Fedders notes dip on 'awful' call; Calpine boosted; Doral weaker; Northwest drops

By Stephanie N. Rotondo

Portland, Ore., May 18 - A bondholder conference call held early Friday morning hit Fedders Corp.'s bonds, as traders deemed the call everything from "awful" to "nothing unexpected."

In the call, the company laid out its goals for the coming year, which includes becoming EBITDA positive and lowering selling, general and administrative expenses. According to an unnamed analyst, the company has hired the Blackstone Group as its adviser, a move a trader called "positive."

Meanwhile, Calpine Corp.'s debt is continuing to get better, but there has not been a definitive answer as to why. Traders are saying, however, that there is buzz that the company may have suitors waiting in the wings.

An active Thursday did not lead to a busy Friday for Doral Financial Corp.'s bonds. The notes saw heavy volume after the company announced a $610 million buyout, but activity slowed at the close of the week and the bonds gave up some of its previous gains.

Separately, Northwest Airlines Corp. got the OK to fly out of bankruptcy by the end of the month, but its debt lost momentum on the news, dropping a couple points during trading. Volume, however, was light, a trader said.

Fedders down on call

Fedders' 9 7/8% notes due 2014 grew weaker on an "awful" bondholder conference call, a trader said. The trader said the notes fell about a point but added that it was more like 4 points down, though the bonds did not print that low. He quoted the debt at 35 bid, 40 offered.

At another desk, a trader saw the bonds at "40.25 and looking lower, more like 38 [bid], 40 [offered]," he said. Elsewhere, another trader called the bonds "pretty much unchanged" at 39 bid, 41 offered but said the debt "did not trade much."

During the conference call, traders reported that the company's management said that while it was negative $10 million EBITDA for the first quarter, it expected to see positive EBITDA for the following three quarters.

According to one trader, that meant that the company "has turned a corner...maybe."

The trader said the company still has "too high an SG&A," noting that the company needs to bring it down under $12 million. The trader also said that he did not understand why the company said it did not have enough funds to stock up its inventory.

"They said they did not have enough money to push its air conditioners, but they did," he said, adding that the company has an $18 million credit line. "So that didn't make sense."

"Everything they say says bad management," he said.

Another trader had a slightly different perspective on the call.

"I don't think that people perceived it very well," he said. "But, honestly, it was nothing unexpected."

"Everyone knew the first quarter was going to be the way it was," he continued. "The first quarter doesn't even really matter."

An unnamed analyst who listened to the call said he was "encouraged by the fact that they could do 16% adjusted gross margin in a horrible quarter."

"Generally speaking, a poor first quarter was expected," the analyst said. "The tone of the call reflected that. Management acknowledged they had some liquidity restraints which caused some problems."

"I think the company is aware that they are overleveraged," he said.

Still, "[Fedders] is positioned now going forward to be EBITDA break even, at least," he said.

Going into the second quarter, the questions on everyone's mind will be whether the company can increase its gross margin to 20% and whether the company can cut its SG&A to under $12 million.

"I don't think there is a particular liquidity concern," the analyst said. "It's tight, but it's manageable."

Calpine bonds boosted

Calpine's bonds are continuing to see gains, with one trader stating that the notes were "up several more points today [Friday]. All issues are up."

The trader pegged the 8½% notes due 2008 at 124 bid, 125 offered and the 8½% notes due 2011 at 126 bid, 127 offered. He also saw the 7¾% convertible due 2015 at 130 bid, 131 offered.

"I'm not sure what was driving it," he said. He did, however, mention there was some "scuttlebutt" in the market on fellow energy supplier Mirant Corp.

"It could be further consolidation in power," he said.

The trader also added that, "somebody's been a huge buyer in all Calpine issues."

"The paper just continuously gets sucked up by somebody," he said. "It doesn't sit around for long."

Meanwhile, at another desk, a trader also saw the San Jose, Calif.-based company's debt firm, quoting the 8½% notes due 2011 up a couple of points at 127 bid, 128 offered.

He attributed the recent gains to a story that printed in Wednesday's edition of the Wall Street Journal, which indicated a private equity firm was looking to pick up the company post-bankruptcy.

Broad market better

InSight Health Services Corp.'s senior floating-rate note was quoted a little higher, a trader said. He pegged the bonds at 93.5 bid, no offer.

"People are still thinking [the company] was going to file soon," he said. "There was talk they filed today, but they haven't."

Another trader saw Movie Gallery Inc.'s 11% notes due 2012 get better, trading between 81 and 82, he said. He slated the notes at 81.5 bid, well up from the week's low point of 76.5.

Doral dips slightly

After seeing major activity in its debt, spurred by the announcement that it was entering into a buyout agreement, Doral's bonds were seen less active at the end of the week.

A trader said the Puerto Rico-based bank's floating-rate notes lost half a point on the day, closing in the 98.5 levels. Another trader also called the bonds a half point weaker at 98 bid, 98.5 offered, "just giving back the gains it took yesterday."

The second trader, when asked his thoughts on the pending takeout led by Bear Stearns, said it was a risk, "but it seems to have a pretty concrete floor behind it."

Northwest bonds soften

As it gained approval to exit Chapter 11 protection, Northwest Airlines saw its bonds lose altitude, though a trader noted there was light volume later in the day.

The trader quoted the airline's 10% notes due 2009 in the 74 level, after opening the morning at 77.5.

The bankruptcy judge overseeing the company's case gave the distressed airline the go ahead to emerge from bankruptcy, slated for May 31. The Eagan, Minn.-based company's new common stock, listed under the ticker symbol NWA, is expected to start trading on a when-issued basis on Monday, with regular trading commencing May 31.

Transeastern loan gains

Transeastern, a joint venture between Technical Olympic USA Inc. and Falcone Group, saw its term loan continue to trade stronger during Friday's session, still in reaction to Technical Olympic's recently announced financing commitment, according to a trader.

The Transeastern term loan ended the day at 97 bid, 98 offered, up from 96¼ bid, 97¾ offered on Thursday, the trader said. On Wednesday, the paper was being quoted at 95 bid, 96 offered.

The rally began yesterday after Technical Olympic said that it has received a $500 million term loan financing commitment that would be used to pay off Transeastern's $400 million of senior debt if a settlement is reached with Transeastern's lenders.

As part of settlement discussions, Technical Olympic has proposed a structure in which either Transeastern or the successor to some or all of its assets would become Technical Olympic's wholly or majority owned subsidiary.

The debt commitment is comprised of a $250 million first-lien term loan and a $250 million second-lien term loan that would be led by Citigroup.

As a condition to the term loans, Technical Olympic's existing revolving credit facility would be amended and restated to reduce the size to $700 million from $800 million, incorporate the terms and conditions of the first-lien term loan, and allow for the new bank debt.

Technical Olympic has until May 28 to execute the commitment letter for it to become effective and will only execute the letter if satisfactory settlements with the Transeastern creditors have been reached.

If the commitment is executed, the company has until July 31 to execute definitive documentation.

Technical Olympic is a Hollywood, Fla., designer, builder and marketer of single-family residences, town homes and condominiums.

Aveta loan dives

Aveta Inc.'s term loan plummeted on Friday as the company held a private lender call late in the day, according to a trader.

The term loan dropped to 68 bid, 70 offered from levels of 78 bid, 80 offered on Thursday, the trader said.

When asked what the call would be about, the trader simply responded, "It's all private side information."

Over the past few weeks there has been some noise that the company's Puerto Rico business has not been performing well, but there was no indication as to whether this was going to be a topic discussed in the lender call.

Aveta is a Fort Lee, N.J., for-profit company focused on Medicare Advantage and the health care needs of the chronically ill.

Sara Rosenberg contributed to this article.

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