Lehman bonds continue fall; Claire's Stores jumps on numbers; Ticketmaster rebounds

By Paul Deckelman and Paul A. Harris

New York, Sept. 12 - Lehman Brothers Holdings Inc.'s bonds continued to lose ground on Friday, while Washington Mutual Inc. gyrated around, closing out a sorry week which saw both nominally investment-grade rated issues trading at sharply lower levels off the junk desks at many shops.

An upsider was struggling store operator Claire's Stores Inc., whose three series of bonds were seen having jumped smartly in very heavy trading - estimated at over $200 million for the three of them - after the Pembroke Pines, Fla.-based specialty retailer had favorable numbers out.

Also on the upside were the bonds of General Motors Corp. and Ford Motor Co., helped by market expectations that the government will put into effect a big loan program for the problem-plagued automotive giants.

Ticketmaster's bonds were seen better, rebounding from the more than 6 point drop they suffered in Thursday's dealings.

Sources marked the broad high-yield market flat on Friday, but up from earlier lows.

Before the noon break in New York a senior high-yield syndicate official asserted that the junk market was "deader than Dillinger."

Market indicators seen mixed

The widely followed CDX index of junk bond performance was unchanged on the day, a trader said, quoted at 93 3/8 bid, 93 5/8 offered, while the KDP High Yield Daily Index rose by 3 basis points to end at 70.61, its yield steady at 10.59%.

In the broader market, advancing issues led decliners by around an eight-to-seven margin. Activity, represented by dollar volume, declined about 19% from the levels seen on Thursday.

Lehman a loser, again

Lehman Brothers' bonds - now firmly ensconced as a de facto junk issue despite its still nominally investment-grade ratings - were seen lower on Friday, although here and there, some of the bonds did show improvement from the pounding they had taken on Thursday.

For instance, a trader saw Lehman's 7 7/8% notes due 2010 trading at 81 as a final round-lot trade on the day, up from 79.5 on Thursday, with $35 million of the bonds changing hands. He also saw Lehman's 6 7/8% notes due 2018 unchanged at 83 on a round-lot basis, with $61 million traded, and its 5¾% notes due 2011 ended at 76.5, down 1/8 on the point, on turnover of $47 million.

However, the biggest-trading issue that he saw was Lehman's 7½% bonds due 2038 - and that bond was way lower, tumbling to a round-lot finish of 64.25 from 77 at the close Wednesday.

A trader at another desk saw the Lehman 6½% notes due 2017 down 2 points at 67 bid, 69 offered.

A market source saw the 6 7/8s actually ending down 2½ points at 80.5, and also saw the tumble in the '38s, pegging them at 64.25 bid at the close, down some 12 points.

It was the end of a rough week for Lehman, thrown for a loop by market concerns about the investment bank's inability to attract investors who can pump in big doses of fresh capital. Long-running talks with Korea Development Bank, which had been rumored willing to invest as much as $6 billion in Lehman, broke off this week with nothing having been agreed upon. Market unease with Lehman intensified at mid-week as the company announced nearly $4 billion of quarterly losses and unveiled a package of "key strategic initiatives" to raise capital and cut risk that market players felt was simply too little, too late - leading to speculation that Lehman would have to sell itself to some larger, better capitalized firm to avoid a total collapse. The Treasury and The Federal Reserve were reported helping out as matchmakers - but insisting that there would be no government guarantee against investor losses, as there had been when Bear Stearns & Co. was practically given away to J.P. Morgan Chase this spring for pennies on the dollar.

An analyst said that "people are saying there might be a deal [for Lehman] this weekend - but it's likely to be under $1 per share," or less than one-third of even the very low price to which Lehman has been hammered down to over the past week.

He said that he could not see how Lehman shareholders might get any more than that, given the extreme loss of market confidence in the once-robust fourth-biggest U.S. investment bank - and the precedent set in March when the equally venerable and once-formidable Bear Stearns & Co. came crashing down. "Look at Bear Stearns - the Friday before, it was trading at $30 per share, and Sunday night, they did a deal for $2 - 1/15 of the price. Figure 1/15 of $3.50 or wherever Lehman is today."

The name most often bandied about as a likely buyer for Lehman is Bank of America Corp., although spokesmen at Lehman and Bank of America declined to comment on a Wall Street Journal story Friday saying B of A had the inside track. The Financial Times reported that B of A, J.C. Flowers, and the Chinese sovereign wealth fund China Investment Co. are mulling a joint bid for Lehman, the Financial Times reported on its Web site Friday.

Lehman's New York Stock Exchange-traded shares - which had been viciously hammered down over the past week, particularly on Tuesday, when it lost nearly half of what value it had, and then again on Thursday when it swooned another 41% - dropped an additional 57 cents, or 13.51% Friday, to $3.65, on volume of 307.1 million shares, over four times the usual turnover.

WaMu jumps around

Junk players were also watching Washington Mutual Inc., whose bonds were officially downgraded to junk on Thursday by Moody's Investors Service. On Friday, the Seattle-based thrift's bonds were seen to have firmed in the morning on news reports that it was in talks to be acquired by JP Morgan Chase.

However, a trader said, as the day wore on, the JP Morgan talk faded, and the bonds went along with it. He saw the WaMu 6 7/8% notes due 2011 move solidly higher in the morning, up to 53 bid, 54 offered.

But while "the bonds were up at midday on the JP Morgan rumor, as soon as JP Morgan [reportedly] said no, the bonds dropped 5 to 10 points across the board."

He saw the 7¼% notes due 2017 ending down 3 points at 25 bid, 30 offered, after having been 5 to 7 points higher than that. Another source saw the 8¼% notes due 2010 ending down 3 points at 36 bid, 38 offered.

Claire's is day's surprise

A trader said that Claire's Stores' bonds were proving enormously popular on good financial results. He saw the Claire's about 7 points better across the board on the company's quarterly numbers.

Another marveled at the heavy activity level, noting that "over $200 million combined traded for the three Claire's [issues.] "That's incredible." He surmised that besides reaction to the numbers, "there was probably some short-covering as well."

He saw Claire's 10½% notes due 2017 rise 5 points to 41.5 bid, on $97 million of bonds traded. He saw $52 million of 9 5/8% notes due 2015 go out at 30.75 bid, up 4¾ points, while its 9¼% notes due 2015 jumped 7½ points to 39.75 bid on volume of $51 million.

A trader at another desk said the numbers "were down less than expected," although he added that "I think there might have been some short covering going on."

Adjusted EBITDA in the second quarter of 2008 was $58.1 million compared to $64.3 million in the second quarter of 2007. And, the gross profit percentage was flat at 49.9% for both years' second quarters. A 290 bps increase in the merchandise margin was offset by an equal increase in occupancy and buying costs.

"In the second quarter, we saw an improvement in the tone of business as our comparable store sales improved during each month of the quarter and our merchandise margin increased," said Gene Kahn, chief executive officer, in the release. Net loss for the six months was $52.5 million, compared to $44.6 million in 2007, while adjusted EBITDA in the six-month period was $92.4 million, compared to $125 million in the first six months of 2007.

GM joyride continues

A trader saw General Motors' benchmark 8 3/8% bonds due 2033 jump to 57.5 bid, from 54 previously, and called its GMAC LLC 8% bonds due 2031 unchanged at57.5 bid.

Another trader called the GM benchmark bonds 2½ point gainers at 55 bid, 57 offered, while its short-dated 7.20% notes due 2011 also were up 2½ points at 73 bid, 75 offered.

He saw GM arch-rival Ford's 7.45% notes due 2031 better by 2 points at 56 bid, 57.5 offered.

The carmakers' bonds firmed on expectations Washington will come through with a $25 billion low-interest loan program for the distressed auto industry.

Ticketmaster bounces back

A trader saw the Ticketmaster 10¾% notes due 2016 regaining about 1½ points of the 6 they lost Thursday to end at 98.5 bid, 99.5 offered.

The bonds had slid to 97 from prior levels around 103 Thursday after news that a company that right now is its biggest partner aims to become its biggest rival in the concert-ticket business. Live Nation, which puts on concerts by such well-known artists as Madonna, Jay-Z, and Shakira, has up till now partnered with Ticketmaster, depending upon the latter to sell the tickets to the event, but starting next year, it will start its own ticket-sales service, inking an agreement to act as the official ticket agent for SMG, which operates nearly 200 large-event venues across the U.S.

Frontier Oil prices $200 million

In the primary, Frontier Oil Corp. priced a $200 million issue of 8½% eight-year senior notes (Ba3/BB) at 98.58 to yield 8¾% on Friday.

The notes were talked at 8½% on Thursday, not "8½% area." A literal interpretation of that price talk renders Friday's print 25 basis points wide of the talk.

A source close to the deal said that the order book was oversubscribed, and added that the Frontier Oil trade played to high quality accounts.

UBS Investment Bank was the bookrunner for the Houston-based refiner.

As Prospect News went to press on Friday evening the wire services were reporting that hurricane Ike was bearing down on the Texas coastline, with the greater Houston area expected to undergo tropical storm force winds.

The issue of the hurricane may have come up during the Frontier Oil roadshow, an informed source said, but did not have an apparent bearing upon the bond deal because the company's assets are not located along the coast.

Frontier Oil was one of two corporate issues - i.e. unrelated to the LBO-related hung-up supply of bonds - to price during the week.

On Wednesday, another Houston-based company from the energy sector, Sabine Pass LNG LP, a wholly owned subsidiary of Cheniere Energy, priced a $183.5 million issue of notes mirroring its existing 7½% senior secured notes due Nov. 20, 2016 (B2/B+) at 79.00 to yield 11.52%.

Empty calendar

With the Frontier Oil deal clearing on Friday, the week beginning Sept. 15 will get underway with no issues in the market.

Syndicate sources profess visibility on new issue business, but say it's not necessarily imminent.

One senior syndicate source asserted that deals can be done, but conceded that prospective issuers and their underwriters are being extra cautious.

Meanwhile, an hour after Friday's close a high-yield syndicate source said that the market would be keenly observing developments in the financial sector, over the weekend.

Of particular interest, the source said, was the possible acquisition of Washington Mutual Inc., by JPMorgan Chase & Co., as well as the possible acquisition of Lehman Brothers Holding, Inc. by a group led by Bank of America.

This source added that the investment-grade bonds of troubled insurer AIG were at 12½ bid, 13½ offered, late Friday, and added that those prices work out to a spread to Treasuries in the context of 900 bps.

SunGard bonds expected to downsize

A market source told Prospect News late Friday that SunGard Data Systems Inc. is expected to downsize the amount of bonds it will sell by $200 million, which would decrease the anticipated offer to $500 million from $700 million.

The market source said that the bond deal is expected late September or early October business.

Syndicate sources declined to comment, adding that nothing has been announced regarding the bonds.

Meanwhile Prospect News learned that SunGard increased the size of its Libor plus 375 basis points incremental senior secured term loan by $200 million, to $500 million from $300 million.

Goldman Sachs, Citigroup and Lehman Brothers are the bookrunners and underwriters. KKR Capital Markets is also an underwriter.

Proceeds from the loan, along with senior unsecured bonds, will be used to fund the acquisition of a majority stake in GL Trade and for general corporate purposes, including the refinancing of the company's existing 3¾% senior secured notes due Jan. 15, 2009.

Stephanie N. Rotondo contributed to this report

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