New plan sends Thornburg flying; More shorts for AbitibiBowater bonds; Neff paper boosted

By Stephanie N. Rotondo

Portland, Ore., March 25 - Thornburg Mortgage Corp.'s troubles seem to be disappearing as news of a new plan to stave off bankruptcy buoyed the company's debt Tuesday.

Previously, the mortgage lender said it would issue $1 billion in convertible debt securities to raise cash quickly and appease its lenders. However, the company said on Tuesday that it would instead issue more than $1 billion in bonds.

The market seemed to jump at the idea, sending Thornburg's bonds as much as 15 points higher during the session.

Traders also reported that the financial sector was by and large better on the day. Both Countrywide Financial Corp. and Residential Capital LLC firmed during trading.

The short squeeze continues in AbitibiBowater Inc. paper. Shorter-dated paper seemed to be the biggest movers, though longer-dated issues edged higher as well. But it is the shorter issues that are the subject of a recent tender offer, and the consent deadline is fast approaching.

Neff Corp.'s bonds were seen quoted more just days before the company's quarterly conference call. One trader said the debt was up 2.5 points as full-year results are reportedly better than expected.

Despite a wishy-washy day in the equity markets, distressed bond traders said their market felt firmer overall.

"In general, things seemed to be gravitating higher," a trader said.

New plan sends Thornburg flying

Thornburg Mortgage's bonds continued to be actively quoted during Tuesday's session, and news of a new refinancing plan sent the notes up as much as 15 points.

One trader said the 8% notes due 2013 ended the day at around 55, while another called the bonds 15-points better at 57 bid, 60 offered.

At another desk, a trader quoted the bonds at 54 bid, 57 offered.

Under an agreement with its lenders to halt their margin calls and repayment demands, Thornburg was required to raise nearly $1 billion in just one week.

Originally, the plan was to sell convertible debt to raise the funds. Investors initially reacted favorably to that proposal but then began to worry that the deal would not get done, given the current state of the credit markets.

The convertible debt was expected to be priced on Thursday, but the company delayed pricing of the securities until Monday. As Monday came and went, there was no word.

Come Tuesday morning, the market found out why. Instead of selling $1 billion in convertible debt, the company instead decided to issue $1.35 billion in senior subordinated bonds with embedded warrants.

In a regulatory filing, Thornburg said it already has a buyer for a large portion of the debt: Private equity firm MatlinPatterson agreed to buy $450 million of the bonds, providing Thornburg can find buyers for the at least $700 million of the remaining debt.

The notes will carry an 18% annual percentage rate. However, that rate can be decreased to 12% if shareholders agree to increase the number of authorized shares and the company buys back the majority of its preferred shares.

The new plan has renewed hope in the market that the company will be able to survive.

A trader said the bonds gave evidence to investors of good "prospects of that deal to be consummated."

"That's another one of the intensive care list," another quipped.

Thornburg Mortgage is a Santa Fe, N.M.-based mortgage lender specializing in jumbo home loans.

Market: A better deal for Countrywide?

With Bear Stearns Cos. getting a sweeter deal from JPMorgan Chase & Co. than was originally offered, some are hoping that the same will happen for Countrywide Financial.

In January, Bank of America made a $4 billion bid for the lender. Now, the market is speculating that the bidder will increase its offer.

The rumors boosted Countrywide's bonds, a trader said. He said the 6¼% notes due 2009 rallied to the low-90s from the mid-80s previously.

"Some thought the deal might get cut or even dropped," the trader said. But now market players think there is a better deal to come.

Another trader quoted the 6¼% notes due 2016 at 78 bid, 82 offered.

Meanwhile, ResCap paper was also firmer, attributed to the overall wellness in the financial sector as a whole.

A trader said the floating-rate notes coming due in November traded up 3 to 4 points with a 66 handle. The floating-rate notes due in June also gained, closing in the high-70s, up from the mid-70s in the previous session.

Short squeeze continues in AbitibiBowater paper

AbitibiBowater paper continued to feel the squeeze, a trader said.

The trader said the company's short-dated paper posted the most gains, with the 6.95% notes due April 1, 2008 hitting a high of 105, while the 5¼% notes due 2008 ended at 102.

"It seems like there must be a squeeze going on," the trader said. "If guys are short this, they need to deliver before the tender [offer deadline later this week]."

But longer-dated paper was also edging higher. A trader quoted the 8.55% notes due 2010 at 57 bid, 59 offered and the 8 3/8% notes due 2015 at 51 bid, 52 offered.

According to KDP Investment Advisors, it is expected the new 15½% notes due 2010 - which holders of shorter maturities will get in the tender offer set to expire this week - will have a yield of up to 14%.

Those bonds are just part of a $1.4 billion refinancing deal proposed by AbitibiBowater to deal with upcoming maturities. On Monday, the company also announced it would sell $350 million in convertible debt to Fairfax Financial Holdings Ltd.

But despite the market's seemingly enthusiastic response to efforts involved in the plan, there are some who still see significant downside.

"We think there is slightly more than an even chance that the company will cobble together financing to meet the April maturity," Gimme Credit analyst Kim Noland wrote in an afternoon report. Still, "we are not recommending those bonds however as the downside is too great in a filing (they could trade down 30 points). We continue to believe that the company's ability to repair its balance sheet is dependent on improving newsprint prices and a turnaround in the housing markets."

AbitibiBowater, the combined company of Abitibi Consolidated Inc. and Bowater Inc., is a Montreal-based forest products company specializing in newsprint.

Neff notes improve

A trader said that equipment-rental company Neff saw its bonds move up 2.5 points during the session on better-than-expected full-year results.

The trader quoted the 10% notes due 2015 at 48 bid, 49 offered.

Another trader, who said the bonds "seemed to be quoted a bit more," pegged the debt at 47 bid, 50 offered.

The first trader added that the company would not hold its conference call until Friday. As such, there are "not much details" publicly available, he said.

The conference call will begin at 11 a.m. ET.

Neff is a Miami, Fla.-based construction equipment rental company.

Linens bonds better

Linens n'Things Inc. floating-rate notes due 2014 were deemed "a little better" by one trader, who pegged the notes at 31 bid, 32 offered.

"All the retailers continue to feel a little bit better," he added.

Another trader called the debt a half point better at 30.5 bid, 32 offered.

"They are up a touch from the numbers [released last week], which were abysmal," the trader said. "But really, how much worse can they get?"

Last week, Linens posted a wider fourth-quarter loss, citing, among other things, the weakening retail environment.

With consumer confidence hitting a five-year low in March - the consumer confidence index fell to 64.5 compared to a revised 76.4 in February - the question remains how long the struggling company can survive.

"We think the company needs triage," wrote Noland at Gimme Credit. "At severely depressed levels of EBITDA, recoveries in a debt restructuring would be limited, especially given the likelihood that increased bank borrowings to fund negative free cash flow will further subordinate the company's notes."

Linens n'Things is a Clifton, N.J.-based home furnishings and decor retailer.

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