Fedders files for bankruptcy; WCI quiet after earnings; Technical Olympic up; Dura firms

By Stephanie N. Rotondo

Portland, Ore., Aug. 22 - For months, market participants have believed Fedders Corp. would file for bankruptcy, based on poor performances over the last few quarters. For many, it was not a question of if, but when.

The distressed market got its answer Wednesday, as Fedders announced that it had in fact filed for Chapter 11 protection. The company also said it had obtained a $79 million debtor-in-possession facility from Goldman Sachs Credit Partners LP.

While the market was not entirely surprised by the announcement, the bonds were decidedly quiet.

"Trading was fairly muted," a trader said. The bonds were seen lower, however, and trading flat.

Meanwhile, WCI Communities Inc. held its quarterly earnings conference call Wednesday. The homebuilder reported a loss for the second quarter, compared to a profit the same quarter of the previous year. But at least one trader said the numbers were in line with market expectations - "not good."

Still, the release did little to spur activity in the company's debt, though a trader did note that the bonds were quoted lower.

But names like Technical Olympic USA Inc. and Dura Automotive Systems Inc. followed a larger trend of the day, with traders seeing both names - as well as the general market - firming.

"In general, everything felt better," a trader said. "It was taking its cue from the stock side."

The trader noted that most names were better by at least a half to a full point on the day.

Another trader, however, had another perspective.

"Things are trying to rally," he said. "They didn't really."

Fedders files for Chapter 11

Months of speculating came to a halt Wednesday as Fedders voluntarily filed for Chapter 11 protections.

In a prepared statement, the company said it would look at strategic alternatives during its reorganization process, including asset sales.

"After careful evaluation, management and the board have concluded that in order to ensure the company's business units' viability and growth prospects, an exploration of the sale of the company's businesses is in the best interest of all of its constituents," said Michael Giordano, president and chief executive officer of Fedders, in a news release. "The Chapter 11 process will allow time for prospective buyers to evaluate the company and its business units while day-to-day operations continue."

But the news did little to induce activity in the bonds, with traders reporting that just "scraps" traded during the session. The 9 7/8% notes due 2014 were quoted earlier in the day at 16 bid, 20 offered, flat. Other quotes ranged from 16.5 to 13.5 bid, 17 offered, to 15 bid, 20 offered.

"It's definitely down," a trader said.

But some are skeptical that the company will be able to sell its assets - as one trader pointed out, the company ended its year-long quest earlier this year to sell its indoor air quality business.

"That makes them think they can sell it in today's market?" he said.

Another trader said that if the company is successful in selling that particular part of its company, it will be for significantly less than the previous asking price.

"But anything is a positive," he said.

Overall, liquidation seems likely.

"There was no reason for them to file now, other than throwing in the towel," a trader said. He added that the company still has over a week plus a 30-day grace period to pay the upcoming bond payment and the company could have found alternate funding.

"It's hard to see where the upside is, if there is one, "the trader continued.

"Now you know why they didn't file a 10-Q," another trader said. He speculated that someone had an "inside look" at the company's financials and realized just how bad the numbers were. Like many others before him, he blamed management for the company's poor performance.

"These guys could screw up a train wreck," he said.

WCI quiet post-earnings

Poor earnings prompted WCI Communities bonds to move lower, though traders said the tightly held paper saw few trades.

A trader said the bonds were "very quiet, virtually no trading...if anything they were quoted slightly lower." He said he saw the 9 1/8% notes due 2012 at 80.5 bid, 81.5 offered, down from the previous day's market of 81.5 bid, 80.5 offered.

Another trader quoted WCI's 7 7/8% notes at 73 bid, 77 offered and said that while he had not seen its 9 1/8% notes, they were being quoted at 79 bid, 81 offered, "about the same" as previously.

At another desk, a trader said he saw only "insignificant" trades in the homebuilder's bonds.

"The earnings were relatively expected," he said. "In other words, not good."

The company reported a loss of $33.4 million in the second quarter of 2007, compared to a profit of $22.7 million the previous year.

In its 10-Q filed with the Securities and Exchange Commission, the company also said its 4% contingent convertible senior subordinated notes due 2023 are now convertible.

Looking forward, a trader said the question was how the company would deal with its buildings in Florida. He said he had heard a rumor that original contracts were being offered for sale - in short, pre-sold apartments are being sold even before they are completed.

Technical Olympic firms

Among other distressed homebuilders, Technical Olympic's bonds were seen firming, with one trader putting the debt up a point.

The trader said the 10 3/8% notes due 2012 were up at 44 bid, 44.5 offered, while another trader saw the 9% senior notes due 2012 "around the 72 level."

Elsewhere, a trader saw the bonds "hanging in," seeing the troubled housing names "not hurting at all" in Wednesday's buoyant market.

However, he called the bonds "not changed much," with its 10 3/8% notes at 43 bid, 45 offered, its 9% notes at 73 bid, 74 offered and its 8¼% notes at 71 bid, 73 offered.

Meanwhile, a trader said Beazer Homes USA Inc.'s bonds "were higher - but now they're not." He said its 8 5/8% notes started the day at 80 bid, 82 offered, closing half a point lower at 79.5 bid, 80.5 offered.

Dura subs move higher

Dura Automotive Systems' subordinated notes gained during the session, a trader said, leading him to speculate that perhaps that bondholder group was doing better than had previously been thought.

The trader said the 9% notes due 2009 were at 3.5 bid, 4 offered, up from the previous day's closing level of 2.25 bid, 2.75 offered.

The trader said he heard that there was in fact some nuisance value left in that issue and the bondholders were going forward with their fight against the senior noteholders.

Elsewhere in the distressed autosphere, Delphi Corp.'s bonds continue to move higher. A trader quoted the 6½% notes due 2009 and the 6.55% notes due 2006 around 99. He said the bonds had gained 7 points from the beginning of the week, when they opened at around 92.

Another trader quoted the 6.55% notes up a point at 98.5 bid, 99.5 offered.

A trader also saw Federal-Mogul Corp.'s bonds better, with an 80 bid, while another called them up 4 points on the day at 82 bid, 83 offered.

Dana Corp.'s 6½% notes due 2008 jumped 3 points to 81 bid, 83 offered.

Visteon Corp.'s 7% notes due 2014 were seen at 77 bid, 79 offered and its 8¼% notes due 2010 were 88 bid, 90 offered, both up a point.

Broad market mostly better

A trader said Thornburg Mortgage Corp.'s 8% notes due 2013 were unchanged at 78.5 bid, 79.5 offered, while Calpine Corp.'s 8½% notes due 2011 were "up a little more" at 110.5 bid, 111.5 offered.

At another desk, a trader saw's bonds at 78.5 bid, 79.5 offered, "where they opened up. There wasn't much activity there."

He also quoted Residential Capital Corp.'s bonds "pretty much where they already were," its floating-rate notes due 2008 at 79 bid, 81 offered and its 6½% notes due 2013 at 71 bid, 73 offered.

Movie Gallery Inc.'s 11% notes due 2012 moved up a point to 23 bid, 25 offered, while Solo Cup Co.'s bonds were 1.5 points better at 84.5 bid, 86.5 offered.

Solutia's 6.72% notes due 2037 were 2 points better at 74 bid, 76 offered, and its 7 3/8% notes due 2027 were 3 points better at 76 bid, 78 offered.

Spectrum Brands Inc.'s 5 1/8% notes due 2009 were up 4 points at 84 bid, 86 offered, while its 6 7/8% notes due 2011 were likewise 4 points better at 80 bid, 82 offered. Its 6¼% notes due 2014 rose 3.5 points to 75 bid, 77 offered.

A trader quoted Pope & Talbot's 8 3/8% notes due 2013 at 60 bid, 65 offered - which he said was well up from recent levels in the low 50s. Tembec Inc.'s bonds, however, "weren't much changed," its 8 5/8% notes due 2009 at 47 bid, 49 offered, its 8½% notes due 2011 at 43 bid, 45 offered and its 7¾% notes due 2012 at 42 bid, 44 offered.

Another trader saw James River Coal Co.'s 9 3/8% notes due 2012 trading in the 69.5 to 70.5 range.

Linens n'Things floating-rate notes were deemed better at 65 bid, 66 offered.

Paul Deckelman contributed to this article.

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