Weak Xmas Seen Hurting Lower-Rated Retailers

  • 29 Sep 2002
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Bonds of many retailers are likely to underperform the market ahead of an expected weak Christmas shopping season, according to buy- and sell-side analysts. Retail is one of the few sectors that has held up this year, and the market is looking for the first excuse to dump bonds of companies such as Kohl's (A3/A-), SuperValu (Baa3/BBB), Safeway (Baa2/BBB) and Federated (Baa1/BBB+), says Jim Claire, head of fixed-income trading at Evergreen Investment Management. Highly-rated Target (A2/A+) and Wal-Mart (Aa2/AA) are the only ones expected to weather the storm. "First it's that back to school sales sucked, then it will be that Christmas sales suck--meanwhile, Target and Wal-Mart trade tighter than the skin on a conga drum." Evergreen owns Target and Wal-Mart's bonds, but has minimized its exposure to other retailers for some time, Claire says.

On the high-yield side, the consensus loser is expected to be Saks (B1/BB-). Carla Casella at J. P. Morgan Securities downgraded the luxury department store from "buy" to "hold," after its 8.25% notes of '08 rose from 89 on Aug. 23 to 93.75 last Tuesday. She fears Saks is vulnerable ahead of what will likely be a slow Christmas season.

Scott McCullough, analyst at Raymond James & Associates, initiated his Saks coverage will a "sell," arguing that it is increasingly reliant on its lower-priced stores. McCullough sees 10 points of potential downside in the Saks bonds.

  • 29 Sep 2002

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Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Citi 3,237 10 19.12
2 Goldman Sachs 2,096 5 12.39
3 Morgan Stanley 1,965 5 11.61
4 BNP Paribas 1,686 6 9.96
5 Barclays 1,565 4 9.25

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4 Bank of America Merrill Lynch 23,023.30 73 8.56%
5 Barclays 16,546.45 55 6.16%