Quiksilver bonds slip on second-quarter earnings; Hawker Beechcraft boosted on rating upgrade

By Stephanie N. Rotondo

Portland, Ore., June 9 - Quiksilver Inc.'s bonds were seen declining Tuesday after the company's late Monday earnings release.

Despite a swing to profit, Quiksilver's bonds were not able to hang on to their higher levels. The company had also announced a new restructuring plan that included a $150 million term loan.

Meanwhile, Hawker Beechcraft Acquisition Co. LLC's debt headed for higher ground after a Standard & Poor's analyst upgraded the company's credit rating. Still, the analyst kept the outlook at negative and warned that times were still tough for the aircraft manufacturer.

Though overall trading volumes in the secondary world were higher than Monday's session, traders were still seeing lackluster activity in the distressed arena.

"It wasn't bad," a trader said. "It's still like pulling teeth getting anything done, but there is still some action in the market."

As for distressed territory, the trader said that recent run-ups in most distressed names were likely resulting in holders of said debt hanging on "until the market comes to them."

"We need some sort of catalyst to see changes in prices," he said.

Quiksilver slips following earnings

Quiksilver's bonds declined as much as 5 points on the day following the company's earnings release - and subsequent conference call - on Monday.

A trader said "the market seemed lower" in the name, deeming the 6 7/8% notes due 2015 a couple points weaker around 64. Another trader quoted the issue at 64 bid, 64.5 offered, down 5 points.

Late Monday, the Huntington Beach, Calif.-based company reported its second-quarter results. For the quarter ending April 30, consolidated net revenues fell to $494.2 million from $596.3 million the year before.

The quarter showed a swing to profit for the company. Net income came in at $2.8 million, or 2 cents per share, compared with a net loss of $206.2 million, or $1.59 per share, for the same quarter of 2008.

"We are pleased to report second quarter earnings that are essentially in line with our expectations, but the environment remains extremely challenging and we have yet to see any improvement in overall business trends," said Robert B. McKnight, Jr., chairman chief executive and president, in a press release. "With customers proceeding cautiously in this uncertain market, orders for the second half are building more slowly than in past periods and we continue to look for opportunities to streamline the business and improve profitability. As such, we are targeting substantial cost reductions by the end of this fiscal year and are planning our business conservatively."

Furthermore, the company said that it expects its third-quarter revenues "to be down in the mid-teens on a percentage basis compared to the same quarter a year ago and that diluted earnings per share are expected to be in the low-single-digit range."

The company also announced a restructuring plan on Monday that included a $150 million five-year term loan arranged with Rhone, an international private equity firm.

"Clearly our most important message is captured in our financing press release, also issued today, in which we announced the $150 million infusion by Rhone and the update on our Americas and European refinancing efforts," noted McKnight in his statement. "We do not think of the Rhone investment as merely a loan, but as the cornerstone of Quiksilver's financial restructuring plan. Rhone is a strong strategic partner with an international presence and extensive experience investing in globally diversified businesses across a number of sectors. Our agreement with Rhone not only provides the financial stability necessary to complete our new Americas and European financing efforts, but it also allows us to improve our global business and increase the efficiency of our worldwide operations. We are pleased to have addressed our liquidity concerns so that we can now sharpen our focus on streamlining the business and making great product within our three great brands - Quiksilver, Roxy and DC."

Hawker rating, bonds gain

Hawker Beechcraft's debt gained as much as 2 points on the day after receiving a rating upgrade from Standard & Poor's.

A market source saw the 8 7/8% notes due 2015 inching up slightly to 31.5 bid, 32 offered, while the 8½% notes due 2015 jumped a deuce to 45 bid, 46 offered.

S&P boosted the aircraft manufacturer's corporate credit rating to CCC+ from SD. However, the outlook remained negative.

"Although Hawker Beechcraft had a sizable aircraft order backlog of $7.3 billion at March 29, 2009 (more than two years of production), numerous order deferrals and cancellations across the industry will likely lead to considerably lower earnings and cash flow generation than we expected and adverse effects on the company's already very weak credit protection measures," wrote S&P credit analyst Roman Szuper. "Demand for new planes has fallen steeply because of the global recession, lower corporate profits, tight credit markets, and an increased number of attractively priced used planes on the market. In addition, in the current economy, some people view the use of corporate aircraft unfavorably.

"We are less likely to revise the outlook to stable in the near term, considering the weak industry conditions," Szuper concluded.

Broad market firms

In the rest of distressed land, a trader quoted Rite Aid Corp.'s new 9¾% notes due 2016 having risen to 100.25 bid, 100.5 offered from Monday's pricing level of 98.196.

He also saw its 10 3/8% notes due 2016 a point better, at 90 bid, 91 offered, but said he saw "not that much" trading going on there.

A second trader saw the new Rite Aid bonds at par bid, 100.5 offered.

Another, though, quoted them at 99 7/8 bid, 100 3/8 offered. He also saw the 10 3/8s rise to 91.75 bid from 89.75 on Monday, on volume of $6 million, and its 9 3/8% notes due 2015 unchanged at 67 bid, on $9 million of volume.

The most active issue, he said, was the 7½% notes due 2017, which pushed up to 79 5/8 bid from 70 on Monday, on volume of $20 million.

In the gaming sector, a trader saw Trump Entertainment Resorts Inc.'s 8½% notes due 2015 "up a little bit," to "15 and change" from levels about a point below that previously. But he said it "wasn't much" of a move, just quoted higher."

Freescale Semiconductor Inc.'s bonds "continue to move up," a trader said, seeing its most active issue, the 8 7/8% notes due 2014 a point better at 61, on $10 million traded, its 9 1/8% notes due 2014 nearly three points.

Paul Deckelman contributed to this article.

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