OSI earnings pressure debt; Mrs. Fields eyes pre-packaged Chapter 11; Retailers climb on data

By Stephanie N. Rotondo

Portland, Ore., Aug. 15 - An early morning conference call Friday put pressure on OSI Restaurant Partners Inc.'s debt structure.

The conference call was held to discuss the company's second-quarter and six-month results, which included a wider net loss. While one source said the numbers were not entirely unexpected, without a positive catalyst there was no way of knowing when a turnaround might come.

Meanwhile, Mrs. Fields Famous Brands LLC announced it would file a pre-packaged bankruptcy. But that news was also somewhat expected, and as a result, traders reported little action in the cookie maker's debt.

New consumer data was released Friday. The reading showed a slight increase in consumer confidence, though still below expectations. However, the gain in the index might have helped to bolster retailers such as Burlington Coat Factory Warehouse Corp., Michael's Stores Inc. and Rite-Aid Corp.

Outback earnings pressure debt

OSI Restaurant Partners, better known as Outback Steakhouse, saw its term loan weaker on the offer side in a quiet summer Friday trading session following the company's earnings conference call that took place in the morning, according to a trader.

The term loan was quoted at 79 bid, 80 offered, compared to Thursday's closing levels and pre-conference call levels on Friday of 79 bid, 81 offered, the trader said.

"[I] Think earnings were sort of what was expected. [But], people can't really point to when things are going to turn around, so [the term loan] is just going to float out there," the trader remarked.

On the bond side, a trader said the company's 10% notes due 2015 traded back down after rallying in the previous session. He quoted the bonds at 57 bid, 58 offered.

For the second quarter, OSI Restaurant reported a net loss of $176.7 million, compared to a net loss of $10 million during the second quarter of 2007.

EBITDA for the quarter was negative $124.1 million, compared to positive $24.1 million last year.

Adjusted EBITDA for the quarter was $73.6 million, compared to $82.8 million in the 2007 quarter.

And, adjusted EBITDAR for the quarter was $120.9 million, compared to $111.0 million last year.

For the six months ended June 30, net loss was $186.4 million, compared to net income of $17.6 million in the comparable 2007 period.

EBITDA for the six months was negative $56.5 million, compared to positive $109.1 million last year.

Adjusted EBITDA for the six-month period was $161.6 million, compared to $199.3 million in the first half of 2007.

And, adjusted EBITDAR for the six months was $254.8 million, compared to $254.7 million last year.

OSI Restaurant is a Tampa, Fla.-based casual dining restaurant company with a portfolio that includes Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill, Fleming's Prime Steakhouse & Wine Bar, Roy's, Lee Roy Selmon's, Cheeseburger in Paradise and Blue Coral Seafood & Spirits.

Elsewhere, Sbarro Inc.'s 10 3/8% notes due 2015 "continue to drift down," a trader said, pegging the notes at 72.

Mrs. Fields eyes bankruptcy

In other restaurant and retail news, Mrs. Fields Famous Brands announced it would file a pre-packaged bankruptcy.

But according to one trader, the news was not unexpected.

"It was nothing new," he said, citing a report back in June when the company said it had entered into a consensual restructuring with its noteholders.

Under that agreement, the company was looking to exchange its 9% and 11½% notes due 2011. However, if the company did not receive 98% consent from the bondholders, but did receive two-thirds consent, then the company would go the pre-packaged route.

Several traders said they did not see any quotes in the company's debt.

"Not a picture or price in months," said one source.

According to another market source, the bonds moved up 2 points to 60. Still, the NASD Trace system showed no trades in the name as of Friday.

Due to the imminent Chapter 11 filing, Mrs. Fields said it would not pay its upcoming coupon, though it plans to conduct business as usual.

Mrs. Fields is a Salt Lake City-based cookie producer and retailer.

Retailers up on consumer data

As consumer confidence inched up slightly over the last couple of weeks, retailers saw modest gains as well.

"A couple retailers were better, but it was still generally quiet," a trader said of the sector.

The trader called Burlington Coat's 11 1/8% notes due 2014 up at 75.5 bid, 76 offered, while Michael's Stores saw its 10% notes due 2014 move up to around 80. Rite Aid paper also continued to improve, with its 9½% notes due 2017 and its 9 3/8% notes due 2015 closing around 66.

According to the Reuters/University of Michigan Surveys of Consumers report released Friday, consumer confidence gained half a point to 61.7 in early August, compared to a reading of 61.2 in late July. Still, the gain was less than the expected reading of 62.

Despite the slight increase, the surveyors said the outlook was still bleak.

"There is little doubt among consumers about the likelihood of a recession," said Richard Curtin, director of the surveys, in a prepared statement.

Elsewhere in the report, the survey showed a decline in the current conditions index to 69.3 from 73.1. That marked the second-lowest notch since 1980.

Distressed market quiet

"I truly think that 50% of all people that trade bonds in any fashion are out," said one frustrated trader. In discussing the lack of action during the last session of the week, the trader remarked, "Friday has become the new Christmas."

Among issues that were trading, General Motors Corp.'s 8 3/8% notes due 2033 continued their upward course, closing at 53.5 bid, 54 offered, up 1 to 1.5 points on the day.

VeraSun Energy's bonds remained unchanged, with its 9 3/8% notes due 2017 at 58 and its 9 7/8% notes due 2012 at 87.5 bid, 89 offered.

Tropicana Entertainment LLC's 9 5/8% notes due 2014 ended "a little better" at 33, a trader said.

Sara Rosenberg contributed to this article.

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