Distressed bonds lower in line with junk retreat, Caesars, NII lead activity; P.R. eyes new debt

By Paul Deckelman

New York, Jan. 24 - Taking their cue from the overall high-yield bond market, bonds of distressed and under-performing companies were lower pretty much across the board on Friday, market participants said.

As had been the case for most of the week, two names largely dominated trading activity, at least in numerical terms - Caesars Entertainment Corp. and NII Holdings, Inc.

The latter company's paper - which had recently run up smartly, helped by a slew of corporate announcements in the past two weeks - was particularly hard hit, with its two most widely traded issues, both near the top of the Most Actives list, seen down multiple points on the day.

In the always volatile retail space, a trader saw RadioShack Corp.'s bonds - which had firmed over the previous few sessions on news of a major equity investment - mostly hanging in, although he acknowledged that they had come off their recent highs.

Also among the retailers, J.C. Penney Co. Inc. and Toys 'R' Us, Inc. were downsiders.

In the municipals market, investors were watching with interest as officials in Puerto Rico unveiled plans to go to the debt markets next month with a bond issue. One of the major ratings agencies recently warned the debt-laden island commonwealth that it faces a possible ratings downgrade into junk territory - a development that would be considered something of a disgrace in the normally staid muni world. Even without an official downgrade - yet - yields on a new bond issue would be expected to carry very junk-like yields.

NII leads plunge

Traders saw junk bonds mostly lower by between ½ point and 1 full point on the day Friday, on top of Thursday's ¼ to ½ point slide, with many issues considerably lower than that.

One of the worst performers on the day was NII Holdings' recently robust NII Capital Corp. 10% notes due 2016. A market source saw those bonds plunge by as much as 4¼ points on the day to go home at 62¼ bid, on volume of over $22 million, making it one of the busiest bonds in the market on the day.

A trader noted that the bonds had gotten as high as a 66 to 67 context earlier in the week, "so they're down 4, 5 points on the week."

He also saw the company's 7 5/8% notes due 2021 among the Most Active issues, with over $12 million having traded. The bonds lost nearly 2½ points on the session, to close at just under 42 bid. Earlier in the week, they had gotten as high as 46 or 47 bid.

The bonds had recently gotten a boost by several news announcements coming from the company, which sells Nextel wireless service, including its popular push-to-talk function, in Mexico and several other Latin American countries.

On Monday, it said that its PRIP Push-to-Talk app would be available on iPhones in the United States, where push-to-talk - formerly offered by Sprint Corp., which bought Nextel several years ago - was discontinued when Sprint abolished the legacy Nextel platform and migrated its former customers over to its own operating system. NII, meanwhile, already has a version of the app out that is compatible with the popular Android wireless phones.

That was the third significant announcement in the past 10 days from NII - on Friday it declared that it has entered into an agreement with Apple Inc. that will allow NII to offer the two Apple iPhones 5S and 5C to its Nextel customers in Brazil as early as the end of this month.

And last Monday, NII said it had inked a pact with Spanish telecom company Telefonica SA that will let it use Telefonica's existing 3G networks in Mexico and Brazil, saving itself the necessity of a costly infrastructure build-out to reach remote customers.

Caesars slide seen continuing

A trader said that Caesars Entertainment's 10% notes due 2018 were down about 7/8 point on the session, closing at 50 bid, on volume of over $23 million.

The notes - issued by the Las Vegas-based gaming giant's corporate predecessor company, Harrah's Entertainment Inc. - have been coming in of late, down from levels close to 60 bid earlier in the month, though on no firm news about the company.

RadioShack in retreat

In the retailing space, a trader said that RadioShack's 6¾% notes due 2019 "were hanging in there," quoting the Fort Worth, Texas-based electronics retailer's paper trading in a 59½ to 60½ bid context, "within a point of where they've been lately. They've been bouncing around the 60ish area the last few days.

Still he acknowledged that the notes had come in a little from their peak levels in the low 60s earlier in the week. The bonds had risen to that point in line with a rise in the company's shares generated by news reports indicating that hedge-fund Litespeed Management LLC had taken a passive 8.1% stake in the company.

Also in the retailing world, a market source said that Hoffman Estates, Ill.-based department store operator Sears Holdings Corp.' 6 5/8% notes due 2018 lost 3/8 points on Friday to end at 90 1/8 bid, on volume of over 410 million. That was a reversal from Thursday, when the notes had bucked a generally negative market trend to gain 5/8 point and go home at 90½ bid.

Plano, Texas-based department store operator JCPenney's 5.65% notes due 2020 were seen down 1 full point Friday to close at 73½ bid, on top of losses of ¾ point on Thursday and Wednesday's downturn of nearly 1¼ points.

Its 7.65% notes due 2016 did even worse, quoted down some 3½ points on Friday to 83½ bid.

Wayne, N.J.-based toy and game retailer Toys 'R' Us' 7 3/8% notes due 2018 eased by ¾ point on the day to end at 76 bid.

Puerto Rico plans deal

In the municipals market, officials in Puerto Rico said Friday that the island commonwealth will be doing a debt deal soon, probably coming to market with its bond sale in February. The sale could be done by its Sales Tax Financing Corp. entity.

In an interview on CNBC, David Chafey, the chairman of the Government Development Bank, said there is enough cash on hand to last through June.

Back on Dec. 11, Moody's Investors Service threatened to cut Puerto Rico's debt rating to junk bond status within 90 days if it is unable to access capital markets.

Recent news reports have indicated that Morgan Stanley has been sounding out potential investors on a $2 billion deal for the commonwealth - whose $70 billion debt load is matched in the United States only by the debt balances of the much larger California and New York states.

Market sources have indicated that such a deal could carry a yield as high as the 10% area - effectively a junk bond yield - with or without a formal downgrade by Moody's or another agency.

In the wake of Chafee's remarks, Standard & Poor's on Friday lowered the credit outlook to negative for the commonwealth and the Government Development Bank, cautioning that "current market conditions for Puerto Rico's debt issuances will require relatively high yields," and noting "a limited pool of specialized buyers."

-Sheri Kasprzak contributed to this review

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