Walter Energy bonds on the decline; Sears debt weakens again; topical names remain in focus

By Stephanie N. Rotondo

Phoenix, Sept. 17 – The distressed debt market was on the rise Wednesday as the Federal Reserve gave an indication of when it planned to raise interest rates.

In its statement after its monthly meeting, the Fed said that it would keep interest rates at lower levels for some time, choosing to hike rates once data supports doing so and not focusing on a specific calendar date.

With the central bank’s quantitative easing program slated to end in October – the bond repurchase program was cut to $15 billion a month – the Fed said rates would stay low for “a considerable time” once the easing eased.

Of the day’s dealings, the coal sector was under pressure, but none more so than Walter Energy Inc. The company has been struggling, like most of its peers, but has found itself in a predicament as energy companies look to cheaper coal, such as that found in the Illinois Basin. Walter mines the Appalachian region.

Sears Holdings Corp. meantime continued to slide, just one day after the company announced it had secured a $400 million loan from its chief executive officer.

Walter debt drops

Walter Energy bonds were on the decline Wednesday.

“It just sounds like people are going after coal in general,” a trader said. But Walter in particular has been “underperforming,” he said.

The trader saw the 11% notes due 2020 were down 5 points intraday, hitting a low of 59. The 9½% notes due 2019 were “a good bit lower as well,” trading around 93.

At another desk, a trader called the 11% notes off 3 points at 63 7/8. The 8½% notes due 2021 ended down 4 points at 36 bid, 36¼ offered and the 9 7/8% notes due 2020 closed down 4 points as well, at 43½.

By comparison, Alpha Natural Resources Inc.’s 6¼% notes due 2021 slipped just a quarter-point to 67, while the 6% notes due 2019 were just a touch weaker at 70 7/8.

New U.S. emissions standards are requiring energy companies to install sulfur dioxide scrubbers to reduce sulfur levels. As such, it is making cheaper coal, such as that drawn from mines in the Illinois Basin, more attractive than coal from the Appalachian region, which is more expensive.

Sears slips lower

A trader said Sears’ 6 5/8% notes due 2018 were “a little bit lower” in midweek trading, pegging the issue at 89½.

Another trader said the debt was “sliding a little bit,” seeing the paper falling a point to 89 5/8.

On Tuesday, the Hoffman Estates, Ill.-based retailer announced that it had secured a $400 million loan from ESL Investments, the hedge fund run by the company’s CEO, Eddie Lampert.

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.

Gym, NII, Colt active

Most of the activity in the distressed debt market was focused on names that have been topical of late.

The Gymboree Corp. “continued to creep higher” on Wednesday, with one trader pegging the notes in a 36 to 37 context.

Another trader deemed the debt up nearly a point at 36¼.

He said at least $20 million changed hands.

The bonds of the children’s clothing retailer began inching up on Tuesday, after they had been on the decline in the wake of weak earnings.

NII Holdings Inc. meantime continued to gain ground after the company’s bankruptcy filing on Monday.

One trader said the 7 5/8% notes due 2021 were the most active, rising 1¼ points to 16 1/8. The 10% notes due 2016 inched up half a point to 24.

In the 2019 maturities, the 7 7/8% notes put on 1½ points to end at 65, while the 11 3/8% notes gained almost 2 points to 65¾.

The 8 7/8% notes were unchanged at 24¼.

Another trader said the 7 5/8% notes “kept creeping up,” seeing them at 16½.

He pegged the 11 3/8% notes at 67.

Also in focus were Colt Defense LLC’s 8¾% notes due 2017.

“They’ve been pretty topical after falling post-numbers,” a trader said, referring to the company’s latest quarterly results, which showed a swing to a loss and a major decline in sales due to declining rifle demand.

The trader saw the notes at 64. Another trader echoed that level, deeming that off half a point.

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