Fedders bonds quiet on 10-Q filing; Dura subs steady, seniors dip; Residential Capital up

By Stephanie N. Rotondo

Portland, Ore., Aug. 31 - As the market closed out the last week of summer, activity was as expected on Friday.

"There's very little going on," a trader said. "Mostly month-end pricing."

"There's nothing," another trader said. "Most desks are not even manned and no one is showing any markets."

"Last work day of the summer - it is expected," he added.

"The stocks are up strongly, but no stories [on the bond side]," another trader said.

But overall, a trader said the market was a half point better on comments made by Federal Reserve chairman Ben Bernanke and President George W. Bush.

Though the Fed made no indication that it would make another rate cut, Bernanke said the central bank would "act as needed" to protect the economy.

Later in the day, President Bush laid out details of a plan that will help borrowers pay their mortgages.

Even with fresh news out, the distressed bond market was eerily quiet.

Fedders Corp. released its delayed second-quarter 10-Q late Thursday. Given that the company filed for bankruptcy in early August, a trader said the wider quarterly loss was not a surprise. Still, the bonds were largely unaffected by the news.

Meanwhile, Dura Automotive Systems Inc.'s debt, while relatively quiet, was mixed during the session. A trader said the subordinated debt was holding steady, just one day after a group of bondholders filed an appeal against what it called a "bargain sale" of the company.

The senior debt, however, was seen slipping slightly.

Some traders saw Residential Capital LLC's debt as the big mover on the day. Traders reported that the bonds gained at least 2 points on the heels of the comments from the Fed and the president.

In observance of the Labor Day holiday, the market will be closed Monday.

Fedders unchanged on 10-Q

Fedders' bonds were unaffected by the release of its delayed second-quarter financials, partly due to the market's expectations and partly due to a largely unmanned marketplace.

A trader said the numbers were as expected from the struggling producer of air quality solutions, which filed for bankruptcy earlier in August.

"Nothing we didn't know about," he said of the results. He pegged the 9 7/8% notes due 2014 unchanged at 16 bid, 17 offered.

"The bonds did not do anything," he noted. "They can't do anything when nobody is in."

In its 10-Q filed with the Securities and Exchange Commission late Thursday, the Liberty Corner, N.J.-based company reported that net sales for the quarter ended June 30 declined 52.4% to $45.5 million from net sales of $95.6 million for the same period a year before. The company attributed the loss to its decision to stop selling products to big-box retailers Home Depot and Wal-Mart, as well as its discontinued production and sale of dehumidifiers.

The company also said gross profit decreased in the second quarter to $7.2 million from $13.7 million. Overall, Fedders posted a net loss of $12.6 million, compared to a loss of $10 million the previous year.

Dura subs firm, seniors dip

A trader said he is waiting to "see what happens" with Dura Automotive Systems subordinated debt after a group holding that issue filed an appeal against the company's reorganization plan Thursday.

The trader said there was not much activity in the bonds, but he saw the 9% subordinated notes due 2009 unchanged at 3.25 bid, 4 offered. He said the 8 5/8% senior notes due 2012 "came in a little" to 51 bid, 53 offered.

The subordinated noteholders filed an appeal with the court overseeing Dura's bankruptcy case that said the current plan, which includes a rights offering backstopped by Pacificor LLC, was a "bargain sale."

According to the filing, the bondholders object to the plan because it provides them with no recovery and no option to vote on the plan.

Market players have been speculating for weeks that sub-debt holders would bring their fight against the senior debt holders. Initially, there was some talk that the group was not organizing well, but with the recent filing, those rumors have died down.

The trader said he expects the group with bring up its "X clause argument" to the senior holders.

"I guess we'll see what happens there," he said.

ResCap moves higher

A trader in distressed issues said Residential Capital was "the name of the day," quoting the big mortgage lender's 7 3/8% notes due 2010 as having traded in a 2-point bid range between 75.5 and 77.5 and "ending near the highs." He said there had been "a lot of volume" in the issue.

The trader also said that ResCap's 6 7/8% notes due 2015 were up between half a point and a point at 75.5 bid, also on "good volume." He attributed the gains to Friday morning's statement by the president that the government, through the Federal Housing Administration, would help homeowners who have fallen behind on their mortgage payments, but said that "it really started with the comments in [The Wall Street] Journal, reporting what Bush would say. Even before the opening, futures were higher."

Other traders, however, saw things differently. One noted that there were "few or no trades," seeing the company's 7 1/8% notes due 2008 at 82.5 bid, 83 offered, on "just two trades of over $1 million. It was better, but not a lot to go on.

"On a day like today, you could have one trade for $1 million bonds at some level - but it would probably be meaningless by Tuesday."

Another trader said ResCap's paper was up about a point, pegging the 6.8% notes due 2008 at 82.5 bid, 83 offered and the 7 3/8% notes due 2010 at 77 bid, 78 offered.

Several other traders said they really had not seen much of ResCap, or any other issue for that matter, commenting on the slowness of the market.

The first trader acknowledged there was only limited impact on bonds of homebuilders like Beazer Homes USA Inc., which might have been expected to firm on positive mortgage-sector news. Beazer was "maybe quoted a point higher, or not even that, half a point," at 79 bid, 81 offered for its 8 5/8% notes due 2011. Hovnanian Enterprises Inc. "doesn't seem much better," nor did Standard Pacific Corp. "Stocks might have ticked up - but bonds didn't."

Another trader saw "a lot of quoting" in Technical Olympic USA Inc, WCI Communities Inc. and Beazer - "but no trades."

Paul Deckelman contributed to this article.

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