Claire’s debt tanks on weak EBITDA, sales forecast; Fannie, Freddie preferreds rise on reform speculation

By Stephanie N. Rotondo

Seattle, July 12 – Claire’s Stores Inc. had the attention of distressed debt investors on Tuesday, as the company warned that second-quarter EBITDA, as well as same-store sales, would be worse than expected.

In the wake of that announcement, the company’s 9% notes due 2019 fell 9 points to 55, according to a trader.

The trader added that volume in the name was quite large.

In an 8-K filed on Monday, the Pembroke Pines, Fla.-based retailer said that as of July 10, same-store sales were down 5.9%, consisting of a decline of 4.2% in North America and an 8.6% decrease in Europe. Expectations for adjusted EBITDA were placed between $37 million and $41 million for the second fiscal quarter, which compared to $59.9 million the year before.

Operating income was also forecast lower, in a $25 million to $29 million range. By comparison, operating income was $38.7 million the previous year.

While the gloomy forecast was deemed in line with expectations by Gimme Credit LLC analyst Evan Mann in an afternoon comment, he noted that there were certainly negative implications.

“Liquidity has now become a defining issue,” he wrote. “At a minimum, a broader distressed debt exchange offer is required sooner rather than later.”

Mann also suggested that private equity owner Apollo Capital Management was “positioning itself to actively participate in what is becoming an increasing likelihood of a bankruptcy filing.”

Claire’s has $260 million of 10½% senior subordinated notes coming due on June 1, 2017.

Fannie, Freddie move up

Fannie Mae and Freddie Mac preferreds were actively trading higher on Tuesday.

Fannie’s 8.25% series S noncumulative preferreds (OTCBB: FNMAS) were up 2 cents at $4.55, while Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) improved 7 cents, or 1.56%, to $4.55.

The gains came amid continued speculation on GSE reform and how that might get done. In recent months, many groups – including 32 congressional Democrats – have tried to persuade the Federal Housing Finance Agency to allow the mortgage giants to rebuild their capital base. In response, other groups have urged the FHFA not to take such action and to instead leave any reform measures to Congress.

Last week, Sens. Bob Corker (R-Tenn.) and Mark Warner (D-Va.) wrote a letter to FHFA head Mel Watt, saying that “incremental steps” to be taken by the agency – the supposed overseer of the GSEs – would be considered fine, but that allowing the GSEs to build their liquidity back up did fall under that umbrella.

The letter again called for the FHFA to wait for Congress to deal with the issue of housing reform. However, any hope that such reform would come soon was somewhat dashed by the last paragraph of the letter: “In closing, we are hopeful that housing finance reform will be on the agenda for the next Congress and Administration and look forward to working with you on that effort,” the senators wrote. “Until that time, we strongly encourage you to focus your efforts on steps that would help, not hurt, housing finance reform legislation.”

Texas Competitive launches loans

Texas Competitive Electric Holdings Co. LLC came out with price talk of Libor plus 450 bps with a 1% Libor floor and an original issue discount of 98.5 to 99 on its $2.85 billion seven-year covenant-light term loan B and $650 million seven-year covenant-light term loan C that launched with an afternoon bank meeting, according to a market source.

The term loans have 101 soft call protection for six months, and amortization on the term loan B is 1% per annum, while the term loan C has no amortization until the term loan B is repaid.

The company’s $4.25 billion senior secured credit facility (Baa3/BB-) also includes a $750 million five-year revolver.

Commitments are due on July 26, with closing targeted for the week of Aug. 1.

Deutsche Bank Securities Inc., Barclays, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, RBC Capital Markets, UBS Investment Bank and Natixis are leading Texas Competitive’s credit facility.

Proceeds will be used to refinance an existing debtor-in-possession financing facility and then will convert to a permanent exit facility upon the company’s emergence from bankruptcy, which is expected before year end.

Gross leverage upon emergence from bankruptcy is anticipated to be 1.9x and net leverage is expected at 1.5x, the company said in a filing with the Securities and Exchange Commission.

Texas Competitive is a Dallas-based power generation company.

Sara Rosenberg contributed to this report.

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