Sears bonds dip as CEO offers new loan; traders mixed on Colt; NII debt stays busy post-filing

By Stephanie N. Rotondo

Phoenix, Sept. 16 – Distressed debt investors put pressure on Sears Holdings Corp.’s debt on Tuesday following news the company had secured a loan from its chief executive officer’s hedge fund.

While the new funds bring the company closer to the goal of raising $1 billion this year, it raised concerns that efforts to monetize other assets weren’t going so well.

Meanwhile, traders gave mixed impressions of Colt Defense LLC’s bonds. The West Hartford, Conn.-based gun manufacturer released earnings on Monday that showed a swing to a loss, as sales declined due in part to a drop in rifle demand.

The company then held a conference call to discuss said results Tuesday morning.

After the filing for bankruptcy protections on Monday, NII Holdings Inc.’s bonds continued to be actively traded, according to traders. As was the case in the previous session, the debt continued to gain ground.

Sears falls on loan news

Sears Holdings’ 6 5/8% notes due 2018 dipped on news the Hoffman Estates, Ill.-based retailer had inked a $400 million loan agreement with ESL Investments, the hedge fund started by Eddie Lampert, Sears’ CEO.

“They never break through 91, but they did today,” one trader said.

Another trader said the issue was active as investors reacted to the news, seeing the paper fall to a 90½ to 90¾ context.

The new loan is being run through affiliates of ESL and carries a 5% interest rate. The loan is backed by first-lien on 25 Sears stores.

The company has already received $200 million of the new financing and the remaining $200 million will be delivered Sept. 30.

As part of its turnaround effort, Sears had previously said it was looking to raise at least $1 billion by the end of the year. It intended to do so through asset sales, the spinoff of its Land’s End stores and the sale of real estate. And while the new loan brings the company to its goal, it has raised concerns regarding efforts to monetize other assets, such as the company’s 51% equity stake in Sears Canada.

“Although near term sources of liquidity remain adequate, we remain skeptical regarding the company’s longer term credit prospects,” wrote Gimme Credit LLC analyst Evan Mann in a comment released Tuesday afternoon.

Gymboree, RadioShack up

Elsewhere in the retail space, a trader said Gymboree Corp.’s 9 1/8% notes due 2018 were “still at the top of the most actives.”

But after steadily declining since reporting dismal earnings on Wednesday, the bonds earned 3 points in Tuesday trading, ending around 35½.

Another trader said the name was “creeping up throughout the day,” finishing with a 35 handle.

RadioShack Corp.’s 6¾% notes due 2018 were meantime “up a little bit” at 37½, according to one trader.

The trader called that about 1½ points better on the day.

Traders mixed on Colt

Traders gave mixed views on how Colt Defense’s 8¾% notes due 2017 performed after the company held its quarterly conference call Tuesday morning.

One trader said the debt ended unchanged at 69½. But another said the paper hit an intra-day low of 61½ before “rebounding back into the mid-60s.”

In its 10-Q filed Monday, the company posted net sales of $49.63 million for the three months ended June 29. That compared to sales of $64.21 million the year before.

Net loss came to $12.6 million, versus a previous profit of $4.4 million.

Last month, the company secured an amendment to its term loan, eliminating and modifying certain covenants and providing for an extension to deliver certain financial information to investors. However, the company warned that it could still violate one or more of the covenants come the quarter ending Dec. 31, or possibly in 2015.

NII continues to push higher

NII Holdings’ debt continued to be active following the company’s bankruptcy filing on Monday.

One trader saw the 7 5/8% notes due 2021 rising over 1½ points to 16½, while the 10% notes due 2016 inched up a touch to 24¼.

The 8 7/8% notes due 2019 were deemed up half a point at 24½.

Another trader also deemed the debt better, seeing the 7 5/8% notes around 16 and the 11 3/8% notes due 2019 around 64.

In early August, the Reston, Va.-based provider of Nextel mobile services in Latin America and Mexico reported another round of weak earnings and warned that it could seek Chapter 11 protections in the near term. Just two weeks later, the company missed a nearly $119 million on its 10% notes.

Because of its inability to keep its technologies up to date, subscribers in Latin America and Mexico have been spurning Nextel’s services for those of America Movil SAB and Telefonica SA. In 2013 alone, the company lost 637,200 subscribers in Mexico.

The company listed assets of $2.88 billion and debt of $3.47 billion in court papers filed Monday.

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