Bombardier, Finlay bonds rise on earnings; Thornburg rally fizzles out; funds see $373 million inflow

By Paul Deckelman and Paul A. Harris

New York, April 3 - Bombardier Inc.'s bonds were seen up by several points Thursday after the company released sharply better earnings for the recently concluded fiscal fourth quarter. Better earnings were also seen having done the trick for the battered bonds of New York-based jewelry retailer Finlay Fine Jewelry Inc.

The rally in Thornburg Mortgage Inc.'s bonds that has been the dominant feature in the market for most of the week may have finally run out of gas, with the bonds seen little changed from the sharply higher levels to which they had jumped on Tuesday and again on Wednesday.

News that a federal judge had declined to take jurisdiction in the legal battle between Clear Channel Communications Inc. and its proposed private-equity buyers, on the one hand, and the big banks that agreed to fund the more than $20 billion transaction but which may now be having some second thoughts - clearly a setback for the latter - did not give the San Antonio, Tex.-based radio and outdoor advertising giant's bonds the kind of boost they had gotten earlier in the week when a Texas state judge granted them a temporary restraining order against the banks. Several participants actually saw the bonds lower.

Angiotech Pharmaceuticals Inc.'s bonds were seen solidly higher in busy trading, along with its shares, which were up more than 25% on the day, although there was no fresh positive news out about the Vancouver, B.C.-based maker of specialty pharmaceuticals and medical devices.

The newly resurgent junk primary sphere -fresh off Wednesday's pricing of Ipalco Enterprises Inc.'s new eight-year issue - pretty much took a vacation day Thursday, participants said.

Funds up $373 million on week

And late in the day, 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 some $372.8 million more came into those funds than left them - the biggest such cash infusion in 27 weeks .

It was the first gain in the funds after three straight weeks of outflows totaling $409.6 million, including the $78.4 million cash exodus seen in the previous week, ended March 26.

The latest results represented a sharp break away from the negative fund-flow trend which has dominated for most of this year. With 14 weeks now in the books, outflows have been seen in nine of them, versus five inflows, according to a Prospect News analysis of the AMG figures.

Net outflows from the weekly-reporting funds since the start of the year have totaled $694 million, according to a market source, down from $1.067 billion the previous week.

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, most recently, hedge funds.

Market indicators keep pushing higher

A trader saw the widely followed CDX index of junk bond performance up 3/8 point at 94 3/8 bid, 94 5/8 offered. Meanwhile, the KDP High Yield Daily Index rose by 0.20 to end at 73.96, while its yield narrowed by 6 basis points to 9.67%.

In the broader market, advancing issues led decliners by a better-than-five-to-four margin. Overall activity, reflected in dollar volumes, declined by around 3% from Tuesday's levels.

Bombardier takes off

Among the specific issues seen moving around on Thursday, Montreal-based aircraft and railroad equipment manufacturer Bombardier's bonds were seen winging their way higher after the company - the third-largest producer of civilian commercial aircraft in the world - reported that its earnings nearly doubled in the fiscal fourth quarter ended Jan. 31.

Its 6.30% notes due 2014 were seen up 2½ points at just above the 99 level. At another desk, the bonds were seen finishing the day at 98.5 bid, up from 96.375 on Tuesday. The company's 6¾% notes due 2012 edged up to par bid, slightly less than a full point gain.

That rise followed the news that Bombardier's quarterly earnings were up 95% versus a year ago to $218 million, or 12 cents per share, from $112 million, or 6 cents per share, in the year-earlier period. Revenues for the quarter rose to $5.3 billion from $4.4 billion a year earlier, helped by brisk sales of the company's business and regional airline jets. Analysts had been looking, on average, for earnings of 8 cents per share on around $4.85 billion of revenues. Cash flow from both the aircraft and the railroad equipment units was strong, allowing Bombardier to end the year with a $3.6 billion cash cushion.

Company executives said on their conference call following the release of the earnings data that Bombardier was on its way to completing a financial turnaround from where the company was several years ago.

"We remain committed to improving long-term profitability, maintaining strong liquidity and further strengthening our capital structure in order to regain our investment-grade status," the company's chairman and chief executive officer, Laurent Beaudoin, said during the call. The three major ratings agencies all dropped the company's debt to junk status in late 2004 amid a generalized downturn in the airline industry that resulted in lost plane sales.

Finlay bonds shine as earnings sparkle

Also on the earnings front, better fiscal fourth-quarter results for Finlay Enterprises Inc. helped to push the bonds of its Finlay Fine Jewelry subsidiary up.

One trader saw its 8 3/8% notes due 2012, which had been recently languishing at around the 35 mark, shoot all the way up to 45, finally going out at 45.75 bid.

Another market source also saw the bonds in the 45 range, but said they had only moved up around 2 points or so on the session. Yet another pegged the bonds around 37, but said that represented around a 2½ point rise.

Finlay announced that its fourth-quarter sales increased by 24% to $383.1 million from $309 million in the comparable period of 2006. Specialty jewelry stores consisting of its Carlyle, Congress, and Bailey Banks & Biddle divisions contributed sales of $145.9 million for the fourth quarter, as compared to $51.6 million for the same period last year - even though same-store sales, the key retailing industry metric, declined by 6.4% on a continuing operations basis.

For the 13 weeks ended Feb. 2, Finlay reported income from continuing operations of $13.4 million, or $1.43 per diluted share, up from $12.2 million, or $1.31 per diluted share, in the 14-week fourth quarter of fiscal 2006. Excluding a pre-tax non-cash charge of $3 million, or 20 cents per share, for the impairment of goodwill at its Congress specialty jewelry store division, income from continuing operations would have been $15.3 million, or $1.63 per share, which exceeded the company's guidance of diluted earnings per share in the range of $1.50 to $1.60.

Finlay said that EBITDA for the quarter totaled $38.4 million, up from $30.1 million in the prior year period. Excluding the goodwill impairment, EBITDA for the fourth quarter this year would have been $41.4 million.

Party over at Thornburg?

Elsewhere, Thornburg Mortgage's 8% notes due 2013 were seen by several traders to have held steady around the 71-72 area to which those bonds had pushed up from the upper 50s over the space of several prior sessions.

Those bonds had risen dramatically on the news that the Santa Fe, N.M.-based mortgage originator had reached agreement with its lenders that would it allow the company to raise more than $1 billion of new capital, as the lenders requested, stopping a potential slide towards bankruptcy. However, the lack of further substantive news developments seemed to take the wind out of the bonds' sale.

No clear Clear Channel gains

Traders likewise saw little movement in the bonds of Clear Channel Communications, even as a federal judge ruled that he would not assume jurisdiction over litigation between Clear Channel and its would-be-buyers, on the one hand, versus its lenders on the other. They in fact quoted the debt lower - but on very restrained trading, with most market players still trying to sort out the latest developments in the case.

A trader saw Clear Channel's 5¾% notes due 2013 at 76 bid, 77.5 offered, "lower today" from the recent levels around 79 at which the bonds had traded a couple of days ago. He saw its 4½% notes due 2010 at 90.5 bid, 91 offered, down about a point from 91.5 bid earlier.

At another desk, a market source saw the 53/4s at 77.5 - but still called that down more than a point on the day.

There was not much excitement over the news that federal judge Orlando Garcia had ruled that a trial of Clear Channel's lawsuit against its lenders could go forward in the Texas state courts - a setback to the lenders, who were trying to move the suit to the federal court system, hoping for a more favorable outcome.

Clear Channel and would-be buyers Thomas H. Lee Partners LLC and Bain Capital Partners LP went to the courts in the company's home territory of Texas to sue the banks to force them to live up to their funding commitments for the leveraged buyout deal - made a year and a half ago, long before the current credit crunch. Bain and Lee separately filed suit against the banks, without Clear Channel, in the New York state courts, since that is where most of the financial firms involved are domiciled.

The judge in Texas ruled earlier in the week that the banks - Citigroup, Morgan Stanley, Credit Suisse, Deutsche Bank, Wachovia and RBS - were barred from doing anything, positive or negative, that would hinder the LBO deal, pending a full trial in his court, slated to begin next week.

Clear Channel denounced as "forum shopping" the efforts by the lenders to move the case out of the Texas court and hailed the federal ruling turning back such an effort. However, reaction to the decision was seen muted.

And the battle may not be over yet. The banks have said that they will attempt to add Clear Channel to the litigation brought by Lee and Bain in New York, to which Clear Channel is not currently a party. The company denounced this as just another instance of "forum shopping."

Angiotech bonds, shares rise

Angiotech Pharmaceuticals' 7¾% bonds due 2014 were seen by a market source up more than 4 points to just below 67 in active dealings, although there was no fresh news out on the company that might explain such a rise.

Equity investors too took the company's Nasdaq-traded shares sharply higher on non-news; the shares rose 58 cents, or 25.66%, to $2.84. Volume of 917,000 shares was 1 ½ times the norm.

Hopes in primary but no action

The high yield primary market passed a quiet Thursday, with no new issues pricing, and still nothing on the road.

News of the inflow to mutual funds, described by a high yield syndicate official as the biggest gain in 27 weeks, coupled with last week's corporate issues from FairPoint Communications Inc. and Steel Dynamics, "at little concession to the market," could spark some interest among issuers that have been watching from the sidelines, the official said.

However the market's recent bias toward issuers with high credit ratings, emanating from recession-resistant sectors, will almost certainly remain in place, the source remarked.

Earlier in the day another sell-side source expressed a similar take.

However neither official claimed to be in possession of the identities of any prospective issuers.

Meanwhile on Thursday there were rumblings on the "LBO-backlog" front.

Sources said that underwriters succeeded in placing some of the hung high yield bridge loans of Alltel Corp. and First Data Corp.

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