Technical Olympic's bonds suffer on numbers; Exide drives ahead

By Stephanie N. Rotondo

Portland, Ore., March 20 - A better-than-expected housing construction rebound could not save Technical Olympic USA Inc.'s bonds Tuesday as investors reacted to poor earnings results and a gloomy conference call.

Traders noted heavy activity in the homebuilder's bonds, with one trader clocking the notes as losing 3 points across the board. A trader also saw big movement in the company's equity, which lost more than 20% on the day.

Meanwhile, Transeastern, a joint venture of Technical Olympic, saw more positive results in its bank debt. A trader said comments made by the parent company regarding the liability put the joint venture's investors a little more at ease.

Elsewhere, Exide Technologies announced a new supply agreement for next generation Toyota Tundras manufactured at the automaker's Texas plant. The news generated a lot of activity in the battery maker's bonds and equity.

Fedders Corp. got a boost in its bonds as the company announced it closed on its new $90 million credit facility. The question now is whether the company will pay its missed coupon payment.

Aside from the big movers of the day, traders said the market was rather tame.

"It was a sideways day," a trader said. "Everything is real flat."

Technical Olympic plunges

A conference call held late Monday prompted uncomfortable feelings in investors in Technical Olympic.

According to a trader, the chairman of the Hollywood, Fla.-based company acknowledged that earnings released Monday were not good, going on to say he did not expect 2007 to be much better.

"It didn't make anybody very comfortable," the trader said.

The conference call and poor earnings prompted a "delayed reaction," the trader said, as the company's bonds were quiet in morning trading. Come afternoon, however, the bonds took a tumble.

The trader said the 10 3/8% notes due 2012 - deemed the "most active" bonds - closed at 76 bid, 77 offered. He said the notes had been trading at 83 earlier in the day.

At another desk, a trader saw the company's bonds "knocked down" 3 points across the board. He pegged the 9% issue due 2010 at a "new low" of 92.5, while the 7½% notes due 2015 came in at 71 offered. He also quoted the 10 3/8% notes at 78.5 offered.

Earlier in the trading day, a trader called the 7½% notes due 2011 at 76, compared to levels of 77.5 on Monday.

A trader also noted that the homebuilder's stock took a nosedive, over 20% during the trading day. At market close, the stock was down $1.66, or 24.02%, to $5.25. The trader also mentioned that the stock saw big volume.

"That's the biggest volume in the stock for a long time," he said.

The company posted a net loss of $243.8 million. Transeastern, its joint venture with Falcone Group, also showed a fiscal year loss of $468.0 million. Technical Olympic has been in settlement talks with the joint venture's mezzanine lenders and proposed one option as being issuing new equity or debt. Traders on Monday said that whatever happens, they expect the company to incur more debt.

According to a housing report released Tuesday, new home construction was up from January's steep decline. However, a decline in housing permits could mean more troubles for homebuilders in the future.

A trader said the report would probably mean very little to the distressed homebuilder.

"I really don't think one month's housing report will affect them at all," he said.

Transeastern bank debt surges

Transeastern's bank debt headed higher on Tuesday, pushed up by recent positively viewed remarks that have come out of parent company Technical Olympic USA Inc., according to a trader.

The bank debt ended the session at 99 bid, par offered, up from 97 bid, 98 offered, the trader said.

"[Technical Olympic] said that they reserved money for the liability. They gave a low number and a high number and people liked the numbers," the trader explained.

Technical Olympic said that they have accrued $275 million in connection with a potential restructuring of the Transeastern joint venture. That amount reflects its estimate of the low end of the range of a potential loss as determined by taking the difference between the estimated fair market value of the consideration the company expects to pay in connection with the global settlement less the estimated fair market value of the business the company would acquire pursuant to its proposal. The estimate of the high end of the range is $388 million, assuming full repayment of the outstanding debt.

In addition, Technical Olympic said that it has proposed a structure in which Transeastern would become its wholly or majority owned subsidiary. This proposal also contemplates paying Transeastern's $400 million of senior debt in full through the incurrence of additional debt.

Exide excited, drives up

A new supply agreement with Toyota Motor Engineering & Manufacturing North America sparked a 3-point gain in Exide Technologies' bonds, according to a trader.

The trader placed the 10½% notes due 2013 at 103 offered, looking for a bid. He also saw the Alpharetta, Ga.-based battery maker's stock up as much as 20% at one point. The stock closed up 83 cents, or 11.20%, to $8.24.

Under the new agreement with Toyota, Exide will provide lead-acid starting batteries for the next generation of Toyota Tundra trucks. The company currently supplies batteries for the Toyota Camry, Avalon and Sequoia.

The terms of the agreement were not disclosed.

Remy up on shorts, rumor

In other distressed auto parts supplier paper, Remy International Inc. has seen a 3- to 4-point gain over the last few days, a trader said. He pegged the 9 3/8% notes due 2012 at 22, while the 11% notes of 2009 closed at 22 bid, 24 offered. He also saw the 8 5/8% notes due 2007 at 76 bid, 77 offered.

The trader attributed the gains to "lots of shorts."

Another trader said that Remy's bonds "keep getting better and better off the lows," quoting its Delco Remy 9 3/8% notes at 22 bid, 22.375 offered, up 2 to 3 points on the day, while its 8 5/8% notes were up 2 points at 76 bid, 77 offered. He attributed the continued rise to "all kinds of rumors - of takeovers - but I didn't see anything come out. But every day, the bonds are better."

Another trader saw the 9 3/8s at 21 bid, 22 offered, up 2 points, while its 11% notes were also 2 points up at 22 bid, 23 offered. He saw the senior bonds "the same" at 76 bid, 77 offered.

Elsewhere in the autosphere, a trader saw Dana Corp. bonds down 1.25 points, its 6½% notes due 2008 at 74.5 bid, 75.25 offered after the company reported a $618 million continuing operations loss for 2006.

Fedders up on facility close

Fedders closed on its new $90 million senior secured financing, according to a company news release.

Goldman Sachs acted as the lead bank on the deal.

Proceeds are being used to refinance the company's existing $50 million senior credit facility, for ongoing working capital requirements and for general corporate purposes.

On the news, a trader quoted Fedders' 9 7/8% notes due 2014 down 2 points at 55 bid, 56 offered - but another projected that the bonds would be "up pretty sharply from the lows, back up to 57 bid, 58 offered in late trading, "even as we speak."

"The bonds were getting hammered due to uncertainty, but it looks like they're going to be up" on the financing news, he said. "Their coupon [which was due on March 1] has been in the grace period," he said, but now that they have the $90 million, they have the money to pay it by the end of the grace period. The question is "whether they're going to do it or not - and I believe they will," he said. "It looks like people are scrambling to buy bonds right now, even as we speak."

Fedders is a Liberty Corner, N.J., producer and marketer of air treatment products.

Airlines better

A trader saw airline bonds a bit better, quoting Northwest Airlines' paper up 0.5 to 1 point, depending on the issue, with its 8 7/8% notes due 2006 at 85 bid, 86 offered, up 1 point, and its 10% notes due 2009 half a point better at 85.5 bid, 86.5 offered.

Another trader, though, said that although airline paper had been "strong all day," he saw selling around the close, pegging the 10s offered at 86, which he called unchanged on the day.

A trader called Delta Air Lines Inc.'s bonds "quiet for Delta," which he said usually trades a lot. He pegged the company's 8.30% notes due 2029 at 53.75 bid, 54 5/8 offered.

Sara Rosenberg and Paul Deckelman contributed to this article.

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