Petsmart improves post-numbers; Toys’ debt remains weak on legal hiring; energy issues muted

By Stephanie N. Rotondo

Seattle, Sept. 7 – The distressed retail space was in focus on Thursday, as investors eyed the latest quarterly results from Petsmart Inc. and digested recent news from Toys “R” Us Inc.

A trader said the pet products retailer was “one of the more notable ones” of the day, as its bonds were “up a couple points post-numbers.”

For instance, he saw the 7 1/8% notes due 2023 ending in an 83 to 83½ range, while the 5 7/8% notes due 2025 ticked up to 91½ to 92.

The bonds had started to trend higher on Wednesday ahead of the earnings announcement, which came after the midweek session’s close. A conference call to discuss the results was held on Thursday.

However, as the Phoenix-based company is private, those results were not released to the public.

Petsmart paper has been trending lower since early August, when it was announced that Michael Massey was leaving his post as chief executive officer.

A replacement has not yet been named.

Meanwhile, investors continued to pressure Toys’ debt following its announcement on Wednesday that it had hired Kirkland & Ellis as legal advisers.

The firm is well known in bankruptcy circles, leaving many to wonder if the struggling toy retail chain planned to enter Chapter 11.

A trader saw the company’s 7 1/8% notes due 2018 ending in the low-70s. He noted that the paper had opened the day around 82.

Prior to the news on Wednesday – which resulted in a nearly 20-point drop – the bonds had been trading in the mid-90s, the trader said.

Another market source saw the notes finishing at 77 bid, down 3½ points on the day.

Toys has about $400 million in debt that will come due in 2018. The hiring of the legal adviser could indicate a bankruptcy is imminent, or it could just be that the Wayne, N.J.-based company is trying to restructure its debt.

Investors will be hoping to hear more about the hiring of the law firm, as well as the company’s plan to deal with its debt burden, when the company issues its second-quarter results on Sept. 26.

Away from retailers, a trader said there wasn’t much notable.

Energy was on the quiet side, he said, California Resources Corp. in particular.

The trader said the 8% second-lien notes due 2022 were “pretty unchanged,” trading around “56-ish.”

CGG SA – a provider of geophysical services for the oil and gas industry – was meantime up almost at point, according to a source.

The source pegged the 6½% notes due 2021 at 43½ bid.

The market was likely taking a beat on energy names given the hurricanes that have battered the Gulf Coast. Even domestic crude oil prices were a tad lower amid concerns of the storms, as well as expectations that Libya would report higher-than-expected output.

In its report on Wednesday, the U.S. Energy Information Administration said domestic crude stockpiles rose last week, the first inventory build in the last 10 weeks. Hurricane Harvey was blamed for the increase and Irma – the next storm to hit the U.S. – could have a similar impact.

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