Sears bonds gain on spinoff plans, expected improvement in numbers; Caesars modestly better

By Stephanie N. Rotondo

Portland, Ore., May 1 - Distressed bonds were "really strong" Tuesday, according to a trader.

"Everything was higher," he said. "I don't see anything on the downside at all. Everything seems to be better or unchanged for the most part."

Sears Holding Corp. bonds were "climbing" higher ahead of the company's annual meeting Wednesday and earnings later this month. The struggling retailer - which at the end of 2011 said it was shuttering 120 stores - is expected to report improved earnings for the quarter and is also said to be considering spinning off its Hometown and Outlet stores.

Caesars Entertainment Corp. notes were also rising, albeit modestly. After the market closed, the Las Vegas-based casino operator posted its first-quarter results. The report showed a wider loss year over year but also showed a 4.3% increase in revenues.

Meanwhile, the market continued to push up Residential Capital LLC paper ahead of an anticipated bankruptcy filing. As previously reported, ResCap could be filing for Chapter 11 protections within the next couple of weeks.

Spinoff plan boosts Sears

A trader said Sears Holding's 6 5/8% notes due 2018 were "at least 1½ points higher" in Tuesday trading. He placed the paper at 901/2.

"That's been climbing," another trader said of the debt, calling the bonds "up a couple [points]" at 91 bid, 92 offered. That compared to 88 bid, 89 offered on Monday, he said.

The gains came ahead of the company's annual shareholder meeting on Wednesday, in which the company is expected to discuss potential plans to spinoff its Hometown and Outlet stores.

In a regulatory filing on Monday, the Hoffman Estates, Ill.-based company said it would conduct a rights offering for the spinoff in the third quarter. The new company will trade on the Nasdaq under the symbol "SHOS," the company said.

ESL Investments Inc., a hedge fund owned by Sears' chairman, Edward Lampert, would purchase as many shares as possible, the filing indicated.

Additionally, Sears is expected to report improved first-quarter earnings later this month.

In a press release issued Tuesday, the company said that it is expecting a net loss between $155 million and $195 million, or between $1.46 and $1.84 per share. That compares to a net loss of $165 million, or $1.53 per share, for the same quarter of 2011.

Caesars' revenue rises

Caesars Entertainment's debt rose modestly ahead of the company's after-the-bell earnings release.

A trader said the 10% notes due 2018 were "fairly active" at 76½ bid, 76¾ offered. He deemed that up half a point to three-quarters stronger.

Another market source called the issue up a point at 76¾ bid.

A third source saw the paper gaining 1½ points to end around 75.

For the first quarter of 2012, Caesars reported a 4.3% increase in revenues, which came to $2.27 billion. However, the net loss widened to $280.6 million from $147.5 million the year before.

"We saw strong performance in our core business in the first quarter, driven primarily by gains in Las Vegas and in our online businesses," Gary Loveman, chairman, president and chief executive officer, said in the earnings statement. "We continued to make progress on expanding our distribution network both on land and online, on leveraging our scale to drive efficiency and growth and on further strengthening our financial position."

The wider net loss was attributed to a decrease in income from operations and higher interest expense.

ResCap pushes upward

A looming bankruptcy filing has been pushing Residential Capital's 9 5/8% notes due 2015 higher, a trend that continued into Tuesday's session.

One trader pegged the debt with a 94-handle, while another trader said the bonds were up half a point at 941/2.

ResCap is expected to be preparing a bankruptcy filing that could come within a matter of weeks - presumably ahead of a mid-month interest payment. On Friday, its parent company, Ally Financial, Inc., confirmed that Chapter 11 was in fact on the table and that if that route was taken, it could cost Ally as much as $1.25 billion.

ResCap is based in Minneapolis.

PDVSA still active

A trader said that Petroleos de Venezuela SA's 9% notes due 2021 "were still on the actives list"; he quoted the Caracas-based Venezuelan state-run oil monopoly's bonds around 82, which he called "pretty much unchanged."

He also saw PDVSA's 5¼% notes due 2017 at 78 bid, 78½ offered, which he called down a half-point.

"There was decent volume," he said, with at least $16 million to $17 million of each issue trading.

He said activity was "left over - we saw a lot of activity in that [Monday] as well."

A second trader said that "a lot of PDVSA was still trading. I guess everybody makes a different bet every day on what's going to happen to [Venezuelan strongman Hugo] Chavez."

Broad market moves higher

Among other distressed issues, Clearwire Corp.'s bonds "ticked up," a trader said, seeing the 12% notes due 2015 at 93½ bid, 94 offered and the 12% notes due 2017 at 77 bid, 78 offered.

Another trader saw Verso Paper Corp.'s 8¾% notes due 2019 gaining a point to end at 511/2.

The trader also saw Cemex SAB de CV's 9¼% notes due 2020 recovering the ground lost in the previous session. The bonds inched up 1½ points to 91.

Paul Deckelman contributed to this report

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