Targa, Sotheby's price deals; Claire's Stores continues slide; funds see $56 million inflow, 11th in a row

By Paul Deckelman and Paul A. Harris

New York, June 5 - Targa Resources Partners LP and Sotheby's successfully priced new junk bond issues on Thursday, high yield syndicate sources said. When the new Targa bonds were freed for secondary dealings, they were seen struggling to stay around their par issue price. The new Sotheby's issue did not show up in the secondary market.

Back among the established issues, Claire's Stores Inc. was seen continuing to fall, down for a second consecutive session after the Pembroke Pines, Fla.-based specialty retailer posted weak quarterly numbers.

On the upside, TransMeridian Exploration Inc.'s bonds rose after the Houston-based international energy exploration and production company received a $215 million investment. Tenet Healthcare Corp.'s bonds gained in line with a rise in its shares generated by favorable analyst commentary.

Funds up by $56 million on week

And as trading was wrapping up for the session, market participants familiar with the high yield mutual fund flows statistics generated by AMG Data Services of Arcata, Calif. said that in the week ended Wednesday, $56.2 million more came into those funds than left them. It was the 11th consecutive inflow, following the cash infusion of $264 million seen in the previous week, ended June 4.

Over that 11-week stretch, inflows have totaled $3.001 billion, according to a Prospect News analysis of the figures, far outweighing the $409.6 million of net outflows which had been seen over the three weeks immediately before that.

The results over the past 11 weeks have represented a sharp break away from the negative fund-flow trend which had dominated earlier in the year. With 24 weeks now in the books, inflows - after trailing outflows pretty much all year - are now pulling solidly ahead, with 15 inflows and nine outflows seen since the start of 2008, according to the Prospect News analysis.

That sustained recent inflow surge also more than completely erased what previously had been a sizable year-to-date outflow totaling $1.067 billion as of the week ended Wednesday, March 26, the last week in which a net outflow had been seen.

According to market sources, net inflows from the weekly-reporting funds since the start of the year, excluding distributions but including previous adjustments and revisions, are now $1.933 billion, up from $1.877 billion the previous week.

The sources also said that in the latest week, funds which report on a monthly basis rather than weekly also saw an inflow, of $10.1 million, excluding distributions. That brought their year-to-date inflow up to $2.609 billion.

On an aggregate basis - combining the year-to-date net inflows of the monthly and the weekly reporters - $4.542 billion more has come into the high yield funds this year than has left them.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and, more recently, hedge funds.

Targa prices at wide end

The primary market session saw terms emerge on a single high-yield deal.

Targa Resources Partners LP and Targa Resources Finance Corp. priced a $250 million issue of eight-year senior unsecured notes (B2/B) at par to yield 8¼%, at the wide end of the 8% to 8¼% price talk.

Deutsche Bank Securities, Credit Suisse and Banc of America Securities LLC were joint bookrunners for the debt refinancing deal from the Houston-based independent midstream energy company.

Split-rated Sotheby's comes wide

Thursday also saw terms emerge on a split-rated deal.

Fine arts auctioneer Sotheby's priced a $150 million issue of 7¾% seven-year senior notes (Ba3/BBB-) at 98.681 to yield 8%.

The yield was printed 12.5 basis points beyond the wide end of the 7¾% area price talk.

Although the notes are split-rated, they were priced off the high yield desk.

Banc of America Securities and Goldman Sachs & Co. were joint bookrunners.

Proceeds will be used to finance the acquisition of Sotheby's York Avenue property and to redeem its $100 million of existing 6 7/8% notes due 2009.

Sotheby's concurrently sold $150 million of convertibles due 2013.

It expects to use some of the bond proceeds and a portion of the proceeds from the convertibles to fund convertible note hedge transactions. Any remaining proceeds will be used for general corporate purposes.

Expedia launches $500 million

Expedia Inc. began a roadshow on Thursday for a $500 million offering of eight-year senior unsecured notes (Ba2/BB).

JP Morgan and Banc of America Securities LLC are joint bookrunners for the debt refinancing and general corporate purposes deal from the Bellevue, Wash., online travel services provider.

Pricing is expected on June 19.

Elsewhere Rite Aid Corp. announced that it plans to sell $425 million of senior secured second-lien notes (confirmed B3/existing BB-) to help fund a tender.

As part of the funding for the tender, the company also launched a $350 million term loan via Citigroup and Bank of America.

New Targa deal goes nowhere; a Sotheby's paradox

When the new Targa Resources 8¼% notes due 2016 were freed for secondary dealings, a trader said that "right now, it's not doing all that great, trading into a par bid."

A second trader saw the bonds at 100.125 bid, 100.25 offered. Yet another saw them trade into a 100.125 bid, and said the bonds were left straddling their par issue price, at 99.875 bid, 100.125 offered. Targa's existing 8½% notes due 2013 rose more than a point on the session to above the 99 level.

None of the traders the new Sotheby's 7¾% notes due 2015 trading around in the secondary market. One, commenting on the odd irony that Sotheby's - the tony, high-end New York auction house which sells million-dollar-plus paintings, other art objects, jewelry and collectibles to wealthy bidders for great sums of money - is considered a junk bond company, said that "the people who are aware that they are bringing a junk deal are not their customers."

Conversely, he added, "when you envision these aristocrats sitting out there [at a Sotheby's acution] holding up their little cards that they use to bid, they're not really the ones involved in the high yield market. They may have money invested with hedge funds that are involved [with the junk market], but they may not be aware that the auction house they are in is actually a junk bond issuer."

Market indicators mixed

Back among the established issues, a trader said, the widely followed CDX junk bond performance index was up by ¼ point Thursday, quoting it at 96½ bid, 97 offered. The KDP High Yield Daily Index meantime fell 21 bps to 74.97, while its yield rose by 1 bp to 9.45%.

In the broader market, advancing issues trailed decliners by around a four-to-three margin. Activity, represented by dollar volume levels, fell about 3% from Wednesday's levels.

A trader said that "not a lot was going on. Everybody was watching stocks," which see-sawed around, first jumping out to a big early advance on stronger-than-expected May retail sales data, then giving back most of those gains as the price of oil rose, ending just moderately higher. The bellwether Dow Jones Industrial Average jumped out to a 185 point bulge, but ended up 57.81, or 0.48%, at 12,141.58. Broader market indexes were also jumping around.

Another trader said that most corporate bond activity Thursday "was on the financial side, in Lehman [Brothers Holdings Inc.], which moved around after the embattled Wall Street brokerage abruptly announced several senior management changes.

"I've never seen things like this," he said, referring to the ongoing financial-sector gyrations. "I knew there was leverage - but never like this."

Another trader said that "our market is easier - it feels heavy - yet there's not a lot of volume going on." He said that "with the recent onslaught in the equity market, accounts on the buyside just don't feel comfortable to really step in and take a stand."

He also expressed some surprise that the mutual funds were able to show an 11th consecutive weekly inflow.

Claire's clobbered, again

Among specific names, it was another tough day for Claire's Stores.

A trader saw its 9¼% notes due 2015 down 3 points at 58 bid, 60 offered - this on top of the 5 or 6 point drop seen on Wednesday in the immediate aftermath of the disappointing quarterly numbers released by the company late Tuesday night.

Another trader saw those bonds at 59.25 bid, 60.5 offered, down from 61 bid yesterday, estimating the drop at 1½ to 2 points. He saw Claire's 9 5/8% notes due 2015 trading in a range between 51.75 and 52.75, with the last trade at 52, off ¾ point on the day. He saw "a lot" of the bonds trading, and a lot of the 10½% notes due 2017 as well; the latter moved between 46 bid and 47 bid before ending at 46, down 2 points from Wednesday's finish, "so they continue to weaken up."

Yet another trader said the 9 5/8s were down 1 point at 50 bid, 51.5 offered. "They've been hit hard," he said of the credit, "and had terrible numbers. They were one of the first retailers we've seen to take a hard hit."

Claire's said that net sales for the first quarter fell 4% from year-earlier levels to $327 million. The drop was primarily attributable to a decline in same-store sales, partially offset by the growth in the company's new store base and the effect of foreign currency translation.

Consolidated same store sales declined 8.4% in the 2008 first quarter, consisting of a 3.7% increase in average transaction value that was offset by a 12.5% decrease in the average number of transactions. In North America, same-store sales - the key performance metric for the retailing industry - decreased 12.3%.

Another market source saw the 101/2s at 46 bid, down 2 points on the day. From that same retailing sector, Bon Ton Stores' 10¼% notes due 2014 lost a point to end at 70.

Thornburg loses $3.3 billion

A trader saw Thornburg Mortgage Inc.'s 8% notes due 2013 down 3 points at 74 bid, 76 offered, after the Santa Fe, N.M.-based jumbo mortgage lender reported a yawning $3.31 billion first-quarter loss.

But another said the bonds were unchanged at 71 bid, 73 offered, noting that "they did have numbers out - and the numbers were delayed for 10 days." Yet another saw no quotes in the issue, and said there was "a lack of interest by people involved in it."

TransMeridian bonds better

On the upside, TransMeridian Exploration's 12% notes due 2010 were one of the most busily traded issues on Thursday, with a market source pegging those bonds up 2 points in busy dealings to 80 bid.

Another source called them up 2½ points to 80.50.

The gain followed the news that the company has received a $215 million infusion from a Hong Kong-based energy investment holding company, United Energy Group Ltd. The latter company has bought at least 90% of the outstanding shares of Transmeridian's 15% senior redeemable convertible preferred stock and 20% junior redeemable convertible preferred stock.

Transmeridan, which focuses its exploration and production efforts mostly on the Caspian Sea and Russia, will use the funds for capital expenditure and working capital.

Tenet moves up

Traders saw better levels for Tenet Healthcare.

The Dallas-based hospital operator's bonds moved up in tandem with its shares, which rose after Lehman Brothers analyst Adam Feinstein upgraded the stock to "overweight" from "equal weight," saying that several big recently renegotiated contracts - with major insurers like Cigna Corp., Aetna Inc. and United Health Group Inc.-should improve prices, capping a turnaround that has seen Tenet resolve investigations, eliminate weak hospitals and post better growth.

A market source saw the company's 7 3/8% notes due 2013 up more than a point at the 95.5 level.

A trader at another desk called its 6 3/8% notes due 2011 up ½ point from Wednesday at 96 bid, while its 6 7/8% bonds due 2031 was steady at 75.

Investors weigh in on Six Flags tender offer

Six Flags Inc.'s bonds traded down a couple points, according to one trader, as investors digested what the company's recent debt exchange offer meant to them.

The trader quoted the 9¾% notes due 2013 around 60.

"Those that didn't tender are looking at how to value those securities," he said. "Now they have a better idea of what the capital structure will look like."

Another trader placed the 9¾% notes at 59.75 bid, 60 offered and the 9 5/8% notes due 2014 at 61 bid, 63 offered.

A market source saw its 8 7/8% notes due 2010 down a deuce at 90 bid.

Another source called the 9 5/8% notes 61 bid, 62 offered and the 9¾% notes 60 bid, 61 offered.

In a private debt-exchange offer, the New York-based amusement park operator offered new 12¼% notes due 2016 for notes due 2010, 2013 and 2014. The company said the tender - which was oversubscribed - would reduce debt by $130 million, as well as extend maturities and decrease annual interest expense.

Stephanie N. Rotondo contributed to this report

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