Molycorp, RadioShack keep sliding, Caesars quieter; TXU firmer, Forest holds most gains

By Paul Deckelman

New York, May 9 - Activity in the distressed-debt markets was relatively quiet on Friday, with much of investors' attention continuing to be focused upon the junk bond market's heavy new-issue calendar.

However, there were some movements in the bonds of underachieving companies.

Molycorp Inc.'s bonds extended their losses for a second straight session, after the Greenwood Village, Colo.-based miner of rare earths minerals reported disappointing quarterly results.

Traders saw a fair amount of activity in Caesars Entertainment Corp.'s 11¼ notes, but less activity in some of the company's other paper, which had been very busy earlier in the week after the Las Vegas-based casino giant announced a wide-scale corporate recapitalization plan.

RadioShack Corp.'s bonds continued to head southward, hurt anew by the problem-plagued Fort Worth, Texas-based consumer electronics company's disclosure in a regulatory filing this week that its lenders will not allow it to close as many underperforming stores as it had hoped to be able to shutter as part of its turnaround strategy.

Another troubled Lone Star State company, Texas Competitive Electric Holdings Co. LLC.'s bonds, were seen several points better, continuing to trade actively in the wake of the giant Dallas-based utility and merchant power company's recent bankruptcy filing.

And Forest Oil Corp.'s bonds - which began the week struggling in the upper 80s - were ending it hanging onto most of the handsome gains that they had notched in the interim on the news that the underperforming Denver-based energy company is to be acquired in an all-stock merger.

Distressed issues on the sidelines

A trader saw the distressed market "a little on the quiet side. There wasn't a while lot to talk about in our world."

Another trader said that things in the junk bond world were "still pretty much all new issues," with little room for anything else.

Molycorp continues retreat

A trader said that Molycorp's 10% notes due 2020 "were down a bit [Thursday], trading down to around 93½ bid, after the company reported numbers. Over $21 million had changed hands.

On Friday, he said, "it was down a little more, post the numbers," going out at 92 bid, on volume of over $9 million.

The bonds had begun the week at 97¾ bid - but began sliding around mid-week after the miner of rare-earth minerals posted disappointing quarterly numbers.

The mining company reported a wider first-quarter loss on Wednesday. It adjusted earnings estimates by 5 cents, and missed on revenue. It lost $86 million, or 40 cents per share, compared to a loss of $38.2 million, or 27 cents a share, in the year-earlier period.

Revenue fell 18.5% to $118.5 million, short of expectations for $144.48 million in revenue.

The company said that the decrease in revenue was largely driven by shifting product mix with higher sales volumes from its chemicals and oxides segment, offset by softened pricing for rare earths and magnetic powders, and lower sales volumes in its resources segment.

Caesars a little less active

Caesars Entertainment Corp.'s bonds have recently been busy, with several of its various issues at or near the top of the Most Actives list, but on Friday, a trader said that he "didn't see too much in the name."

He did acknowledge that about $28 million of its 11¼% notes due 2017 had traded, adding "but that one always does have good volume."

The notes were trading between 90 and 91, with a quote of 90 bid being up ½ point.

He said that in contrast, the company's 10% notes due 2018 saw "not much activity, just a couple million of those," trading around 44 bid., which he said was pretty much unchanged versus Thursday's close.

"So the 111/4s seemed to be where all of the activity was that I saw."

Another trader saw the company's 8½% notes due 2020 trading at bid levels around 77, calling that pretty much unchanged.

He saw the 10% notes "a little lower again," around 43½ to 441/2.

Yet another market source saw the 8½% paper down ¼ point at 78 bid, with over $13 million having traded.

He said that the 111/4s were up 5/8 point at 90¼ bid, seeing over $27 million having changed hands.

The volume figures stood in stark contrast to the more than $92 million of the 11¼% notes, $87 million of the 10% notes and $57 million of the 8½% notes that had traded around on Wednesday after the recapitalization plan was first announced. Over $39 million of its 9% notes due 2020 had also traded at mid-week.

Caesars' investors meanwhile continued to mull over the company's recapitalization plan.

Under the plan that was unveiled late in the session on Tuesday, its Caesars Entertainment Operating Co. subsidiary sold a 5% equity stake to institutional investors. The "opco" will also secure a new $1.75 billion first-lien term loan, which will be used to redeem 2015 maturities and to repay existing bank debt.

To that end, the company also announced a tender offer for the 5 5/8% and 10% notes due 2015.

As for the equity sale, in doing so the parent company released its guarantee of the opco bonds. That means that bondholders can no longer place a claim against the parent company's assets in the event of a restructuring. It could also give them less bargaining power in a restructuring.

Bondholders are already decrying the company's sale of four properties to its Caesars Growth Partners affiliate - another important feature of the recapitalization plan - alleging that it is a fraudulent transfer that strips assets from the opco.

The bondholders also claim that the opco is insolvent.

TXU bonds better

Texas Competitive Electric's 15% notes due 2021 "looked like they traded up a couple more points," a market source said, moving up to the 32 to 33 area on volume of over $23 million.

Another source pegged the bonds up 1¾ points at 33 bid.

The company's 10¼% notes due 2015 languished at a price of 8 7/8 bid, on volume of over $9 million.

The TCEH bonds have been gyrating around since the electric utility operator and merchant power generation company's corporate parent, Energy Future Holdings Corp. - the company formerly known as TXU Corp. - filed for Chapter 11, seven years after it had been acquired in the biggest leveraged buyout transaction in history.

RadioShack in retreat

A trader said that RadioShack "keeps getting lower," seeing its 6¾% notes due 2019 ending up in the high 30s, although he allowed that "they didn't trade a whole lot," estimating volume at $3 million to $4 million He said that the credit "was down a few points" on the day, trading between 37 and 39. He said the bonds ended around 38 bid, about 3 points lower than where they had been on Thursday.

RadioShack, another trader agreed, "was actually a little lower today, though on not a lot of volume." He saw the bonds in the 38-39 area, "down a couple more points."

The already-weakened bonds were dealt another blow earlier in the week when the troubled consumer electronics retailer disclosed in a regulatory filing that it will seek to close fewer stores than previously planned following discussions with the lenders under its ABL credit facility due 2018 and term loan due 2018.

According to an 8-K filing with the Securities and Exchange Commission, the company was seeking lender consent to pursue a program to close up to 1,100 of its more than 4,000 stores - but the terms on which the lenders were willing to provide consent were not acceptable to RadioShack.

The company said it may continue to have discussions with its lenders about the proposed store closure program, but in the meanwhile it is continuing with a plan to close fewer stores and pursuing other cost-reduction measures permitted under the existing terms of the loans.

During RadioShack's recent conference call for the fourth quarter and fiscal year ended Dec. 31, chief financial officer John Feray said that under the terms of the loans, the company is allowed to close up to 200 of its stores per year and up to 600 over the life of the overall credit agreement.

Retailers a mixed bag

Elsewhere in the retailing space, a trader said that Toys 'R' Us Inc.'s 7 3/8% notes due 2016 were trading between 87½ and 891/2, finishing up in an 87½ to 88½ context, "about where they've been, and where they started the day."

He said that its 10 3/8% notes due 2017 were finishing the day around 80 bid, but on "not a lot of volume" - about $1.5 million of turnover. He called the bonds pretty much unchanged.

The retailer's 7 3/8% notes due 2018 were ending around the high 60s to low 70s, quoting the bonds in a 69 to 71 context, which he said was about unchanged, on not very much volume.

"So those didn't seem like very active issues," he declared.

One of the traders meantime said that said that "Gymboree wasn't really trading."

The San Francisco-based children's apparel company's bonds had been badly battered in active dealings last week after the release of disappointing quarterly financial results.

Clear Channel quiets down

A trader said that Clear Channel Communications Inc.'s bonds "have been pretty active, but they were on the quieter side today."

He said the company's new 10% notes due 2018 "have been down, but they've kind of rebounded a little bit."

The San Antonio-based diversified media company sold $850 million of those notes last week via its CCU Escrow Corp. subsidiary, pricing those bonds at par in a quick-to-market deal on April 28 after the offering was more than doubled in size from an originally announced $400 million.

Despite a hefty 10% coupon, the issue never caught fire in the aftermarket and within a few days, had fallen as low as 95¾ bid.

However, on Friday, the notes were ending trading somewhere between 97 and 971/2, which the trader called about unchanged on the day.

Forest Oil still busy

A trader said that Forest Oil Corp.'s 7¼% notes due 2019 were "right up around 99½ to par," with over $20 million traded, "so they're holding."

He noted that earlier in the week, the bonds had languished in the high 80s, after having been beaten down to those levels from around par on poor fourth-quarter earnings they reported at the end of February.

The Denver-based oil and gas exploration company's bonds had zoomed from those lows up to above par on Tuesday, after it announced that it will merge with the more financially stable Sabine Oil & Gas Co. LLC in an all-stock deal. Although formally described as a merger of equals, the transaction is essentially an acquisition, as Sabine shareholders will own about three-quarters of the combined company and Forest holders one-quarter.

Volume was huge following the announcement, with over $154 million of the 7¼% notes changing hands, and over $106 million of its 7½% notes due 2020, which soared from about 88 bid to around the 104 bid mark.

Although both bonds subsequently eased from their post-news highs, they were still seen holding onto to the vast bulk of those robust gains.

"So that was a good one," the trader said. If an investor had the Forest paper in his portfolio at the beginning of the week, "You're a happy guy at the end of the week."

Rebecca Melvin, Stephanie N. Rotondo and Angela McDaniels contributed to this review.

© 2015 Prospect News.
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