Michaels firms post-earnings; Blockbuster up; International Lease debt heads higher; ATP slips

By Stephanie N. Rotondo

Portland, Ore., May 28 - Distressed debt remained mostly firm as the week closed out, traders reported on Friday.

Still, with the looming three-day weekend, many lamented the lack of any real action.

Michaels Stores Inc. saw its bonds gaining at least a point following the release of the company's quarterly earnings. Also in the retail arena, Blockbuster Inc. debt increased slightly. The gains in the latter could have been due to an overall better marketplace, but could have also been affected by news of an initial public offering in the retail sector.

Meanwhile, International Lease Finance Corp.'s debt structure headed for higher ground, as both the bonds and bank debt ended stronger on the day. There was no news out to explain the improvement.

ATP Oil & Gas Corp. could soon be trading in distressed territory, as the company's bonds have lost quite a bit of value in recent sessions. The bonds have fallen from their April issue price around 99½ to levels in the high-70s in the wake of the oil leak in the Gulf of Mexico - and the attempts to ensure such a disaster doesn't occur again.

Michaels firms post-earnings

Irving, Texas-based Michaels Stores released first quarter results late Thursday and the bonds moved up in response come Friday.

A trader called the 11 3/8% notes due 2016 "up a good point after the numbers," placing them around 103.

Another market source quoted the paper at 103 bid, 104 offered, up from 101 bid, 102 offered in last round-lot trades.

For the quarter, the arts and crafts retailer posted net income of $13 million. That compared to net income of $4 million the year before.

Total sales as of May 1 increased 5.7% to $901 million and same-store sales were 4.9% better.

"We were pleased with the strengthening sales trends and the improvement of our operations during the first quarter," said John Menzer, chief executive officer, in the earnings release. "Operating income improved 64% to a record first quarter level of $105 million due to stronger sales, gross margin improvements with increased direct sourcing, effectiveness of our promotions and closely controlled expenses."

At quarter-end, Michaels had lowered its debt by $262 million to $3.69 billion.

Blockbuster up, helped by Toys?

Also in the retail space, Blockbuster bonds traded up, likely in reaction to the firmer broad marketplace.

A trader pegged the 9% notes due 2012 at 14½ bid, 15 offered. Another source echoed that level, comparing it to Thursday's levels of 14 bid, 14½ offered.

Retailers might have also been helped out by news that Toys "R" Us Inc. was considering an $800 million initial public offering. The news definitely gave the toy store's debt a boost, as a trader saw the 7 7/8% notes due 2018 "up a couple points" at 95 bid, 96 offered.

Should Toys "R" Us complete the IPO, it will use the bulk of proceeds to repay debt.

Following the news, both Fitch Ratings and Moody's Investors Service placed the company on review for a potential upgrade.

International Lease heads higher

International Lease Finance debt headed higher in Friday trading, though there was no news to spur the gains.

In the bonds, a source saw the 8¾% notes due 2017 improving more than 2 points to end at 90½ bid.

International Lease's term loans also gained some ground, according to traders.

The two term loans were quoted by traders at 98 bid, 99 offered, up from 97¾ bid, 98¾ offered at the close on Thursday.

The debt comprises a $750 million senior secured term loan (Ba2/BBB/BBB-) priced at Libor plus 475 bps and a $550 million six-year term loan priced at Libor plus 500 bps.

Both terms loans include a 2% Libor floor and were sold at an original issue discount of 98.

International Lease obtained the two term loans a few months ago to refinance existing debt.

International Lease is the aircraft leasing unit of New York-based insurance company American International Group Inc.

ATP slipping into distressed

ATP Oil & Gas saw its bonds sliding closer to distressed territory, traders reported.

The 11 7/8% notes due 2015 were seen around 79 at one desk, while, at another, they were deemed a point weaker at 78 bid, 80 offered.

Yet another trader said that "if there was a highlight" in the generally quiet and dull high-yield market on Friday, it would be that "the uncertainty over whether people can drill again" was continuing to harm ATP bonds.

He said that the company's 11 7/8% second-lien senior secured notes "are just in a freefall right now," quoting the bonds as having retreated down to around a 76 context, from 79 bid, 80 offered on Thursday and from 87 bid, 90 offered on Wednesday, before announcement that the drilling ban would be extended.

"Who knows when they [ATP and other deepwater oil and gas companies] are going to be able to resume again?" he asked. "And you don't know what the laws are going to state. There's always a reaction" to events like the Gulf disaster.

"Everybody [i.e., investors] is taking a good hard look at the haves versus the have-nots" who may be adversely affected by the continued ban.

The $1.5 billion in notes entered the market on April 19 - just a day before the explosion that caused a massive leak in the Gulf of Mexico - and were priced at 99.531.

The Houston-based energy production and exploration company - as well as others in that sector - has been hurt by the oil leak. President Barack Obama's moratorium on offshore drilling - announced Thursday - has also played a role.

"They're a deepwater E&P company with lots of undeveloped reserves," a trader told Prospect News on Thursday. "And when Obama said he was not going to give any more deepwater permits" in the wake of the Gulf disaster and the continued inability of well owner BP and the government to cap the leaking well, "the bonds and stock both headed south."

On Friday, Fitch Ratings said they have not taken any action on ratings of offshore drillers. However, the rating agency noted that it would be monitoring the situation and its implications very closely.

Sara Rosenberg and Paul Deckelman contributed to this article

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