Quiksilver looks to recoup losses; Walter, Endeavour weaken as ratings cut; NII gains strength

By Stephanie N. Rotondo

Phoenix, Sept. 8 – It was a mixed day for distressed debt on Monday as recently topical names remained in focus.

A trader said Quiksilver Inc.’s debt “stopped their freefall,” a trader said, following the company’s late Thursday release of weak third-quarter results.

The bonds were down hugely in Friday trading.

But come Monday, the 10% notes due 2020 managed to inch up a little higher, the trader said, seeing the notes just over a point higher at 64 3/8.

Another trader remarked that the name was “relatively quiet compared to Friday,” but still better. The 7 7/8% notes due 2018 closed around 92, while the 10% notes ended around 64.

The Huntington Beach, Calif.-based company posted a net loss of $220.1 million, or $1.29 per share. That compared to a profit of $2.1 million the year before.

Revenue dropped 19% to $395.7 million. On a segmented basis, revenues were most impacted in the Americas, declining 26%. The Europe-Middle Eat-Africa segment saw revenues fall 16%.

Analysts polled by Thompson Reuters had predicted a 2-cents per share profit on revenue of $441 million.

Gross margins slipped to 47.8% from 49.1%.

Last year, the company began a multiyear plan to turn itself around, focusing on core brands and cutting costs. But the quarter’s results brought that plan and its progress into question.

In a report out Monday, Gimme Credit LLC analyst Kim Noland wrote that the results “wiped out a quarter of [the company’s] equity market value.” Though management is maintaining that it has adequate liquidity and no covenant issues, Noland noted that free cash flow has gone negative and net leverage its over 10x.

Still, as wholesale channels have slackened, the company “may be forced to borrow to make interest payments if operations don’t improve quickly.”

S&P drops Walter, Endeavour

Standard & Poor’s took negative action on Walter Energy Inc. and Endeavour International Inc. on Monday, resulting in some weakness for both names.

A trader said Walter’s 8½% notes due 2021 were “weaker,” pegging them around 44.

S&P cut the coal producer’s credit rating to SD from CCC+ on Monday, citing the completion of an exchange of $25 million of its 9 7/8% notes due 2020 for 2.25 million common shares.

The agency deemed the transaction as a distressed exchange, thus the downgrade.

Though S&P said it would likely move the rating back up, it noted that the effort would have minimal impact on the company’s bottom line, which it deemed unsustainable without some sort of improvement in the metallurgical coal market.

Endeavour was meantime lowered to D from CCC and its first- and second-priority notes got dropped to D from CCC- and CC, respectively.

The agency said the rating cuts were due to the company’s missed $33.5 million coupon payment that came due Sept. 2.

On that news, the 12% second-priority notes due 2018 slipped slightly to 34¾, according to a trader.

NII ‘a bunch better’

A trader said NII Holdings Inc. paper was “a bunch better,” calling both the 7 7/8% notes and 11 3/8% notes due 2019 up “about 5 points,” at 67½ and 68, respectively.

The trader also saw the 7 5/8% notes due 2021 rising 1½ points to 16.

Another trader said the name was active, as the 7 5/8% notes put on “over a point” to end at “15 5/8-ish.” The 10% notes due 2016 gained 1¼ points, he said, to 28.

In the 2019 maturities, the 7 7/8% notes were seen up 4 points at 67, while the 11 3/8% notes were called 2½ points higher at 65½.

There was no fresh news out on the Reston, Va.-based provider of Nextel mobile services in Latin America and Mexico. But Sept. 15 will mark the end of the company’s grace period, which it entered into upon missing a nearly $119 million coupon payment on Aug. 15.

Prior to missing the payment, the company had warned of a potential bankruptcy filing when it filed its latest quarterly report.

If the company fails to make the payment or does not secure a forbearance, it could be forced into Chapter 11 protections and the debt accelerated.

Colt gains

Colt Defense LLC’s 8¾% notes due 2017 saw “a fair amount of volume,” according to a trader.

The trader deemed the debt up 1½ points at 73½.

A second trader placed the issue at 73, up a point.

There was no fresh news out on the gun manufacturer.

Exelixis stabilizes

Exelixis Inc.’s 4.25% convertible notes due 2019 remained topical following the company’s dismal drug trial announcement last week.

On Sept. 1 – Labor Day – the drug maker announced that its phase III Comet-1 study on cabozantinib – a drug for the treatment of metastatic castration-resistant prostate cancer – failed to hit its primary objectives by not proving any significant success to increase a patient’s survival.

The company said that it had unenrolled in a Comet-2 study following the failure.

Also, because the drug did not prove successful, the company is planning to reduce its workforce by 70%.

What followed was a massive stock decline. The 4.25% converts were also pressured, slowly trickling down through Friday trading.

But come Monday, “the bonds have been trying to find their footing again,” a trader said.

He saw the notes trading around 59, which was unchanged from Friday.

Even the underlying stock (Nasdaq: EXEL) was attempting to recoup its losses, ending the day up 2 cents, or 1.08%, at $1.87.

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