InSight Health bonds tumble; Transeastern bank debt, parent Technical Olympic bonds fall again

By Paul Deckelman and Sara Rosenberg

New York, Sept. 28 - InSight Health Services Corp.'s bonds swooned Thursday, after the Lake Forest, Calif.-based diagnostic imaging company put up what one trader bluntly and colorfully described as "crappy" fiscal fourth quarter numbers.

Also seen heading lower, this for a second straight session, was the bank debt of Transeastern, the joint venture between Technical Olympic USA, Inc., and Falcone Group, as investors reacted to the poor financial results that the venture is generating. Meanwhile, Technical Olympic's bonds were also being beaten down for a second straight day in reaction to its disclosures of Transeastern's situation, as well as the possibility of ratings downgrades.

Other bonds seen taking a plunge were those of Sea Containers Ltd., with some investors looking to abandon ship on fears that the troubled Bermuda-based maritime and rail transportation company may not be able to pay off a bond issue that is scheduled to mature slightly more than two weeks from now.

Transeastern, Technical tumble, again

Transeastern, organized last year as a joint venture between Technical Olympic and Falcone Group, continued to see its bank debt nosedive Thursday, as the market is still spooked by the company's problematic financials and capital structure, according to a fund manager.

The term loan closed the day quoted at 73 bid, 77 offered, down from Wednesday's levels of 79 bid, 81 offered and from late last week's trading levels in the 98/99 context, the fund manager said.

On Wednesday, Technical Olympic announced that it had met with the lenders to the Transeastern joint venture to update them on the company's financial position and the housing market conditions in Florida, where Transeastern operates.

The actual conference call with the lending group had taken place on Monday, but no movement was seen in the bank debt until the news became public on Wednesday, creating a situation where more of the market could react.

Technical Olympic basically explained to the lenders that the Florida housing market has been suffering from, among other things, weak demand, an oversupply of new and existing homes and increased competition.

The company went on to say that Transeastern's revised sales and delivery projections are not adequate to 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.

In reaction to the announcement, Moody's Investors Service placed all of the ratings of Technical Olympic under review for possible downgrade. That followed Monday's announcement by Standard & Poor's, that it had revised its outlook on Technical Olympic to negative, although it affirmed the company's ratings.

Hollywood, Fla.-based builder Technical Olympic's bonds, meantime, have fallen over the past two sessions in reaction to its disclosure of Transeastern's situation and the dour reception this has provoked from the ratings agencies.

A trader said the bonds, which "kinda dragged a little bit" Wednesday, when they were seen off about 1 to 3 points on the disclosure, "took a big beating today [Thursday]," with its 10 3/8% notes due 2012 down 4 points at 86 bid, 87.5 offered.

At another desk, a source saw those bonds fall to 86.75 bid, down more than 3 points on the day, while its 7½% notes due 2015 retreated to 76 bid, also down more than 3 points. The company's 7½% notes due 2011 fell to 81 bid from prior levels at 83.5.

Weak numbers flail InSight

Elsewhere, a trader called InSight's Health Systems' plunge "the big one" as far as stories in Thursday's session.

He saw the company's 10.739% senior notes due 2011 fall 4 points to 83 bid, 85 offered, while its 9 7/8% subordinated notes due 2011 swooned 10 points to 32 bid, 34 offered. Volume in both issues was heavy.

A market source at another desk saw the senior bonds finishing at 85 bid, down from prior levels around 88.625, while the juniors took about a 6 point fall to the 32 area.

The bonds fell, the first trader said, after the company issued "a crappy 10-K" outlining its results for the 2006 fiscal fourth quarter and full year ended June 30, followed by what he called a "not very impressive conference call" that apparently failed to reassure investors.

InSight Health Services - which provides diagnostic imaging services in 30 states - lost $186.747 million in the quarter, 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 in rough waters

Elsewhere, Sea Containers' notes looked like they were listing badly and sinking fast, traders said, with investors fearful that the troubled company may not be able to pay off its 10¾% notes that are due on Oct. 15 - slightly more than two weeks from now.

A trader saw those bonds fall to 78 bid, 80 offered from 86 bid, 88 offered previously, along with the company's 10½% notes due 2012. He saw its 7 7/8% notes due 2008 hit a little less severely, falling to 80 bid, 81 offered, also from 86 bid, 88 offered.

Another trader saw the bonds down a little less severely, with the two big-coupon notes dropping to 79 bid, 80 offered from 82 bid, 83 offered, while the 7 7/8s ended at around 81.5 bid - which he said was actually up slightly on the day.

"There's all kinds of rumors out about this one," he said, "but nobody knows what's going on."

Given the company's well-publicized financial problems, "people think they're not going to make it" as far as paying off the maturing bonds.

He noted that the stock "is trading at $1.21 - and one of the major funds was buying it a month ago at $11" - another sign of market angst over the company.

"Are they going to be able to pay that [maturing bond] off? It certainly doesn't look like it," he said, answering his own question.

"Are the assets there?" he continued. "Yeah, the assets are there. What are the assets worth? Who knows. Are they going to have to file [for protection], unless they get an extension [on paying the bond off]? Yeah."

He allowed that there was always the possibility that "they have something up their sleeve" - but added that "this company is notorious for not speaking. I've been following them for seven years - and I still never know what the hell they're talking about."

Yet another trader agreed that the Sea Containers bonds had been pulling back over several sessions, so the actual fall on Thursday alone was more like 1½ points, with the 7 7/8s ending at 79.5 bid, 81.5 offered, with that issue having "the most activity," and the other two series each closing at 77 bid, 79 offered.

"Fears of bankruptcy are obviously looming," he said, "because the '06s are due in like 18 days, and in this case, no news is bad news - you're going to drift as long as nothing positive comes out of the company."

He noted that the two issues with the 10-handle coupons, including the issue that is supposed to be paid off on the 15th, are trading a couple of points behind the 7 7/8s because "they have higher accrued [interest] built into the bonds" and trade a few points back "to make things even," because the three issues are pari passu - none with a more senior claim than the others in the event of a possible bankruptcy, when they would all trade at the same level. "People are going to take that into account."

Auto parts names mixed

A trader saw distressed automotive parts names as something of a mixed bag, counting Collins & Aikman Corp., Delco Remy and Dura Automotive Systems among the losers.

He saw Collins & Aikman's 10¾% senior notes due 2011 fall to 3 bid, 4 offered, down a point, and said that Dura's 9% notes due 2009 were hardly any better, at 3.5 bid, 4.5 offered, down a half point. He saw Rochester Hills, Mich.-based Dura's 8 5/8% notes due 2012 down 3 points on the session at 41 bid, 43 offered.

And he saw Delco Remy's bonds "down 3 or 4 points," with its 8 5/8% notes due 2007 dipping to 90 bid, 92 offered, and its 11% subordinated notes due 2009 at 48 bid, 50 offered.

On the upside, he said that bankrupt Dana Corp.'s bonds were up 2 points across the board, with its 6½% notes due 2008 rising to 69 bid, 71 offered.

He saw bankrupt Tower Automotive Inc.'s 12% notes due 2013 also up a deuce at 20 bid, 22 offered, while Delphi Corp.'s 6½% notes due 2009 were up a point at 89 bid, 91 offered.

The judge presiding over Delphi's reorganization meantime postponed yet again a scheduled hearing on the bankrupt Troy, Mich.-based partsmaker's motion to gain court approval for unilaterally scrapping its labor contracts with its unions and supply agreements with its customers. That will give Delphi more time to work its problems with those contracts out consensually with the other parties.

GM little moved on Tracinda news

Among the carmakers themselves, including Delphi's former parent company, General Motors Corp., GM's bonds were seen up perhaps ½ point, with its benchmark 8 3/8% notes due 2033 firming to 86 bid, 87 offered, not boosted overly much, traders said, by the news that major shareholder Kirk Kerkorian is interested in adding to his already sizable position in GM. The carmaker's General Motors Acceptance Corp. financial unit's 8% notes due 2031 were down ¼ point on the day at 104 bid, 104.5 offered.

Kirkorian's investment vehicle, Tracinda Corp., said in a filing with the Securities and Exchange Commission that it may seek to raise its 9.9% stake in GM to the 12% level by buying some 12 million additional shares on top of the 56 million it already owns. Should the billionaire investor's company pursue such a course, it would be legally required to get certain federal and state regulatory approvals, since GM has interests in the banking and insurance industries.

Tracinda's SEC filing also continued to beat the drums on the idea of the Detroit giant joining the current alliance between overseas carmakers Renault SA and Nissan Motor Co. Ltd. GM has been in talks with the two carmakers for some weeks, and their respective leaders - GM chief executive officer Rick Wagoner and Carlos Ghosn, who runs both Nissan and Renault, met in Paris this week for face-to-face negotiations. News reports that indicate that the talks have hit a few bumps in the road, although Ghosn has expressed cautious optimism on the progress of the talks. While the two companies have been running against a self-imposed Oct. 15 deadline to have something accomplished or move on, Wagoner on Wednesday raised the possibility that the talks could be extended past Oct. 15, should it look like the parties are close to an accord.

News reports say that GM - which is looking to cut costs and boost liquidity as it seeks to ride out the domestic auto industry downturn - is hoping that Renault and Nissan might provide some financial incentive for its joining them in the form of a multibillion-dollar payment. Wagoner has also said that if the talks do not succeed, GM may try to partner up with other overseas carmakers.

Meanwhile, reports also say that Renault and Nissan - afraid of losing further market share to the latter's larger rival, Toyota Motor Co and looking to slow Toyota down - seek a firm commitment from GM that it will directly confront the Japanese giant by going after the same target carbuyers with competitive models. GM is currently the world's largest automaker - although Toyota is Number-Two and moving up fast.

GM arch-rival Ford Motor Co.'s 7.45% notes due 2033 were seen down ¾ point at 77 bid, 77.5 offered, while its Ford Motor Credit Co. financing arm's 7% notes due 2013 were down ¼ point at 92.5 bid, 93. Ford Credit announced Thursday that it plans to cut 2,000 white-collar positions, or 23% of its workforce, as it consolidates its 59 North American branches into just six regional service centers as part of its parent company's wider belt-tightening efforts.

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