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Target debt sale plan just gets yawns

  • Article by: CHRIS SERRES
  • Star Tribune
  • March 13, 2008 - 8:29 PM

Tough crowd.

For the past five years, Wall Street analysts periodically have called on Target Corp. to unload all or part of its highly profitable credit-card portfolio before an economic downturn hits consumers, making it harder for them to repay their debts.

Now, with the economy flirting with recession, Target finally is giving Wall Street what it asked for, and investors aren't applauding. Shares of the discount retailer fell 53 cents, or 1 percent, to $50.56 from $51.09, a day after Target said it was in talks to sell about half of its $8.6 billion credit-card portfolio for about $4 billion.

The muted reaction may reflect the fact that, as of Thursday afternoon, many investment analysts still didn't understand how the proposed deal would be structured, how it would affect Target's financials, and how much exposure Target would retain to a credit-card portfolio that is growing rapidly but has struggled with higher levels of delinquencies and defaults in recent months.

Although Target issued a statement Wednesday touting the still-unfinished deal, some analysts wonder if the retailer was forced into a partial sale. "It could be that folks were so scared about the possibility of more people defaulting, that they could only find a buyer for half," said Joseph Beaulieu, a retail analyst at Morningstar. "This was probably not the best time in the world to be selling."

Indeed, Target appears to be getting much less for its loans than other retailers. In 2006, for instance, Citigroup bought the credit-card receivables of Macy's, then Federated Department Stores Inc., for a premium of 11.5 percent, according to a Lehman Brothers report. In 2003, Sears Holdings received a 10 percent premium from Citigroup for its credit-card receivables.

Some analysts still aren't convinced that a deal will occur, particularly if the credit markets continue to deteriorate. "I'm in the disbeliever camp," said Steven Jacowitz, director at Auriemma Consulting Group, a bank-card consulting firm based in Westbury, N.Y. "The only reason they proposed this [deal] was to satisfy shareholders. ... And obviously, shareholders don't love it."

Chris Serres • 612-673-4308

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