Tembec boosted by recap plan; Calpine steady; Tekni-Plex up on shorts; Hovnanian hit; ResCap slides

By Stephanie N. Rotondo

Portland, Ore., Dec. 19 - The distressed arena got a little bit of a jolt Wednesday as a plethora of news - both positive and negative - surged into the market.

The biggest news of the day was Tembec Inc.'s recapitalization plan. The company announced that it would cut its debt in a debt-for-equity swap. Post-news, the forest products company's bonds gained as much 4 points.

On Monday, Calpine Corp.'s bonds gained on news of a valuation settlement with its bondholders and shareholders. Come Tuesday, profit-takers swooped in, causing the debt to dip, albeit slightly. As the bankruptcy court overseeing its case approved the company's reorganization plan Wednesday, the bonds tried to hold steady - with mixed results.

Traders agreed there was only one thing that could move Tekni-Plex Inc.'s bonds up: short covering. The bonds, which are now trading flat, have inexplicably gained over the last few days, after the company said it had not paid its coupon.

Homebuilders cannot seem to catch a break. Hovnanian Enterprises Inc. posted its fourth-quarter numbers, which one trader called "pretty crappy." The New Jersey-based company's bonds, as well as those of other names in the sector, were mostly lower on the day.

Residential Capital LLC's debt continued to slide just one day after a news report cited the struggling mortgage lender as one of around 30 company's to be downgraded in recent months.

Recap plan helps Tembec

Tembec was the topic of the day as the forest products company released a proposed recapitalization transaction.

On the news, a trader called the 8½% notes due 2011 "a touch better" at 45.25 bid, 45.5 offered. Another trader agreed the debt was higher, the 8½% notes at 45.5 bid - up from 44 bid the day before - and the 7¾% notes due 2012 at 44.5 bid, 45.5 offered.

Another market source saw the 2011 paper up 3.5 points to around 46, while another trader deemed the bonds up 3 to 4 points. That trader quoted the 7¾% notes at 44.5 bid, 45 offered, up from around 41 in the previous session.

Under the recapitalization plan, Tembec aims to cut $1.2 billion in debt by swapping it for new equity. This would thus reduce the company's annual interest expense by $67 million. The company also said it will take on a new four-year $250 million to $300 million term loan to increase liquidity.

James Lopez, president of the Canadian company, called the plan "a consensual solution that is fair to both our noteholders and our shareholders."

Tembec's board of directors is also recommending all debt and equity holders support the plan.

According to the company, an ad hoc committee of bondholders has agreed to vote in favor of the recapitalization. The committee holds in excess of $250 million of notes.

Tembec plans to meet with its stakeholders on Feb. 22 to obtain the necessary support for the plan. The company hopes to implement the plan later that same month.

Calpine steady on plan OK

A court's approval on its reorganization plan did little to move power producer Calpine's debt.

A trader called the 8½% notes due 2011 unchanged at 113 bid, 114 offered. The trader also quoted the 7¾% notes due 2009 at 99.5 bid, 100.5 offered and the 6% convertibles at 88 bid, 89 offered.

At another desk, a trader said the 2011 piece was a point weaker at 113.5 bid, 113.75 offered.

"Guys continue to take profits," he said, referring to the previous session when the bonds fell slightly after climbing over the week.

Another trader placed the 2011 issue at 113 bid, 114 offered.

"That is unchanged, even with the court's approval," he said, amazed.

Judge Burton Lifland of the U.S. Bankruptcy Court for the Southern District of New York approved the San Jose, Calif.-based company's reorganization plan Wednesday. The plan will pay off creditors with new equity in the reorganized company.

The approval also positions the company to exit Chapter 11 protection before its $7.6 billion exit financing deal expires on Feb. 7.

Short covering boosts Tekni-Plex

Short covering was given credit for moving Tekni-Plex's bonds higher Wednesday.

One trader, who called the 12¾% subordinated notes due 2010 up 3 points on the day, said the debt continues to move up, though they are now trading flat. He noted that the bonds went up 6 points after the announcement that the company did not make its scheduled coupon payment.

However, "in the end, I think it will go back down," he said.

"This is not representative of the fair value for this bond," he added.

The trader quoted the bonds at 65 bid, 67 offered, while another trader placed the bonds at 66.

"There seems to be a short squeeze going on," he said.

Poor numbers hit Hovnanian

Homebuilder Hovnanian released quarterly numbers late Wednesday, resulting in what one trader called a "ripple effect" throughout the sector.

"They released horrible numbers," the trader said. Another called the figures "pretty crappy."

However, Hovnanian's debt was mixed on the day. One trader said the 7½% notes due 2016 ended at 70.5 bid, 72 offered, up from 70 bid, 71 offered. He also saw the 6¼% notes due 2015 at 68 bid, 69 offered.

But the "main one," as the trader called it, the 8 7/8% notes due 2012, fell about 2 points to 61.5 bid, 62.5 offered from 63.5 bid, 64.5 offered.

"They were down 1 to 2 points, but not crazy," he said. "I would have thought they would be down more than that."

A market source saw the 6 3/8% notes due 2014 fall 1.5 points to around 70.5. At another desk, a trader placed the 8 7/8% notes down 3 points at 59 bid, 61 offered and the 8 5/8% notes due 2017 down 2.5 points at 74 bid, 76 offered.

Elsewhere in the troubled sector, Standard Pacific Corp.'s 7% notes due 2015 slipped 1.5 points to 75.5 bid, 77.5 offered, while WCI Communities Inc.'s 4% notes due 2023 were deemed weaker, offered at 71. Technical Olympic USA Inc.'s 9% notes due 2010 were called unchanged around 41.

For the fourth quarter, Hovnanian posted a net loss of $469.3 million but showed positive cash flow of $376 million. Revenue fell 20% to $1.39 billion, compared to $1.75 billion for the same quarter in 2006. The company attributed the nearly quadruple loss to the housing downturn, as well as an accounting charge of $54 million in tax expense. The company also incurred a $383 million pretax charge for land impairments and other charges.

ResCap paper slides

Residential Capital's debt is still struggling after being prominently noted in a recent Bloomberg article that discussed the likelihood of an increase in default rates.

One trader said the bonds were "a half point weaker down the whole scale" after consecutively losing 2 points in the previous two sessions. He quoted the 9% notes due 2013 at 65 bid, 66 offered, the 8½% notes due 2011 at 65.5 bid, 66.5 offered, the 6 1/8% notes due 2008 at 80 bid, 81 offered and the 6 3/8% notes due 2010 at 65.5 bid, 66.5 offered.

At another desk, a trader called the 6 1/8% notes down 1.5 points at 79.5 bid, 81.5 offered and the 6 7/8% notes due 2015 unchanged at 64 bid, 65 offered.

Another market source placed the 8 3/8% notes due 2015 down 2 points to around 64.

Among other names in the financial sector, Countrywide Financial Corp.'s 3¼% notes due 2008 were seen unchanged at 90 bid, 91 offered, while E*Trade Financial's 8% notes due 2011 gained 2 points, closing at 86 bid, 88 offered. A trader said there was no news to prompt the movement.

Thornburg Mortgage Corp.'s 8% notes due 2013 were seen at 84 bid, 86 offered, though a trader noted there was "nothing going on" in the name.

Broad market mostly better

Investors cannot seem to get enough of Tropicana Entertainment LLC's debt, which has been moving up since Monday when the company said it made the interest payment on its notes.

A trader called the so-called Wimar bonds "improved" at 67.25 bid, 67.5 offered, while another pegged the 9 5/8% notes due 2014 a point better at 66.5 bid, 68.5 offered.

The first trader dubbed Blockbuster Inc.'s 9% notes due 2012 "better" at around 84.5. Another trader called the bonds up a point, also at 84.5.

When asked if the recent gains in the movie rental chain's bonds had anything to due with the closing of Movie Gallery Inc.'s MovieBeam service, the trader opined, "everything with respect to Movie Gallery is already in the market."

Delphi Corp.'s bonds gained about a point, a trader said, placing the 7 1/8% notes due 2029 at around 20.

The trader added that there was "nothing in particular" to move the debt, "it just felt like there were some buyers around." As the bonds have been firming over the last few days, he speculated that "maybe it was overdone on the downside in reaction to Dura."

Meanwhile, Federal-Mogul Corp.'s bonds were deemed 1.5 to 2 points lower at 71 bid, 71.5 offered. A trader said there was "no real news" to cause the dip.

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