Doral unchanged on 10-Q; Sector buyout boosts Trump; Tembec dips on mill shutdown

By Stephanie N. Rotondo

Portland, Ore., June 15 - As Doral Financial Corp. released its long-awaited 10-Q late Thursday, investor concern that the company was bleeding money did little to move the bonds Friday.

On the equity side, however, the stock felt the pressure as nonperforming loans more than doubled and market players were disappointed at what they deemed was the end of hopes of a bidding war.

Trump Entertainment Resorts Inc. was expected to be active come Friday and delivered the goods. The bonds gained only slightly, but were relatively active in an otherwise quiet - or "boring," as one trader put it - day.

The bonds were seen moving late Thursday on buzz that a buyout deal would come sooner rather than later.

Meanwhile, a buyout involving another casino operator announced Friday was seen as a positive for any potential deal on Trump's table.

Separately, Montreal-based Tembec Inc. announced it would close more mills in an attempt to cut down costs. The bonds got a little softer on the day but were not "crushed" by the news.

Doral unchanged

As Doral's nonperforming loans jumped to 7.85% - more than double the previous figures - the bonds were rather quiet while the equity took a plunge.

A trader earlier in the day said neither the bonds nor the preferred issues had traded on the news. Near the close of the day, another trader said the floating-rate notes due 2007 were unchanged at 99.25 bid, 99.5 offered.

Meanwhile, by the close of the market, the stock fell 20 cents, or 11.11%, to $1.60.

The loan news was released along with the Puerto Rican bank's delayed 10-Q. The company reported a loss of $37.3 million, compared with a net income of $17.1 million in the same quarter the previous year.

But as investors are seeing the company continually hemorrhaging money, others were expressing disappointment over what they hoped would be a bidding war.

"It seems that many bet that FBOP [Corp., which recently proposed a rival bid to take out the bank] would greatly improve their price from their initial bid," a trader said. "They are now disappointed - the reality is Doral is losing more money daily as time goes on."

And, while FBOP still needs to do due diligence, "there is no way in my mind that the Bear Stearns group [which gave the original bid] will pay anywhere close [to what FBOP offered] after all the begging they had to do [to get] 62 cents [per share]," he added.

To another trader, either deal really will not help the company.

"Where is the turnaround?' he asked. "Either way, what are they doing?"

He wondered how the company could make a comeback, adding that maybe it was hoping for better subprime mortgage issues, but would not bet on it.

"It is not surprising that they are having problems when they have offices inside supermarkets," said another market source.

Trump gains on sector news

Trump Entertainment's bonds continued to be active on an otherwise quiet day, boosted Thursday by buzz that a buyout deal could soon be signed, as well as Friday's news of a buyout in the sector.

A trader said the 8½% notes due 2015 were up about a quarter of a point at around 103.5, after trading as high as 103.75. He said the bonds closed on Thursday at 102.75 bid, 103 offered.

On the equity side, the stock spiked once again, climbing 68 cents, or 4.46%, to $15.91. Volume in the $17.50 July call options also boomed, hitting 13,690 contracts and open interest at 18,469.

Penn National Gaming Inc., a fellow casino operator, announced that it had agreed to be acquired by Fortress Investment Group LLC and Centerbridge Partners LP for the price tag of $6.1 billion. Equity traders are speculating that the $67 per share price bodes well for Trump.

Meanwhile, Penn's notes gave up some early gains but still closed higher on the day. A trader pegged the 6¾% notes due 2015 around the 102 mark.

Tembec softens on mill closures

Tembec's bonds were seen a little softer as the company announced the closures of more mills.

A trader quoted the 8½% notes due 2011 down about 1.5 points at 57.25 bid, 58.25 offered, down from the morning's open around 58.5 bid, 59.5 offered. He also saw the 7¾% notes due 2012 at 56 bid, 57 offered, also down from the open at 56.5 bid, 57.5 offered.

The trader added that the 8 5/8% notes due 2009 were the "least active issue."

The Canadian forest products company said it would temporarily shut down at least five sawmills as well as indefinitely shut down certain shifts at several other mills.

The company has shut down other mills of late, including its St. Mary's coated paper mill.

"These shutdowns are being taken due to a combination of factors," said Dennis Rounsville, executive vice president and president of Tembec's forest products group, in a press release. "These include holiday scheduling, the sharp decline in demand for lumber, low lumber prices and the impact of the high value of the Canadian dollar."

The trader said that, while the closures are "not totally shocking," it "sounds like nothing too good."

However, given the overall aim of the company to reduce its operations costs in hopes of turning a profit, the news is also not the worst, he said.

"It's not like the bonds got crushed," he said. "No one called me in a panic."

HealthSouth up

HealthSouth Corp.'s bonds were called better, with its 10¾% notes due 2016 hitting a high of 110.5. A trader said the bonds closed Thursday at 108 bid, 109 offered.

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