DirectBuy in Talks With Bondholders Over Debt Restructuring

DirectBuy Holdings Inc. is negotiating with a committee that includes a “substantial majority” of investors in its $335 million of senior bonds to restructure the consumer club’s balance sheet.

DirectBuy missed a Feb. 1 interest payment on the notes, taking advantage of a 30-day grace period because of the “productive nature” of the discussions, Mike Georgeff, a spokesman for the company said today in an e-mail.

Standard & Poor’s downgraded the debt to D from CC today, saying in a statement that the Merrillville, Indiana-based consumer club is “highly unlikely” to make the payment within the 30-day grace period allowed under the terms of the bonds. Investors will probably recover 10 percent to 30 percent of the debt’s face value, S&P analysts Helena Song and Andy Sookram wrote in the report. A grade of D indicates an obligation “is in payment default,” according to S&P’s definitions.

“This missed payment does not constitute a default of any kind at this time, nor does it have any impact on the company’s operations,” Georgeff said in the e-mail.

The 12 percent notes, issued in a private offering led by JPMorgan Chase & Co. in January 2011, were quoted today at a mid-price of 21.5 cents on the dollar, according to a person with knowledge of market prices for the debt. DirectBuy sold the debt at 97 cents, according to data compiled by Bloomberg.

Moody’s Investors Service cut its grade on DirectBuy to Caa3 on Dec. 2 after the company defaulted on a financial covenant tied to its bank credit line, received a going concern opinion from its auditors and hired an adviser for a debt restructuring, analysts Charles O’Shea and Kendra Smith wrote in a statement.

Song and Sookram of S&P didn’t immediately return calls seeking comment.

To contact the reporter on this story: Tim Catts in New York at tcatts1@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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