MedQuest boosted by tender offer; Linens n'Things dips on numbers; Tousa lower

By Stephanie N. Rotondo

Portland, Ore., Nov. 13 - The distressed sector was reportedly quiet Tuesday, after market players had to readjust after the long weekend.

"A lot of people were out for the long weekend," a trader said. "Now they are trying to get back into the swing of things."

But while the market was lacking in volume, whatever was moving was likely lower.

"There's just not much going on in this market," said one trader. "It's difficult to get a bid. When you do get it, even if you don't like it, you better take it, because you don't know when the next one is coming."

The trader added that, as the market continues to drift lower, there was an overwhelming mentality of "There will be no Christmas."

Still, Christmas came early for MedQuest Inc./MQ Associates. While most bond traders were out Monday, the company announced a tender offer for its outstanding notes. Come Tuesday, the bonds were called "way up."

Linens n'Things, however, will likely not be celebrating any holidays this year. The company posted its third-quarter results, which showed, among other things, negative EBITDA. In response, the retailer's bonds slipped about 4 points.

A trader said, "All eyes will be on Technical Olympic [USA Inc.]" on Wednesday, as the market waits to see what the homebuilder's quarterly numbers have to say. While it is expected that the numbers will be terrible, the trader said it was a question of just how terrible. The bonds were relatively quiet, though quoted lower, ahead of the 10-K filing.

MedQuest boosted by tender offer

MedQuest/MQ Associates announced a tender offer for is outstanding debt Monday, prompting the bonds to go "way up" on Tuesday.

A trader quoted the 11 7/8% notes due 2012 at 105 bid, 106 offered. He added that the 12¼% discount notes due 2012 gained almost 10 points in the last week. A market source placed that issue in the high-90s.

On Monday, when most bond market players were enjoying their long weekend, MedQuest said it was looking to purchase "any and all" of its outstanding debt. According to a press release issued by the company, holders of the discount notes will receive 101% of the value of the bonds as of Dec. 13.

In that same release, the company said it completed its merger with Novant Health Inc. The merger resulted in a change of control under the terms of the indentures.

On the news, Standard & Poor's said MedQuest would remain on positive watch.

Those interested in redeeming their bonds have until Dec. 12 to do so.

Linens n'Things dips on numbers

Linens n'Things' bonds "got the crap kicked out of them," a trader said, after the retailer reported poor numbers for the third quarter.

"They released their numbers, or lack thereof," the trader quipped.

The trader pegged the floating-rate notes at 56.5 bid, 57.5 offered. At another desk, a trader saw the bonds offered at 58.25. On Friday, the bonds closed the week in the low-60s.

Another trader quoted the bonds at 58 bid, 60 offered, down 4 points.

Linens n'Things posted a net loss of $79.9 million for the third quarter of 2007, compared to a net loss of $27.4 million for the same quarter of 2006. Net sales decreased 1.3% year over year to $666.8 million.

But the biggest damage was its EBITDA performance. For the quarter, the company showed an adjusted EBITDA of negative $3 million, compared to an adjusted EBITDA of $21.5 million in the third quarter of 2006. The company attributed the significant decline to a decrease in gross margins.

"They have almost $1 billion in debt and they have negative EBITDA?" the trader said. "They are lucky they are at 57."

Retailers overall did not fare well in Tuesday's market. Claire's Store Inc.'s bonds were seen lower, with its 10½% notes around 69.

"They are not doing very well," a trader said of the jewelry chain.

Another trader said Claire's 9¼% notes due 2015 "continued to get punished," opening at 69 bid, 70 offered but going home around 68 bid.

"Retailers are bad, horrible," another trader said.

Tousa notes quoted lower

Investors were hesitant to get involved with Technical Olympic's debt as the market prepared for the company's 10-K.

"Nobody wanted to touch it," a trader said.

Still, he added that the bonds were quoted lower, its 9% notes due 2012 at 41 bid, 43 offered and its subordinated debt - which includes the 10 3/8% notes due 2010 and the 7½% notes due 2011 and 2015 - at 8 bid, 10 offered.

Another trader placed the senior debt at 42 bid, 44 offered and the subs around 7.

At another desk, a trader said the bonds were "down a couple" of points, its 8¼% notes due 2011 at 42 bid, 44 offered, down 2 points.

"Everybody knows the numbers are going to be bad," the first trader said. "The question is how bad."

"We all know that they are terrible," the trader continued. "Headlines in homebuilders just get worse and worse."

"There is not a good reason to own this bond," he said.

The trader cited a report published Tuesday regarding an expected surge in home foreclosures and the likelihood that property values will continue to see sharp declines.

Solutia saves $70 million

A bankruptcy judge threw out a bondholder group's claim that it was owed more money from Solutia Inc. once the company exited Chapter 11.

In a decision filed Friday, the judge said that Solutia's senior secured bondholders are not entitled to receive interest once the company exits bankruptcy, nor the original issue discount. The judge maintained that the bondholders will receive what Solutia has said it will pay - about $210 million - not what the bondholders claim they are due - about $280 million.

A trader said that the 11¼% notes due 2009 were trading around 99.5.

"But I think the market has got to be more like 93 bid, 94 offered," he said.

Broad market mixed

Imax Corp.'s 9 5/8% notes due 2010 were placed at 95.5 bid, 96 offered.

Buffets Holdings Inc.'s 12½% notes due 2015 were called "up a couple" at 54 bid, 55 offered. A trader attributed the recent gains in the bonds to "bottom feeders."

The trader also deemed Blockbuster Inc.'s 9% notes due 2012 unchanged around 86.

James River Coal Co.'s 9 3/8% notes due 2012 were a touch lower at 83.75 bid, 85.75 offered.

A trader said Dura Automotive Systems Inc.'s 8 5/8% notes due 2012 were "clocked again," closing at 29 bid, 30 offered. The loss comes after the 9% noteholders filed a formal objection against the company's reorganization plan.

"That's not new news," the trader said.

Primus Telecommunications Group Inc.'s 8% notes due 2014 were called unchanged at 56 bid, 58 offered. The bonds have been around that level since the company posted its quarterly numbers last week. The bonds declined after the release, despite the not-so-bad figures.

"Once again, the numbers are in line with expectations, at least three firms put out a buy recommendation on the 8% notes and the bonds lose 6 points," a trader said wryly. "That's fantastic. Maybe they should have issued a sell; then the bonds would have gone up."

Fedders Corp.'s 9 7/8% notes due 2014 fell "pretty bad" to 5 bid, 10 offered, a trader said.

"Nobody cares," the trader said. "You could have easily bought these at 10, but nobody wanted to."

Another trader said the bonds fell to 8 bid, 12 offered from 10 bid, 15 offered previously.

Paul Deckelman contributed to this article.

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