Holiday weekend results in muted marketplace for distressed debt; American Apparel downgraded

By Stephanie N. Rotondo

Phoenix, Aug. 29 – Trading in the distressed debt market was “abysmal” on Friday ahead of the long Labor Day weekend, a trader said.

“Nothing is really trading,” he said. “It’s almost like the market is not even open.”

Another trader said none of the “dregs” of the distressed space were doing much, noting that he was seeing “only moderately distressed” names go by.

Caesars Entertainment Corp. was one such name. A trader saw its bonds trading mixed, as the 8½% notes due 2020 fell half a point to 80½ and the 9% notes due the same year gained half a point to 80¾.

In the mining space, Alpha Natural Resources Inc.’s 9¾% notes due 2018 were up a quarter-point at 90¼. Cliff’s Natural Resources Inc.’s 6¼% notes due 2040 were a shade higher at 87 1/8.

Meanwhile, Affinion Group Inc.’s 7 7/8% notes due 2018 were holding steady at 90¾.

American Apparel rating falls

Standard & Poor’s downgraded American Apparel Inc. on Friday, cutting the company’s rating to CCC- from CCC.

The ratings agency said the outlook is negative.

The company’s 13% notes due 2020 were also slashed, dropping to CC from CCC-.

However, the bonds were not moved by the news, according to a trader, who said the issue last traded on Aug. 22 at 113¼.

S&P said its actions were based on the belief that the company will need to undergo a debt restructuring within the next six months.

The clothing manufacturer and retailer has been in the news of late, as the company ousted its founder and chief executive, Dov Charney, based on allegations of misconduct. That misconduct has allegedly resulted in weakening financials, though just last week the company reported a narrower second-quarter loss.

On Wednesday, Lion Capital LLP said it was exercising its right to nominate a director to the company’s board, naming Robert Mintz to fill the seat.

Lion Capital previously loaned the company money, but that was repaid from new funds brought in by shareholder Standard General LP. But Lion Capital does own warrants equal to about 12% of the company’s stock, as well as the right to name two directors to the company’s board.

With the appointment of Mintz, the second seat remains empty as the previous director resigned in March 2011.

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