Toys 'R' Us firms on IPO plan, ATP off again, junk mostly quiet in holiday-shortened session

By Paul Deckelman and Paul A. Harris

New York, May 28 - Toys 'R' Us Inc.'s bonds traded higher on Friday, given a boost by the news that the Wayne, N.J.-based specialty retailer - a formerly public company which was taken private in 2005 - has filed plans to raise as much as $800 million via an initial public offering, with the proceeds earmarked for debt paydown.

Also in the retailing sector, Michaels Stores Inc. saw its bonds gaining at least a point following the release of the company's quarterly earnings.

ATP Oil & Gas Corp.'s beleaguered bonds continued to bear the brunt of energy-sector investor angst over the federal government's plans to continue restricting offshore oil and gas drilling in the wake of last month's disastrous Gulf of Mexico deepwater oil rig explosion and the massive oil leak that followed it and which is still not under control.

Ford Motor Corp.'s bonds were being quoted higher, though on not much trading, as top management met with analysts and outlined its goals, including improving the Dearborn, Mich.-based carmaker's balance sheet to facilitate a return to investment grade. One reported company move to improve its operation performance involves eventually consigning its venerable but not so popular anymore Mercury nameplate to Detroit's Great Automobile Brand Junkyard.

Trading was otherwise dull and uninspired during the abbreviated pre-Memorial Day session.

As expected, the primary market got an early start to the three-day holiday hiatus, with no pricings seen; the deals for Willbros Group, Inc., Citgo Petroleum Corp. and Cedar Fair LP remained parked on the forward calendar. No aftermarket action was seen in Thursday's offering of seven-year secured notes from DriveTime Automotive Group, Inc. - the week's sole pricing in Junkbondland.

Toys takes the prize

A trader said that Toys 'R' Us' bonds were up by several points on the news that the company - which used to be public, until it was bought by Kohlberg Kravis Roberts & Co, Bain Capital and Vornado Realty Trust in 2005 for $6.6 billion - had filed with the Securities and Exchange Commission for an initial public offering of up to $800 million.

"If they get the deal done, they can take out a lot of debt," he said, quoting the company's 7 7/8% notes due 2013 as having "jumped" to levels above 102 from par previously.

Another trader saw the bonds "maybe up a point" around 102 bid, 104 offered.

Toys 'R' Us did not say in its filing how many shares it plans to sell, and did not give an expected price range.

The offering is to be led by Goldman Sachs, JPMorgan, Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank Securities, Citigroup and Wells Fargo Securities.

Michaels firms post-earnings

Elsewhere among retailers, 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 Irving, Tex.-based arts and crafts supply 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.

ATP attrition continues

A 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 the bonds of ATP Oil & Gas Corp., which had fallen sharply on Thursday as president Obama announced an extension of the government's moratorium on new offshore drilling permits in the wake of the Deepwater Horizon oil rig disaster in the Gulf of Mexico and the resulting gigantic oil spill, which has still not yet been brought under control.

He said that the Houston-based energy exploration and production operator's 11 7/8% second-lien senior secured notes due 2015 "are just in a freefall right now," quoting the bonds as having retreated down to around a 76 context, from 79-80 on Thursday and from 87-90 on Wednesday, before the announcement that the drilling ban would be extended.

The company priced its $1.5 billion issue of the notes on April 19 - ironically, just the day before the Deepwater Horizon marine rig, drilling at a BP plc offshore well in the Gulf, exploded and capsized, killing 11 persons and unleashing an oil spill even bigger than the one produced by the ill-fated tanker Exxon Valdez in 1989.

While those bonds had initially traded as high as 103 bid after pricing, and appeared little changed on the first news of the Gulf disaster, they eventually began sliding, first back below par and then down through the 90s after that on the realization that the oil spill was going to be larger, more costly and more damaging than initially thought, threatening the viability of offshore oil drilling, and they have continued to trade at levels well below issue in the weeks since then.

"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.

A second trader saw the ATP bonds around the 78 bid, 80 offered area, calling them down a full point to 1½ points on the day.

He also said that in BPs own bonds, "it seems like there are more sellers than buyers. No one wants to get in the way of this thing right now." He said that "after everything being up a little bit [Thursday], it looks like people are still kind of getting away from it. He quoted the oil giant's 3 5/8% notes due 2015 at 100 1/8 bid, 100¾ offered.

"Things were a little bit stronger this morning, and I think they've gone a little downhill this afternoon."

The trader also saw little reaction in driller Hornbeck Offshore Services, Inc.'s 6 1/8% notes due 2014, quoting them at 96-99, with "not anything trading in those."

First Data steadies after rebound

A trader saw First Data Corp.'s 9 7/8% notes due 2015 staying around the 81-82 level to which they had risen on Thursday as the bonds continued to make a comeback from the beating they took earlier in the week on the abrupt news that the chief financial officer and several other key executives were on the way out. the revolving door.

He saw "no real activity" in the Atlanta-based electronic transactions processor's paper.

Elsewhere among the financials, a trader saw CIT Group Inc.'s 7% notes due 2013 up a point to the 97 bid level, while its 7% notes due 2017 -- the longest of the five series of 2013-2017 bonds which the New York-based commercial lender had issued when it emerged from reorganization-were unchanged, although he saw "a lot of volume" in that long paper. Still, he opined, "the shorter ones are the ones that moved up."

Ford up as officers optimistic

A trader said that Ford Motor Co.'s 7.45% bonds due 2031 gained 1½ points to end at 90 bid, 90½ offered.

Another trader said that the Ford long bonds "were quoted higher, but on not much volume - really, no volume to speak of." He pegged them at a 91-92 range.

Ford Motor Credit Co.'s 7½% notes due 2012 were up more than 1¼ points on the day to 103 3/8.

Ford executives, notably chief executive officer Allan Mulally, outlined their plans for the company to analysts on Friday via a web cast, during which he said that The Number-Two domestic carmaker's "Number-One strategy" is to "continually improve operational performance. That allows us to accelerate [balance sheet] improvement."

Among Ford's efforts will likely be jettisoning its Mercury brand - a part of Ford since 1939, but one now seen as a an unproductive drag on company finances, having sold only 92,000 vehicles last year. Ford's board of directors must first approve any management moves to wind down the nameplate.

Such a step would leave Ford with just its eponymous flagship brand and its upscale Lincoln nameplate. Analysts argue that Mercury is essentially redundant, since its line of cars replicate Ford's own lineup, for example, the Mercury Sable being practically a clone of the Ford Taurus

If Ford does away with Mercury, just as Ford's domestic arch-rival General Motors Corp. dumped its Oldsmobile, Saturn and Pontiac lines and smaller competitor Chrysler junked Plymouth, leaving just Ford and Lincoln, Ford will be able to follow the marketing plan used by successful Japanese rival Toyota, which has only its main Toyota brand plus the upscale Lexus brand.

Elsewhere in the autosphere, a trader saw General Motors' benchmark 8 3/8% bonds due 2033 down ½ point on the session at 32½ bid, 33½ offered.

At another desk, a trader said that automotive parts names were "holding their own," naming credits like ArvinMeritor Inc., Park Ohio Holdings and Tenneco Automotive. "There's a lot of speculation going on in those credits, that a lot of them could be takeover targets."

He said "just look at the stocks" of such companies to see that there is consolidation buzz about those kinds of names.

DriveTime remains parked

A trader said that DriveTime Automotive Group Inc.'s new 12 5/8% senior secured notes due 2017 were little changed on the session, seeing just "one print" on it, at 98 7/8 bid, right around the 98.854 level at which the Phoenix-based retailer of used vehicles priced its $200 million offering on Thursday, yielding 12 7/8%.

Another trader said he'd heard "nothing being said" in the way of any trades in the new bonds.

Market indicators firmer

A trader saw the CDX North American HY Series 14 Index closing Friday up 1/8 point on the day at 94¾ bid, 95¼ offered, and thus also up from the 93 bid, 93½ offered level seen at the close the previous Friday, thanks to a big jump during Thursday's session.

Meanwhile, the KDP High Yield Daily Index rose by 24 basis points to end at 70.01, and thus closed above 69.62 the previous Friday. Its yield tightened by 7 bps to 8.89%, in from 8.99% the week before.

Another market measure, the widely followed Merrill Lynch High Yield Master II index, closed the day showing a year-to-date gain of 3.346% - up from 3.068% on Thursday, and up from 3.115% at the close of trading the previous Friday.

Primary quiet

The primary market remained dead quiet on Friday, with no issues pricing.

Willbros Group, Inc.'s $250 million offering of six-year senior secured second-lien notes (B3/B+) is expected to be business for the week ahead.

The deal was talked to yield in the 12% area on Thursday morning, and the order books closed on Thursday afternoon.

Meanwhile, Cedar Fair, LP's $500 million offering of 10-year senior unsecured notes (expected ratings B2/B-) via J.P. Morgan Securities Inc., Wells Fargo Securities and UBS Investment Bank also carries over into the week ahead.

And Citgo Petroleum Corp.'s $1.5 billion two-part offering of first-lien senior secured notes (Ba2/BB+/BB+) in seven-year and 10-year tranches has been characterized by market sources as "day-to-day."

RBS Securities Inc., UBS Investment Bank, BNP Paribas Securities Corp. and Credit Agricole CIB are the joint bookrunners for the debt refinancing and general corporate purposes deal.

Price discovery processes are underway for both Cedar Fair and Citgo, market sources said on Friday.

Finally, Triumph Group, Inc. will begin a roadshow on Wednesday for its $350 million offering of eight-year senior unsecured notes (Ba3/B+), an acquisition financing via left bookrunner RBC Capital Markets Corp. and joint bookrunner UBS Investment Bank.

That deal is expected to price during the June 7 week.

Slowest week of the year

The primary market passed its slowest week of 2010 to date both in terms of dollar amount of issuance and deal volume, according to Prospect News data.

With no issues pricing on Friday, the May 24 week saw just one issuer, DriveTime Automotive Group, Inc., raise $161 million of proceeds.

The next slowest week was the week of Feb. 14, which saw $1.4 billion proceeds in two tranches.

The biggest week of 2010 thus far is the week of March 22, which saw $12.34 billion in 21 tranches.

At Friday's close year-to-date issuance stood at $110.6 billion in 264 junk-rated, dollar-denominated tranches.

Parsing an outflow

Finally, the $1.35 billion weekly outflow from the high yield mutual funds, reported on Thursday by AMG Data Services, caught at least one syndicate official somewhat by surprise.

"We weren't surprised that the number was negative - just that it was so substantial," the official said.

"You didn't see the kind of trading that usually takes place when there are big outflows and people need to raise cash," the source explained.

Another debt capital markets banker said that AMG's Wednesday-to-Wednesday reporting period caused the two most recently reported funds flows numbers to be somewhat skewed.

The most intense redemptions took place on Thursday, May 20, in line with the intense volatility in the global equity markets, the banker said.

Hence, the $378.4 million of outflows for the week to May 19 painted an overly modest picture, while the most recent week's negative $1.35 billion is probably overly dramatic.

-Stephanie N. Rotondo contributed to this report

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