share, from $175 million, or $1.04 per share, a year ago. Revenue fell to $400.7 million from $475.9 million.

Analysts polled by FactSet had predicted a loss of 12 cents per share on revenue of $430 million.

The company also provided some guidance for 2015, forecasting revenue of $1.48 billion to $1.55 billion.

Analysts had previously estimated revenue of $1.62 billion.

Gymboree holds post-earnings

Gymboree also released earnings late Thursday, showing a wider loss but improved sales.

A trader said the company’s 9 1/8% notes due 2018 ran up 7 points in after-market dealings to 40, where it stayed come Friday trading.

Another trader also noted that the paper ran up to 40 on Thursday. He saw it going out at 39 bid, 40 offered on Friday.

For the quarter, net loss widened considerably to $522.1 million, versus $24 million the year before. However, net sales increased to $316.8 million from $309.8 million and same-store sales improved by 1%.

Part of the wider loss was attributed to a $591.4 million non-cash goodwill and intangible asset impairment charge.

Adjusted EBITDA was $29.8 million compared to $33.9 million for the same quarter of 2013.

Looking ahead, the San Francisco-based children’s clothing retailer said it was expecting to report full-year adjusted EBITDA of $90 million to $100 million.

“Based on this guidance, the company expects to have sufficient liquidity during the next 12 months to service its debt and invest in the business to drive long-term growth,” the company said in its earnings release.

Gymboree is also planning to shutter 40 stores in 2014, 14 of which have already closed. The company then plans to open about 50 new stores, 46 of which have already opened for business.

And, the company is forecasting that it will spend another $35 million to $40 million on capital expenditures. It spent $7.8 million in the third quarter.

Caesars’ lenders OK plan

A trader said Caesars’ debt was “very active” following news that the Las Vegas-based casino operator’s senior lenders had OK’d a restructuring plan that would put Caesar Operating Co. into bankruptcy.

Upon its emergence from Chapter 11 protections, the operating unit would become a two-pronged real estate investment trust – one side manages the company’s properties and the other owns the assets.

But bondholders have yet to agree to the terms, according to the reports.

Under the plan, first-lien bondholders would get recovery of 93.8%. Senior lenders are slated to get 100%.

The trader said the first-lien bonds – the 11¼% notes due 2017, the 8½% notes due 2020 and the 9% notes due 2020 – were initially quoted lower on the news but came back to end unchanged at 75 bid, 76 offered.

He also remarked that there is a coupon payment on the 10% subordinated notes due 2018 on Monday.

He saw that paper trading around 17.

At another desk, a trader said the 10¾% notes due 2016 improved half a point to 11½, while the 12¾% notes due 2018 inched up a quarter-point to 16½.

He said the 10% notes dipped half a point to 17.

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