Sears bonds rise, stock slides after dismal sales numbers; YRC refinancing plan hits roadblock

By Stephanie N. Rotondo

Phoenix, Jan. 10 - As the first full trading week of the year wound down, there was still strength to be seen in the distressed debt arena on Friday.

Even Sears Holdings Corp.'s debt moved higher, despite the company reporting weak same-store sales for the most recent holiday season.

The stock, however, was down considerably.

However, YRC Worldwide Inc. saw its bank debt decline as the company's union employees rejected a new labor contract. The rejection throws a wrench in YRC's refinancing plan, as creditors had made the deal contingent on getting a new contract in place.

Sears' sales dismal

Sears reported same-store sales for the quarter and year-to-date periods on Friday. The weak numbers pummeled the company's equity, but its bonds managed to hold up.

One trader said the 6 5/8% notes due 2018 rose a deuce to 881/2, with over $20 million bonds changing hands.

The term loan was meantime quoted at 99 5/8 bid, par 3/8 offered, down from par ¾ bid, 101¾ offered, another trader said.

The stock (Nasdaq: SHLD) dropped $5.85, or 13.74%, to $36.72.

At quarter ending Jan. 6, domestic Sears brand stores saw sales fall 9.2% while Kmart brand store sales dropped 5.7%. All told, sales were down 7.4%.

For the year, domestic sales declined 4.2%, with Kmart slipping 3.7%.

That equaled a total same-store sales decline of 3.9% for the year.

The company said the sales decline was across all categories, "suggesting store traffic was quite weak," wrote Gimme Credit LLC analyst Evan Mann in an afternoon comment out Friday.

"We continue to view [Sears] as a struggling retailer in the process of undergoing an orderly liquidation," Mann said. "We remain skeptical regarding the company's longer term credit prospects."

The Hoffman Estates, Ill.-based retailer also said that it is expecting to post a fourth-quarter loss of $250 million to $360 million, or between $2.35 and $3.39 loss per share.

Though those figures likely failed to entice investors, they are still better than the prior year's loss of $489 million, or $4.61 per share.

For the fiscal year ending Feb. 1, Sears is forecasting a loss of $1.3 billion to $1.4 billion, or between $11.85 and $12.88 loss per share. That would compare to the previous year's loss of $930 million, or $8.78 per share.

As of Jan. 4, the company had $1 billion in cash and $2.3 billion available under its credit facilities.

Sears said it was continuing to evaluate a spinoff of its Lands' End and Sears Auto Center businesses.

Following the company's announcements, Moody's Investors Service cut Sears' corporate family rating to Caa1 from B3.

Elsewhere in the world of retail, RadioShack Corp.'s 6¾% notes due 2019 were seen falling a touch to 571/2, while Toys "R" Us Corp.'s 7 3/8% notes due 2018 moved up over a point to 751/4, according to one trader.

Another market source deemed the Toy issue up just half a point at 74½ bid.

YRC hits a snag

YRC Worldwide was on the decline as the company's union rejected a new contract, thereby putting the company's much needed refinancing agreement in jeopardy.

Creditors had made the financing contingent on contract approval.

One trader said that he was trying to figure out a level on YRC's A series convertibles. A second trader said the issue last traded at 98 and was still in the upper 90s.

YRC shares (Nasdaq: YRCW) were down $3.59, or 23%, at $12.08 in late-morning trade. They recovered some to close down just $2.09, or 13.34%, at $13.58.

YRC's term loan was then seen at 94 bid, 95 offered, down from 97½ bid, 99½ offered as, late in the previous session, the company canceled plans for a bank meeting to launch a $1.15 billion credit facility due to the rejected contract, according to a trader.

Another trader pegged the loan in a 94½ to 95 ZIP code, down from levels "near par."

As previously reported, YRC reached an agreement on Dec. 23 with some holders of its series A convertible notes and series B convertible notes and other institutional investors to allow it to reduce debt by about $300 million. That would have allowed the company to retire at least 90% of the convertible notes.

The Credit Suisse Securities (USA) LLC-led credit facility that was canceled consisted of a $450 million ABL revolver and a $700 million five-year senior secured term loan, and was going to be used to refinance the existing bank debt.

Prior to the refinancing being announced, the term loan B was trading in the 95 bid, 96 offered context. It then rose to the high-90s when the new credit facility was announced a few days ago. On Friday morning, market players were seeing the B loan in the high-80s to low-90s area before it recovered some of those losses, a trader remarked.

YRC is an Overland Park, Kan.-based less-than-truckload carrier.

Sara Rosenberg and Rebecca Melvin contributed to this article

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