Back-to-school sales boost retailers; WCI bonds quiet on news; Six Flags notes improve

By Stephanie N. Rotondo

Portland, Ore., Sept. 6 - Expectations for a more active, if not more interesting, distressed market flew out the window Thursday, with "nothing too exciting," as one trader put it, going on in the marketplace.

"One more day of this is more than I can take," another trader said.

A third trader said the day started out well, leading him to think things would pick up.

"I thought we might get a little more activity," he said. But, come the afternoon, things "went dead."

Still, all was not lost. Traders said distressed retailers, such as Linens n'Things, Bon-Ton Stores Inc. and Claire's Stores Inc., improved during the session. The move was prompted by better-than-expected August sales, boosted by back-to-school shoppers. Several major retailers, such as Wal-Mart and Target, showed an increase in their monthly sales as shoppers blew off continuing market concerns to stock up for the school year.

Meanwhile, homebuilders continue to be shaky, but WCI Communities Inc.'s bonds were relatively quiet on the day, especially considering there was news out.

The company announced it had unanimously elected a new chairman, Carl Icahn, and that it would terminate the sale process. A trader said the bonds were slow to react to the news, and market sources called the debt unchanged.

Proving that sometimes no news is good news, Six Flags Inc.'s bonds moved up a couple points. The gain comes despite an affirmed junk rating from Fitch Ratings.

August sales boost retailers

Distressed retailers' bonds gained slightly on reports of better-than-expected August sales in the sector.

"Some [stores] had sales [figures] out, which were decent," a trader said.

The trader quoted Linens n'Things floating-rate notes "north of 70," while another trader pegged the bonds at 70.5 bid, 70.75 offered.

"Wow," the trader said. "That's been moving up nicely."

The first trader also saw Bon-Ton Stores - which released back-to-school sale figures Thursday - moving up, placing the 10¼% notes due 2014 at 96.

The second trader said Claire's Stores' 10½% notes were offered at 77.5.

Back-to-school shopping boosted sales in the retail sector, despite ongoing concerns in the housing and credit markets. A preliminary report from UBS-International Council of Shopping Centers, which includes 45 stores, showed August sales up 2.9%.

Bon-Ton posted a moderate increase in its monthly sales report. Total sales increased 1.5% to $228.3 million, compared to $225 million the previous year, while comparable sales increased 0.3%.

"There is momentum in the sector," a trader said. "In general, retail numbers were better than expected."

WCI bonds quiet, unchanged

WCI's bonds were slow to react to the news that the homebuilder's board of directors had not only unanimously elected billionaire investor Carl Icahn to the chairman seat, but also to the announcement that the search for a buyer would end.

"That's good," a trader opined. "Maybe he'll get the company going, so they can sell some houses."

A trader said the 7 7/8% notes due 2013 were at 74.5 bid, 75.5 offered, while the 9 1/8% notes due 2012 were quoted earlier in the day at 81.5 bid, 83.5 offered.

A market source saw the debt unchanged, calling the 9 1/8% notes around 82 while the 7 7/8% notes were around 75.

Market players said the news was relatively expected. In its press release, the Bonita Springs, Fla.-based homebuilder said it would look at alternatives to a sale, including a potential rights offering.

"That's always fantastic," a trader said with a touch of sarcasm.

In other distressed names in the housing sector, Technical Olympic USA Inc.'s bonds were deemed weaker, continuing its losing streak over the week.

A trader said the 10 3/8% notes due 2012 were down a point at around 39, while another trader quoted the subordinated debt at around 40. The second trader also saw the 9% senior notes due 2010 at 70 bid, 71.5 offered.

The trader added that movements in the debt were volatile during the session. He said the 10 3/8% notes had fallen to 38.5 earlier in the day but managed to close slightly higher.

Another trader called the 10 3/8% notes down 2 points to 38 bid, 40 offered and the 9% notes due down 1.5 points to 69 bid, 71 offered.

Beazer Homes USA Inc.'s 8 5/8% notes due 2011 were deemed down a half point to 78.5 bid, 80.5 offered.

Six Flags edges higher

Traders were at a loss to explain why Six Flags' bonds edged higher, with no real news out to prompt the gain.

"Fitch affirmed their rating," a trader said. "Big deal."

The trader slated the 8 7/8% notes due 2010 at 90 bid, 91.5 offered. Another trader quoted that issue at 90 bid, 90.5 offered as well as the 9¾% notes due 2013 at 86.75 and the 9 5/8% notes due 2014 at 84.5.

The ratings agency said Thursday it would keep the issuer default rating of "B-" on the struggling amusement park operator. The rating on the senior unsecured notes was also affirmed at "CCC+/RR5." The outlook is negative.

Fitch said the ratings reflected poor operating performance as well as significant leverage. The agency also said it expects the company to use some of its cash to pay down some of its debt soon.

"Given the company's leverage and operating performance, there is significant risk that under certain market conditions the company's access to external funding could be limited," Fitch said.

Broad market mostly better

Iridium LLC's 13% and 14% notes due 2005 were seen at 3.5 bid, 4.5 offered.

A trader said Blockbuster Inc.'s 9% notes due 2012 were a point better at 87, calling the name a "good credit."

Another trader saw the bonds at 86.5 bid, 86.625 offered. He agreed the bonds were up but noted that they had made their "big move" in the previous session. He saw no news out to prompt the increase.

The trader also saw Movie Gallery Inc.'s 11% notes due 2012 with a 27 bid. Another trader called the bonds up 3.5 points to 28.5 bid, 30.5 offered.

Transmeridian Exploration Inc.'s 12% notes due 2010 were slotted at 92.25 bid, 94.25 offered.

Montreal-based Tembec Inc. saw its bonds inch higher, as a trader pegged the 8½% notes due 2011 at around 47.

Another source called the 8½% notes up 1.25 points at 47.25, while at another desk, a trader called the 8 5/8% notes due 2009 down a point to 50 bid, 52 offered.

Charter Communications Inc.'s 11¾% notes due 2014 moved up 1.5 points to 90.5 bid, 91.5 offered, while the 8% notes due 2012 were up a half point to 98.75.

Paul Deckelman contributed to this article.

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