Standard Pacific up on results and projections, leads builders higher; Plastech paper drops after filing

By Paul Deckelman

New York, Feb. 5 - Standard Pacific Corp.'s bonds were seen anywhere from 1 to 3 points better Tuesday after the Irvine, Calif.-based homebuilder said that it was making good progress on its debt-reduction efforts and expects to be cash-flow positive this year. That overshadowed the news that its fourth-quarter loss widened from year-earlier levels, owing to weakness in the homebuilding industry. Other names in that sector, including Hovnanian Enterprises Inc., were seen better.

Mortgage lender Residential Capital LLC was seen easier following a ratings downgrade by Moody's Investors Service, while Thornburg Mortgage Inc. firmed on better numbers.

In the bank-debt market, LandSource Communities Development LLC's first-lien term loan B headed lower once again as investors continued to react to Monday's lender-only call.

Plastech Engineered Products Inc.'s paper was off considerably in the wake of the automotive parts supplier's Chapter 11 filing.

Standard Pacific leads builders higher

Standard Pacific bonds "had a [conference] call and did all right," a trader said, estimating its longer-dated issues, like the 6¼% notes due 2014 and the 7% notes due 2015 "held in" and ended up a point or so on the day, around 71 bid, 72 offered.

Another trader saw the company's bonds "up a bunch across the board, about 3 or 4 points" following the conference call, with its 9¼% notes due 2012 as much as 5 points better at 59 bid, 61 offered.

On the conference call, company executives said they anticipate that the builder will generate positive cash flow in 2008 while also paying off the balance of its 6½% senior notes slated to come due in October.

They noted Standard Pacific's $251.1 million fourth-quarter reduction of homebuilding debt, through a $163 million reduction to the company's revolving credit facility, the purchase of $24 million of the $150 million of then-outstanding 6½% notes, and by paying down its trust deed notes payable by $66 million (see related story elsewhere in this issue).

In other housing names, Hovnanian's bonds were seen "all around 70-72ish," levels, one of the traders said. He saw the Red Bank, N.J.-based homebuilder's 8 5/8% notes due 2016 trading at 72, while other Hovnanian bonds around the similar long maturity, such as its 6½% notes and 6 3/8% notes due 2014, and its 6¼% notes due 2015 and 2016 traded closer to 70, "a little lower [than the 8 5/8s] because of the [smaller] coupons."

He pronounced Hovnanian bonds as having attracted "pretty decent sized trading."

Another trader saw the 61/2s up 2 points on the day at 72 bid, 74 offered.

In other builder names, the first trader said that Beazer Homes USA Inc. "didn't have a [conference] call, but I didn't see much change" from levels on Monday, when the Atlanta-based homebuilder's 6 7/8% notes due 2015 rose a point to around the 73 bid area. The same held true of names like WCI Communities Inc. and Tousa Inc. The latter's 8¼% notes due 2011 and its 9% notes due 2010 around 55 bid, 57 offered on "not much activity."

Another market source saw Beazer's 8 3/8% notes due 2012 up more than ½ point around the 76 level.

ResCap, GMAC off on downgrade

A trader saw Residential Capital's bonds, like its 6½% notes due 2012 trading in a 60 bid, 62 offered context, a bit weaker on the day, following Moody's one-notch downgrade of the Minneapolis-based mortgage lender's ratings, and those of its corporate parent, GMAC LLC.

Another saw ResCap's 8 3/8% notes due 2015 first rise as high as 64 bid early in the session, before coming off that peak to end down 2½ points at 61.

"They dropped GMAC and ResCap by a notch, so that's probably why there's some added activity," the first trader said, adding that "it was just a notch," with GMAC going to B1 and ResCap to B2, both from Ba3 previously. "It was not exactly a big deal, double-B to single-B. But it was just a notch."

He estimated that GMAC was "a point or two lower," quoting its widely followed 8% notes due 2031 around 83, which he called down a point - but added that "they've been bouncing around 83-84 all week," so the downgrade may not have been the proximate cause of the easing. A second trader saw the 8s down a point at 82.5 bid, 83.5 offered.

Another source saw GMAC's 7¾% notes due 2010 off nearly a point at just below 98.

The ratings agency said it was cutting ResCap because of "1) a decline in the company's liquidity profile, 2) the risk that ResCap's net worth could fall below its minimum net worth covenant in the absence of support from its parent, which support is not assured and 3) Moody's belief that ResCap's franchise is impaired."

The agency said in general, "the company's liquidity is weak due to its high concentration of secured market funding and therefore very low level of unencumbered assets."

As for parent GMAC, Moody's noted the support it gave to ResCap late last year, spending some $750 million to buy back ResCap debt and contributing it to ResCap so the unit could avoid breaching its minimum tangible net worth financial covenant. "In Moody's view, GMAC's willingness to use its cash and capital for this purpose diluted its own liquidity and capital positions."

The agency projected that GMAC "will likely continue to provide capital support to ResCap in the near term, primarily through similar open-market debt repurchases." While it held out the possibility that GMAC "may have a limited tolerance for supporting ResCap if ResCap's performance and condition fail to meet management expectations for improvement" during the first half, it warned that GMAC's further support of ResCap "could result in additional strains on its capital and liquidity positions. In relation to this, creditors' appetite to extend credit to GMAC beyond current commitments could be affected by GMAC's continued willingness to provide support to ResCap."

In that same sector, a trader saw Thornburg Mortgage's 8% notes due 2013 up about a point at 86 bid, 88 offered, citing the impact of better quarterly results for the mortgage lender

Also seen better was Countrywide Financial Corp.'s 6¼% notes due 2016 up a point at 85 bid, 86 offered, while its 3¼% notes coming due this May were ½ point better at 97 bid, 98 offered.

LandSource loan continues to weaken

In the bank-debt market, LandSource Communities Development's first-lien term loan B headed lower once again as investors continued to react to a lenders-only call that was held during the previous session to discuss a new land appraisal, according to traders.

One of them said that the loan was being offered at 71, compared to offers on Monday in a high-70s context. "Kind of like everything else today, there was no bid," the trader added.

However, according to a second trader, the first-lien term loan B was quoted at 60 bid, 70 offered, down from Monday's closing levels of 68 bid, 75 offered.

Recently, LandSource Communities - a joint venture between Lennar Corp., LNR Property Corp. and MW Housing Partners, whose primary investment is Newhall Land and Farming Co., owner of 15,000 acres in Santa Clarita Valley, Calif. - did a new appraisal on its land, a review that showed deterioration in the underlying value of that real estate.

As a result, it is potentially possible that the company is in default under its credit facility, since the collateral is worth less than it was when it was first appraised, meaning complying with the borrowing base covenant could be a problem.

When the appraisal news came out last week, speculation was that the sponsors would put in more equity, which caused the first-lien loan to rise to the 79 bid, 81 offered context and remain there through Friday.

But then on Monday, the company held a private call to discuss the equity sponsors' stance and potential action to be taken by senior lenders, and following that call, the first-lien loan started to tumble.

"It's not that the sponsors are debating whether or not to put in equity, it's the amount that they are willing to put in that will cause further distress. Definitely a lower amount [of equity] than expected," one trader remarked.

There was "no additional company news [today], although the lender list was posted, so maybe that stirred it up," the trader said regarding the term loan's weakening. "List of first-lien lenders on Intralinks - tends to get other dealers involved as the full lender list means open season for all to come in, make markets and contact current holders," the trader concluded.

Plastech paper pummeled

Plastech Engineered Products's first-and second-lien term loans have fallen considerably since the company filed for Chapter 11, according to a trader.

The Dearborn, Mich.-based auto parts supplier's first-lien term loan is quoted at 35 bid, 45 offered and the second-lien term loan is quoted in the 15 bid context, the trader said. Since the filing was announced, the first-lien term loan has dropped by about 30 points, the trader added.

Another trader said that he saw the first-lien debt quoted around 45 bid, 47 offered and its second-lien paper "in the teens." He did not know where that debt was previously.

Plastech filed for protection Friday with the U.S. Bankruptcy Court in Detroit, with company officials claiming they were forced into bankruptcy after a major customers, Chrysler, abruptly terminated its contracts with the supply company die to the latter's ongoing financial troubles. Plastech acted to legally prevent Chrysler from seizing certain machinery from its plants. Plastech and Chrysler reached an interim accord Tuesday that will allow the parts company to keep supplying Chrysler with components through Feb. 15 so the latter's assembly plants would not have to shut down for lack of parts.

Separately, Plastech sought court approval for its $38 million DIP financing.

Dana lines up investors

Another automotive supplier, Dana Corp., is still working on filling the books on its $1.35 billion seven-year term loan B (Ba3/BB) as orders are coming in at different discount levels, according to a market source, who said that the hope is to firm up the OID and allocate the deal by the end of this week.

The source said that commitments are currently being placed in the 90 to 92 original issue discount context, and based on where the loan fills out, that is where the discount will end up. Late last week, the discount on the term loan B was increased to 92 from the initially proposed 97 area.

The Toledo, Ohio-based parts supplier's term loan B is priced at Libor plus 375 bps, with a 3% Libor floor for two years, and carries hard call protection of 102 in year one and 101 in year two. The only time the call premiums don't apply is when it relates to cash flow sweep.

Last week, pricing on the term loan B was flexed up from original talk at launch of Libor plus 350 bps, and the Libor floor and call premiums were added.

Dana's $2 billion exit financing credit facility also includes a $650 million five-year asset-based revolver (Ba3/BB+) that is priced at Libor plus 200 bps, with a commitment fee of 37.5 bps.

Upfront fees on the asset-based revolver were 25 bps for $25 million, 50 bps for $50 million and 75 bps for $75 million.

Syndication on the revolver has gone well, making changes to this tranche unnecessary.

Citigroup, Lehman Brothers and Barclays are the lead banks on the deal.

The credit facility funded last week when the company emerged from Chapter 11. Proceeds are being used to repay the company's debtor-in-possession credit facility, to make other payments required upon its exit from bankruptcy and to provide liquidity to fund working capital and other general corporate purposes.

Herbst bonds get hurt

Back among the bonds, Herbst Gaming Inc.'s 8 1/8% notes due 2012 continue falling, a market source quoting them as low as 33 bid, down some 10 points from their recent levels.

However, another trader saw the Las Vegas-based gaming company's 8 1/8s at 40 bid, 43 offered, and its 7% notes due 2014 at 39 bid, 40 offered. He said that he was "not seeing much activity" in the credit. "It's been quoted around, but it hasn't traded this month," a period which admittedly is still in its opening days.

There was no immediate news out on the company that might explain the slide in the bonds, which were still trading not too far from par as recently as last fall.

Sara Rosenberg contributed to this report.

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