Transeastern tumble continues but Technical Olympic bonds steady; Dana dazzles

By Paul Deckelman and Sara Rosenberg

New York, Sept. 29 - Transeastern, the joint venture between Technical Olympic USA, Inc. and Falcone Group, saw its term loan continuing to slide Friday on negative momentum from the disclosure earlier in the week of its operating problems.

However, Technical Olympic's bonds - which had eased on Wednesday and which had gotten clobbered on Thursday - seem to have stabilized around the same lower levels at which they wrapped up Thursday.

Several other junk bond names which had also been soundly battered around on Thursday - InSight Health Services Corp. and Sea Containers Ltd. - appeared to have stopped the bleeding as well on Friday and remained around Thursday's levels.

In the automotive area, Dana Corp.'s bonds were seen up several points across the board, as the troubled automotive parts company said in a regulatory filing that it was moving ahead with its plan to sell most of the assets of its subsidiary Dana Credit Corp.

Transeastern still tumbling

The Transeastern term loan sank to new lows on Friday, still on followthrough from the recent lender update on the joint venture's financials and on the troublesome state of the Florida housing market, according to a fund manager.

He saw the term loan closing the day quoted at 66 bid, 68 offered, down from Thursday's closing levels of 73 bid, 77 offered.

By way of comparison, on Wednesday the term loan was quoted at 79 bid, 81 offered and, prior to that - before the information about Transeastern was disclosed - it had been trading around 98 or 99.

The term loan has been diving ever since Technical Olympic publicly announced on Wednesday that because of weak demand, an over supply of new and existing inventory homes and increased competition in the Florida housing market, Transeastern cannot support its existing capital structure.

Transeastern is exploring various options to fix the liquidity problem, including requesting waivers from its lenders regarding potential defaults and permitting future advances under the revolver, and restructuring land bank obligations.

Technical Olympic and Falcone said they do not intend to contribute further capital under the current structure.

The Transeastern debt is non-recourse to Technical Olympic "except that we have agreed to complete any property development commitments on the existing work in process at the time of closing in the event the Transeastern JV defaults and to indemnify the lenders for losses resulting from fraud, misappropriation and similar acts," according to Technical Olympic's most recent 10-K filed with the Securities and Exchange Commission.

The conference call with the lending group to discuss the Transeastern problems actually took place on Sept. 25, but no movement was seen in the bank debt until the news became public and more people were able to react.

According to the fund manager, the worst case scenario for bank debt holders "would be a complete liquidation of the joint venture at a time when houses in Florida aren't selling."

Technical Olympic holds its own

Meanwhile, Technical Olympic's bonds - which had been battered around the previous two sessions - were little changed on Friday, with its 9% notes due 2010 steady at 95 bid, 96 offered, and its 10 3/8% notes due 2012 likewise hanging in at 86.

The Hollywood, Fla.-based homebuilder's bonds had been bludgeoned over the previous two sessions, including a 4 point drop Thursday after it disclosed the problems that Transeastern was having.

On Friday, Technical Olympic released additional information about the joint venture's finances - and about its own exposure to Transeastern's problems.

It said that its total exposure to the joint venture is approximately $141 million. The joint venture's assets totaled $963.8 million as of July 31, and its debt was approximately $600 million.

Technical Olympic said Transeastern and its lenders are currently working together to quantify the joint venture's future prospects, and to determine an action plan. It cautioned that the outcome of these efforts are "currently unknown and will likely remain unknown for some period of time."

It also outlined its worst case scenario, which would result in the loss of Technical Olympic's $92.6 million investment in the joint venture, and which would create "significant doubt" about the eventual recoverability of $48.5 million of loans and receivables which Transeastern owes Technical Olympic.

In the event such a worst-case scenario came to pass, it would require Technical Olympic to take an after-tax charge of $89 million ($1.50 per share).

On Friday, Fitch Ratings placed Technical Olympic's ratings on watch negative, joining the list of rating agencies doing so. Moody's Investors Service had placed all of the company's ratings under review for possible downgrade on Wednesday and Standard & Poor's revised its outlook the ratings to negative on Sept. 25.

InSight steadies after fall

Besides the Technical Olympic bonds, several other junk bond names which had fallen sharply on Thursday seemed to steady themselves at those lower levels Friday.

One was InSight Health Services, whose 9 7/8% subordinated notes due 2011 had plunged about 10 points on Thursday to close in the lower 30s. On Friday, they were about unchanged, a trader said, at 34.5 bid, 35.5 offered, while its 10.739% senior notes due 2011, which were down about 4 points Thursday to the mid-80s, remained around those levels.

Insight's bonds had fallen on Thursday after the Lake Forest, Calif.-based diagnostic imaging company reported that in the fiscal fourth quarter ended June 30 it lost $186.747 million, versus year-ago red ink of $23.286 million, while its full-year loss widened out to a yawning $210.218 million from a $27.217 million loss the previous year.

In reporting the sobering results, management issued a long laundry list of negative factors and trends which it said "likely will continue" to adversely affect its operations. These included such things as overcapacity in the diagnostic imaging industry, reductions in reimbursement and planned reductions from Medicare, reductions in compensation paid by customers of its mobile imaging units, competition from other mobile providers, and competition from equipment manufacturers, which it said would "caus[e] some of our customers and referral sources to invest in their own diagnostic imaging equipment."

Sea Containers treads water

The trader saw Sea Containers' 10¾% notes slated to come due on Oct. 15 down about ½ point to 77.5 bid, 78.5 offered. Those bonds - and the Bermuda-based maritime and railroad transportation company's other two issues, its 10½% notes due 2012 and its 7 7/8% notes due 2008 - had all fallen into the upper 70s Thursday from prior levels in the low-to-mid 80s. Market participants cited investor worries that, given its well-publicized problems, the troubled company may not be able to pay off the 103/4s when they come due about two weeks from now.

Traders also cited a lack of reassuring guidance on this issue from management, which has a reputation of playing its cards very close to the vest and disclosing little information.

Dana up on units sale plans

In the automotive arena, Dana Corp.'s bonds were seen up 2 points, a trader said, on "rumblings about settlement conversations," as the bankrupt Toledo, Ohio-based parts maker said that its board of directors had adopted a plan to proceed with the accelerated sale of substantially all of Dana Credit's remaining assets.

He saw Dana's 5.85% notes due 2015 at 66.5 bid, 67.5 offered, while its 6½% notes due 2009 were at 70 bid, 71 offered. However, Dana Credit Corp.'s 8 3/87% notes due 2007 were a point lower at 94.5 bid, 95.5 offered.

At another desk, a trader saw Dana's 6½% notes due 2008 up 2 points at 70.25 bid, 71.5 offered, while its 7% notes due 2028 were 1¼ points higher at 67.25 bid, 68.25 offered.

In a Friday filing with the Securities and Exchange Commission, Dana said that it will carry out its asset-sale plan for Dana Credit whether or not it enters into a forbearance agreement with its ad hoc committee of holders of the majority of the outstanding principal amount on Dana Credit's notes.

Dura drops again

Among other troubled automotive names, Delphi Corp.'s 6½% notes due 2009 were ¼ point better at 89.25 bid, 89.75 offered, a trader said, while the bankrupt Troy, Mich.-based parts supplier's 7 1/8% notes due 2029 were as much as a point better at 85.5 bid, 86.5 offered.

But Dura Automotive Systems Inc.'s battered bonds continued to move still lower, with traders saying that the Rochester Hills, Mich.-based automotive parts maker's notes are already trading like a bankrupt company's bonds - which many in the market believe that they will soon become.

Dura's 8 5/8% senior notes due 2012 breached the psychologically significant 40 mark, trading down as low as 38 bid, 39 offered intraday, down 3 points on the day. "But it did come back a little bit to finish at 39 bid, 40 offered," a trader said, pegging the bonds down 2 points at the close.

At the same time, Dura's 9% subordinated notes due 2009 continued to languish around near-worthless levels around 4 bid, 5 offered, although a trader called that up ½ point on the session.

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