Distressed retail sector bonds continue to weaken; Frontier, Windstream debt end the day lower

By Stephanie N. Rotondo

Seattle, Sept. 8 – Distressed debt investors again remained focused on the struggling retail space on Friday, extending a trend that began on Wednesday.

Petsmart Inc.’s 8 7/8% notes due 2025 were weaker on the day, after rising on Thursday in the wake of the company’s latest earnings report.

As the company is private, the results were not available to the public.

In Friday dealings, a trader said the notes dipped 1½ points to 82¾.

Toys “R” Us Inc. also remained notable as its 7 3/8% notes due 2018 continued to tumble.

A trader said the bonds fell “almost 5 points” to 72. A second source echoed that level, but deemed the debt down a full 5 points.

The Wayne, N.J.-based toy retailer announced 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. 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 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.

Also on the softer side were Fresh Market Inc.’s 9¾% notes due 2023, which fell 1½ points to 70½, according to a trader.

The name – along with other grocers – has been steadily declining of late, due in large part to Amazon’s recent acquisition of Whole Foods and its immediate slashing of prices.

Claire’s Stores Inc.’s 9% notes due 2019 meantime bucked the sector’s downward trend, though there was no fresh news out to act as a catalyst.

A trader called the bonds a quarter-point better at 55¼.

Away from the retail arena, Frontier Communications Corp. and sector peer Windstream Holdings Inc. were losing ground.

There was no specific news to cause the downward movement, though the market as a whole was trending softer. Additionally, Frontier has struggled to post any gains given investors’ concerns about the company’s ability to compete in the telecommunications space.

A trader said Frontier’s 9% notes due 2031 slid 1¼ points to close at 75¼, while Windstream’s 7½% notes due 2022 waned half a point to end at 76½.

At another desk, a market source pegged Frontier’s 7 5/8% notes due 2024 at 76½, off a point on the day. The source also saw Windstream’s 6 3/8% notes due 2023 losing 1¼ points to close at 75¼.

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