Blockbuster pressured by executive departures; Claire's unresponsive; Hawker up despite sales

By Stephanie N. Rotondo

Portland, Ore., Feb. 9 - Distressed debt traders reported a lot of downsides Tuesday, even as the equities rallied a bit.

News of several executive resignations late in the day caused a stir in Blockbuster Inc.'s bonds. The debt was seen falling as much as 6 points, depending on the issue. Blockbuster also reportedly laid off employees at its Dallas headquarters.

Also in the retail world, Claire's Stores Inc. announced preliminary fourth-quarter results late in the day. However, a trader said he did not see much response as of yet.

Hawker Beechcraft Acquisition Co. LLC, however, did see some positive momentum, according to sources. The aircraft maker's bonds were either unchanged to better, even as the company reported less-than-stellar preliminary results.

In other numbers news, Atlantic City posted its 17th straight month of declining revenues. Casinos across the board did not react so well, ending the day a bit cheaper. Among the most active names in that sector were MGM Mirage and Harrah's Entertainment Inc.

Blockbuster pressured by executive departures

Blockbuster's bonds took another downward turn in Tuesday trading. The declines were preceded by news of a management shakeup.

According to one trader, the 11¾% notes due 2014 slipped into the low-60s on the news, while the 9% notes due 2012 were seen offered in the mid-teens.

"Wow, holy crap," he remarked of the slip.

Another trader said the 11¾% notes fell as much as 5 points to 60 bid, 63 offered. The 9% notes were meanwhile off by 6 points at 15 bid.

In a filing with the Securities and Exchange Commission, the Dallas-based movie rental chain said that three of its top executives had resigned, including Phillip K. Morrow, chief information officer; Eric H. Peterson, chief administrative officer, secretary and general counsel; and Bill R. Lee, chief merchandising officer.

Aside from Morrow, whose last day was Jan. 29, the resignations were effective Feb. 5.

The filing did not specify why the executives departed the company. However, the filing came after several news reports said that the company had orchestrated a "realignment of resources at the corporate headquarters and distribution center in McKinney." The "realignment" purportedly included the layoff of several employees, though the exact number is not known.

Blockbuster will report its fourth-quarter and full-year 2009 results on Feb. 24. A conference call will be held at 4:30 p.m. ET.

Claire's unresponsive to results

Elsewhere in the retail arena, Claire's Stores released preliminary, unaudited results for its fourth quarter.

However, a trader said he didn't "see much reaction" in the bonds, pegging the 10½% notes due 2017 around 70.

For the quarter ending Jan. 30, the Pembroke Pines, Fla.-based retailer said it expects to post net sales of $411 million, a 4.5% increase year over year. Consolidated same store sales meantime improved by 2.1% for the time period.

Adjusted EBITDA is expected to be between $91 million and $95 million, compared with $76 million for the same quarter of fiscal 2008. Cash and equivalents were also better at $199 million.

Claire's said it would file its full results on or before April 30.

Also, a trader said Michaels Stores Inc.'s 10% notes due 2014 and its 11 3/8% notes due 2016 were active. He noted that the issues had traded down to around 99, "then rebounded a bit" to around par.

Hawker better despite lower sales

Hawker Beechcraft Acquisition's debt got a boost after the company announced its 2009 financial results.

A trader said there was "a couple trades" in the 8½% notes due 2015 around 65. He deemed the paper "maybe up a little, but about the same as Friday."

Another source, however, saw the bonds improve by 2 points to 65 bid.

For the 2009 fiscal year, Hawker reported sales of $3.2 billion, compared with $3.5 billion in 2008. The company also swung to an operating loss of $712 million, versus operating income of $140.3 million the year before.

"In addition to lower sales, the company's 2009 operating income was impacted by significant non-cash impairment and other charges totaling $726.4 million recorded during the third quarter 2009," the Wichita, Kan.-based aircraft manufacturer said in its earnings release.

Hawker is expected to file its 10-K by Feb. 23. A conference call to discuss the results will be held on March 4 at 9 a.m. CST.

Casinos take AC numbers badly

The gaming sector came under pressure during Tuesday's session, as Atlantic City reported yet another losing month.

MGM Mirage's 7½% notes due 2016 continued to be "active," a trader said, "ending the day about a point lower than yesterday." He quoted the issue at 77½ bid, 79½ offered.

MGM was one of few casinos that had name-specific news out. The company is reportedly selling off its 50% stake in Atlantic City's Borgata Hotel & Casino.

Meanwhile, Harrah's Entertainment's 11¼% notes due 2017 were also busy - and weaker - at 1013/4. The trader said that was down from opening levels around 1031/2.

At another desk, Harrah's 10% notes due 2018 were seen falling over 2 points to 73¾ bid. Station Casinos Inc.'s 6% notes due 2012 were meantime down a deuce at 16, though its rival - and sometime potential buyer - Boyd Gaming Corp. saw its 7¾% notes due 2012 fell only about a point to 100 bid.

Isle of Capri Casinos Inc.'s 7% notes due 2014 were also softer at 84¼ bid.

For the month of January, the gaming center by the Jersey Shore won $294.2 million from its customers, an 8.5% decline from January 2009 levels - and the 17th straight month in which the region has posted weakening revenue.

NewPage 'still plummeting'

NewPage Corp. continued to be active, though a trader noted that the papermaker's bonds "keep getting crushed."

The trader said the 11 3/8% notes due 2014 traded between 88 and 90, a nearly 2-point loss on the day. The 10% notes due 2012 were down "another 3 points" at 51.

"They just keep plummeting," he said.

Another trader saw the 10% notes hit a high of 54, before the notes "circled back in" to 51 bid, 52 offered.

He also quoted the 11 3/8% notes at 88 bid, 88½ offered.

Legal battle hurts Freescale loan

Freescale Semiconductor Inc.'s old term loan weakened on Tuesday as investors were still reacting to the company's existing legal battle and ramifications that it might have on the amend and extend proposal, according to some traders.

The old term loan was quoted by one trader at 92¾ bid, 93¼ offered, down from 93 bid, 93½ offered, by a second trader at 92½ bid, 93½ offered, down from 93½ bid, 94½ offered, and by a third trader at 92 5/8 bid, 93 1/8 offered, down from 92¾ bid, 93¼ offered.

A fourth trader, however, did call the loan unchanged at 92¾ bid, 93½ offered.

"Going to be hard for this thing to trade up until litigation gets settled," the first trader remarked.

As was already reported, on March, 25, 2009, a group of lenders under Freescale's senior secured credit facility challenged the issuance of incremental term loans.

In response to that complaint, the New York state appellate court ordered the trial court proceedings stayed pending the disposition of Freescale's appeal from the denial of its motion to dismiss the case. This stay, however, can be vacated if the company issues new debt.

Then, on Feb. 5, the complaining lenders filed a motion to vacate the stay and to stop the company from continuing with its amend and extend proposal and senior secured notes offering until a ruling on a temporary restraining order is obtained.

Freescale said on Monday that it has agreed to an expedited briefing process on the plaintiffs' motion, with all briefings to be completed by Tuesday, but it is unknown when the appellate court will rule on the motion, or, if the stay is lifted, when the trial court might rule on a temporary restraining order.

The new motion by the plaintiffs was filed shortly after Freescale launched an amendment to its credit facility that would extend the maturity on its term loan to Dec. 1, 2016 from Dec. 1, 2013, and increase pricing to Libor plus 425 basis points from Libor plus 175 bps on the non-extended loan.

In addition, the amendment would allow for the issuance of $750 million senior secured notes that would be used to repay bank debt, and would permit the company to sell additional senior secured notes, so long as the net cash proceeds from any such issuance are used to prepay bank debt at par.

If a court stops the company from going forward with the amend-and-extend, the transaction will have to be delayed or withdrawn, and so will the related offering of senior secured notes.

Freescale is an Austin, Texas-based designer and manufacturer of embedded semiconductors for the automotive, consumer, industrial and networking markets.

Sara Rosenberg and Paul Deckelman contributed to this article.

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