Toys 'R' Us debt continues decline post-earnings; TXU, Global Geophysical rise; Walter weaker

By Stephanie N. Rotondo

Phoenix, March 27 - Distressed debt investors remained focused on recently topical names during Thursday trading.

Toys 'R' Us Corp.'s bonds continued to weaken, just one day after the company reported dismal fourth-quarter results.

Energy Future Holdings Corp. and Global Geophysical Services Inc., however, were on the upside. Chatter is that Energy Future - or TXU, as it is more commonly referred to - will file for bankruptcy as soon as this weekend. Global Geophysical filed for bankruptcy late Tuesday.

Concerns about the coal sector continued to weigh on the space, but it was Walter Energy Inc. in particular that was getting hit.

A trader said the name was "heavy again," seeing the recently priced 11%/12% second-lien PIK toggle notes due 2020 falling "a few points" end around 91. Another trader said the 9 7/8% notes due 2020 were off over 4 points at 66, while the 8½% notes due 2021 lost almost 3 points to close around 64.

Also in the coal arena, Arch Coal Inc.'s 7¼% notes due 2021 dipped appoint to 74¾ and the 7% notes due 2019 lost over half a point to finish around 76 7/8, according to a trader.

Toys 'R' Us remains weak

Just one day after reporting a quarterly loss versus a year-ago profit, Toys 'R' us' debt continued to decline.

A trader saw the 7 3/8% notes due 2018 falling 1½ points to end around 81. Another market source placed the bonds at that level, deeming that down nearly 2 points on the day.

A third source pegged the 7 3/8% notes at 81 as well, down 1½ points. He also saw the 10 3/8% notes due 2017 at 85, which he said was softer.

On Wednesday, the Wayne, N.J.-based toy retailer reported earnings. During the quarter ended Feb. 1 that included the ever-important holiday selling season, same-store sales dropped 4.1% domestically and 2.2% internationally.

Net sales were down 8.7% to $5.27 billion.

Net loss was $210 million, which compared to a net profit of $239 million the year before. The company said the loss was due in part to a $378 million goodwill impairment charge and a $296 million decline in gross margin dollars, which included a $52 million domestic inventory writedown.

Gross margin fell to 31.8% from 34.1%.

On the positive side, income tax expense fell to $12 million from $212 million. The company also noted that it cut its long-term debt by $322 million in 2013 and that it had amended its $1.85 billion secured revolver to extend the maturity date to 2019.

TXU, Global Geo end strong

Energy Future Holdings' 15% notes due 2021 were "up smartly," a trader said, seeing the issue closing up "4 and change points" to 221/2.

The gain comes as the market swirls with rumors that a bankruptcy filing is coming as soon as this weekend. The chatter was further fueled Wednesday when it was reported that secured lenders had rejoined restructuring negotiations.

The lenders had previously walked away in October.

Meanwhile, Global Geophysical's 10½% notes due 2017 were gaining ground, as one trader said the issue jumped almost 8 points to 611/4.

The company filed for bankruptcy late Tuesday and as such, the bonds are trading flat, or without accrued interest.

Fannie, Freddie firm

A preferred stock trader said Fannie Mae and Freddie Mac preferreds were "ticking up a little bit." He noted that Bank of America Corp. had agreed to a settlement with the two agencies late Wednesday, in which the bank would pay them $9.5 billion to settle claims related to losses on securities backed by faulty loans.

Additionally, Rep. Maxine Waters of California introduced a draft proposal of yet another bill aimed at reforming the mortgage giants. As outlined, her bill would create a co-op of lenders that could issue home loans backed by the government. The bill would also create an insurance fund that could be drawn upon in case of another financial crisis.

Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) gained 11 cents, ending at $11.30. Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) gained 2 cents to $10.70, while the 8.25% series T noncumulative preferreds (OTCBB: FNMAT) rose a nickel to $11.90.

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