Sealy paper up despite lower Q2; Spectrum bonds better; WCI unchanged; Masonite loan gains

By Stephanie N. Rotondo

Portland, Ore., July 9 - The distressed bond market started to edge up - in line with the stock market - Wednesday, but many names fell back down after equities plummeted, including a 236-point drop in the Dow Jones Industrial Average.

Sealy Corp.'s debt, however, managed to hold on to its gains. The mattress maker's bonds ended as much as 2 points firmer despite a 25% decline in quarterly revenue.

Meanwhile, Spectrum Brands Inc.'s bonds came off of their highs but still closed better than the previous trading session. A trader said there was no news to prompt the move, but a rumor was circulating that an obstacle-laden asset sale might get done after all.

During Tuesday's session, homebuilder WCI Communities Inc. announced a debt exchange that investors initially reacted positively to. But one market source opined that the swap was not so good for bondholders. The company's notes ended essentially unchanged.

Lender negotiations helped move Masonite Inc.'s term loan B during trading. The company said it is hoping to amend the terms of its credit facility, as it does not expect to be able to comply with current covenants.

Sealy paper up despite lower Q2

A lackluster quarterly report weighed heavily on Sealy's equity, but its bonds moved up during the session.

The mattress maker's stock closed down 57 cents, or 8.58%, to $6.07. Its bonds, however, ended the day as much as 2 points better.

"The bonds were faring better than the equity," a trader said. When asked why, he stated "some of what they used capital for was to reduce debt."

A trader said the 8¼% notes due 2014 closed with an 82 bid, up about a point from the previous afternoon and up a deuce from Tuesday morning. Another trader called the bonds 1 to 1.5 points better at 82 bid, 82.5 offered.

Higher material costs and a decline in consumer spending resulted in a 6.6% decrease in net sales for the company. Sales for the quarter ended June 1 came in at $375.4 million. Earnings were also down - about 25% - to $12 million from $16.1 million the previous year.

Among other consumer-related names, Rite Aid Corp.'s new 10 3/8% notes due 2016 "held in there" at 92 bid. Bon-Ton Stores Inc.'s 10¼% notes due 2014 were deemed weaker at 62.5, while Neiman Marcus' 9% notes due 2015 slipped to 97.

Spectrum bonds edge up

Rumor has it that Spectrum Brands might just sell off its pet products business after all.

A trader said the Rayovac battery maker's 11% toggle notes due 2013 got as high as 84 during trading, before coming back to end at 82.5 bid, 83 offered. He said that was "still up a good point" on the day.

Another source pegged the 7 3/8% notes due 2015 at 62 bid, up more than a point.

Late last month, Spectrum's sale of its United Pet Group division hit a snag when it failed to receive consents from its senior lenders. According to the terms of the $692.5 million sale to Salton Inc., Spectrum had to win approval from its lenders.

Though there has not been any news updating the progress of the asset sale since the June 30 announcement, a trader said that the rumor mill is suggesting the deal will indeed get done.

Trader: WCI exchange bad for bonds

At first glance, WCI Communities' recently announced debt exchange seemed like a boon for bondholders. But, according to one trader, the opposite might be true.

On Tuesday, the Bonita Springs, Fla.-based homebuilder said it would exchange $125 million of its 4% convertible notes with new 16% secured notes due 2013. The news sent the company's corporate debt up about 5 points.

However, after looking over the terms of the exchange, the trader thinks that it "looks negative for straight bonds."

First of all, he said, the existing bonds will become subordinated to the new debt. And, while a 16% coupon looks good, he added, it's a PIK bond.

"At first it looked really positive, but the more you looked into it, it got kind of sticky," he said.

The debt exchange came as the market was wondering how WCI would redeem the 4% notes in August with less than $50 million cash on hand. For the swap to go through, 95% of the convertibles must be tendered and the company must also amend and restate its existing credit facilities and sell new second-lien notes.

A day after the news, the trader said activity died down in the bonds. By the end of the day, he saw only offers for the 4% notes and none in the other issues. He quoted the 9 1/8% notes at 36.5 bid, 38.5 offered and saw offers around 84 to 84 in the 4% issue, looking for bids.

"We shall see," he said. "I think a lot of people are still digesting it."

Lender talks help Masonite loan

Masonite International's term loan B was slightly stronger after news came out that the company is negotiating with lenders regarding a credit facility amendment, according to a trader.

The term loan B was quoted at 90¼ bid, 91¼ offered, up about half a point from the previous night's close, the trader said.

"The company struggles and looks like there's non-compliance. It's opportunistic. People see a chance to renegotiate and they jump on board," the trader said in explanation of the loan's trading performance.

On Wednesday, Masonite said that it is looking to amend its credit facility to waive possible non-compliance with financial covenants.

Based on a preliminary evaluation of its financial performance, the company expects to be unable to comply with its financial covenants, which relate to EBITDA metrics, for the quarter ended June 30.

The company explained that the struggle in meeting its covenants reflects the challenging conditions in the U.S. housing industry.

Masonite also said it is not cash constrained, with about $240 million of cash on hand as of June 30, and with ample liquidity to fund operations.

The $240 million of cash on hand reflects the full repayment of the $66.4 million that was outstanding under the company's accounts receivable sales facility at March 31 as well as the completion of the acquisition of 25% of Sacopan Inc. for about $17 million.

"While we have taken strong steps to right size our business and improve our manufacturing efficiencies, continued volume weakness resulting from the ongoing downturn in the U.S. housing market has compromised our ability to maintain compliance with our financial covenants" said Fred Lynch, president and chief executive officer, in a news release. "We remain focused on delivering the highest value door products to our customers around the world without disruption while navigating a tough environment industry wide."

Masonite is a Tampa, Fla.-based manufacturer of residential and commercial doors.

Broad market loses ground

Idearc Inc.'s 8% notes due 2016 were "still in that 61-61.25 range," a trader said. "It has been bouncing around on a couple-of-points range for days."

GMAC LLC's bonds were "up a few points across the board," its 5.85% notes due 2009 around 94, its 6 7/8% notes due 2012 at 63.5 bid, 64 offered, its 7¼% notes due 2011 at 70 bid, 71 offered and its 7 ¾% notes due 2010 at 80 bid, 81 offered.

In the telecommunications arena, Charter Communications Inc.'s 11% notes due 2015 "went up, then came all the way back in" to close around 73. A trader said the paper hit a high of 74.5 bid, 75 offered. Level 3 Communications Inc.'s bonds also came off late in the day, its 9¼% notes due 2014 at 88 bid, 88.25 offered, down from 89 previously.

In the gaming sector, Trump Entertainment Resorts Inc.'s 8½% notes due 2015 got as good as 60.5 bid, 61 offered before coming back to close lower on the day at around 59. Tropicana Entertainment LLC's 9 5/8% notes due 2014 fell a point to 45 as the company's former owner tried to regain control of the Atlantic City property.

Swift Transportation Co. Inc.'s bonds were "definitely lower," a trader said. He pegged the 12½% notes due 2017 at 30 bid, 32 offered and said the floating-rate notes due 2015 were "probably straddling 30."

At another desk, a trader said the Swift floater was offered at 32 and the 12½% notes were "probably around there."

Merisant Co.'s 9½% notes due 2013 dipped 1 point to 73 bid, 74 offered.

A trader said Georgia Gulf Corp.'s 10¾% notes due 2017 "got sunk," losing 4 points to end at 55 bid, 57 offered.

"There was no real reason other than that issue is subordinated and getting creamed," he said.

Sara Rosenberg contributed to this article.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.