Toys ‘R’ Us debt continues to sink as vendors cut shipments; iHeart ‘languishing’; oil names mixed

By Stephanie N. Rotondo

Seattle, Sept. 15 – Toys ‘R’ Us Inc. was the distressed debt market’s notable mover Friday, as the company’s bonds “keep getting slaughtered,” according to a trader.

The weakness in the name picked up on Thursday when it was reported that certain of the company’s vendors were scaling back shipments amid growing concerns that a bankruptcy filing is on the horizon.

But away from Toys, there were not many notable distressed names in the final day of the trading week.

“Everything has been new issue-driven of late,” he said.

There was “not a lot of activity” in iHeart Communications Inc. paper during the session, a trader said. “But there was no rebound. They’re still kind of languishing.”

Another trader said the 9% notes due 2022 dropped nearly a point to 69.

The San Antonio-based multimedia company has been working since April to exchange a large portion of its debt burden. Despite a number of extensions and deal sweeteners, investors have not been so keen to participate.

Meanwhile, the oil and gas arena was finishing the week with a mixed tone.

A trader said California Resources Corp.’s 8% second-lien notes due 2022 were up a quarter-point at 58¾. Denbury Resources Inc. paper was also better, its 4 5/8% notes due 2023 up almost a point at 46.

However, Jones Energy Inc.’s 6¾% notes due 2022 slipped almost half a point to 48½, he said.

Toys tanks

Toys ‘R’ Us’ bonds were not faring well in Friday trading, extending the hefty losses seen on Thursday into the final trading session of the week.

A trader said the 7 3/8% notes due 2018 fell into the mid-40s, a loss of 10 to 15 points on the day.

“I guess we’ll see how much longer they can survive before they have to file,” he said.

At another desk, a trader called the 7 3/8% notes off 12 to 13 points at 46. That compared to 51 at the open, he noted.

The trader also added that the paper is down 35 to 30 points from the beginning of the week.

On Thursday, Bloomberg reported that some of the Wayne, N.J.-based toy retailer’s vendors were cutting shipments amid concerns that a bankruptcy filing is imminent. Additionally, the costs to insure shipments have become too expensive, the article said.

The article also said that financial adviser Lazard Ltd. was trying to talk banks into supplying the company with a loan – possibly of the debtor-in-possession variety – that it can use while it tries to hammer out a restructuring plan.

Fannie, Freddie give back

In the world of distressed preferred stock, Fannie Mae and Freddie Mac paper was giving up some of the gains earned in Thursday trading during Friday’s session.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined 15 cents, or 2.07%, to close at $7.09. About 1.61 million shares changed hands.

Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) were meantime down 12 cents, or 1.69%, at $6.98. About 1.37 million of those preferreds were exchanged.

The GSEs’ preferreds were faring well on Thursday, after Bloomberg posted two articles that pointed to hopes the GSEs would be allowed to rebuild their capital buffers.

The Fannie issue, for instance, was up nearly 9% in the previous session, while Freddie was up almost 12%.

One Bloomberg article posted late Wednesday said that six Democratic senators had written letters to the Federal Housing Finance Agency and the Treasury Department, urging them to allow the mortgage giants to build up their coffers.

Currently, the Treasury takes a majority of both agencies’ profits each quarter. What little buffer they have is slated to go to zero at the beginning of 2018.

But the senators – Sherrod Brown of Ohio, Jack Reed of Rhode Island, Robert Menendez of New Jersey, Brian Schatz of Hawaii, Chris Van Hollen of Maryland and Catherine Cortez Masto of Nevada – expressed concerns about the current agreement, speculating about the possibility Fannie and Freddie would need more bailout funds if they see any losses.

Another Bloomberg piece published late Wednesday cited a Cowen & Co. report that opined the FHFA may allow the GSEs to maintain a small capital buffer, or possibly just change the way the dividend payments are made.

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