DirectBuy Holdings Inc. defaulted on $335 million of bonds after the consumer club missed a Feb. 1 interest payment, according to Standard & Poor’s.
The consumer club is “highly unlikely” to make the payment within the 30-day grace period allowed under the terms of the bonds, prompting a downgrade to D from CC, S&P analysts Helena Song and Andy Sookram said today in a statement. Investors will likely receive a “modest recovery” of 10 percent to 30 percent of the debt’s face value, they wrote.
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. Merrillville, Indiana-based 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.
Kevin McKeon, DirectBuy’s chief financial officer, didn’t immediately return a call seeking comment. Song and Sookram of S&P didn’t immediately return calls seeking comment.