Tousa notes hurt by plan details; Ford, GM bonds rebound on stock rally; casinos stage comeback

By Stephanie N. Rotondo

Portland, Ore., Oct. 14 - The distressed bond market was largely better Tuesday, following a long holiday weekend.

"The market opened up much stronger than last week," a trader said, calling things up 5 to 6 points "generally."

"There were definitely some things trading up," said another trader. However, toward the end of the day he said, "There definitely felt like there was some selling into strength.

"I don't think people feel we have necessarily turned a corner despite the large rally in the stocks [on Monday]," he added.

But as most of the market ended firmer, Tousa Inc.'s debt bucked that trend. Traders reported a 5 to 6 point drop in the company's bonds on the back of the reorganization plan filing. Under the plan, bondholders walk away with nothing.

Meanwhile, the automotive sector, which spent most of last week sinking into the abyss, managed to come back a little during Tuesday's session. Both Ford Motor Co. and General Motors Corp. were seen anywhere from 2 to 5 points better on the day, attributed in large part to rallies in the companies' stocks.

Casinos also staged a bit of a rebound, despite negative revenue numbers released on Friday. Isle of Capri Casinos, as well as Trump Entertainment Resorts Inc. and MGM Mirage, finished the session better by several points.

Tousa dips on plan details

Homebuilder Tousa filed its plan of reorganization Tuesday and the details of the proposal shocked some market players.

"Plan is a surprise to most folks," said a trader. "Bonds to get zero under plan with only upside on litigation."

While that trader said he had not seen the bonds trade at all - "they went dark," he said - others reported a 5 to 6 point dip in the name.

A trader said he saw the 7½% notes due 2011 and 2015, respectively, offered at 2.

"I see offers in the 9% [notes due 2010], but they might be way too high," he added.

Another trader placed the 7½% notes at 0.5 bid, 1.5 offered, and the 9% notes at 30 bid, 31 offered.

Under the terms of the plan, the Hollywood, Fla.-based homebuilder will convert more than $300 million in second-lien debt into equity, giving full ownership of the reorganized company to those lenders. Approximately $1 billion in bond debt, along with $600 million of other unsecured claims, will be canceled entirely. Stockholders will also be left with nothing.

"The filing of our plan of reorganization is an important achievement and we are excited to announce this development," Tousa chief executive and president John R. Boken said in a press release. "We have made significant progress over the past nine months in restructuring our operations and have transformed our business in this very difficult market environment. Our standalone plan of reorganization includes a substantial reduction in our debt obligations, allowing us to emerge from Chapter 11 with a stronger balance sheet and greater financial flexibility that will position Tousa to compete effectively in the industry and to continue to deliver quality homes to our customers."

Tousa filed for bankruptcy earlier this year, after a decline in new home sales and housing starts pressured the highly leveraged company.

Auto sector catches bid

The automotive arena as a whole "caught a little bit of a bid," a trader said, pointing to decent gains in the stock a day before.

The trader placed Ford Motor's 7.45% notes due 2031 at 28 bid, 30 offered, up a deuce. General Motors' benchmark 8 3/8% notes due 2033 opened around 19 bid, 21 offered before moving up to 22 bid, 24.5 offered.

GM's lending arm, GMAC LLC, saw its 8% notes due 2031 also gain 2 points to end at 27 bid, 30 offered.

"They couldn't go down much more," the trader opined, citing recent losses in the sector. He said the day's gains were "a direct result of the stock rally" on Monday.

Another trader placed GM's benchmark at 20 bid, 22 offered, up 4 points, while Ford's 7.45% notes gained 5 points to 27 bid, 29 offered.

Another market source pegged GM's 7 1/8% notes due 2013 at 29.75 bid, up 10 points on the day. GMAC's 6 7/8% notes due 2012 closed at 38 bid, 3.5 points firmer.

"They got a little bit of relief," a source said.

Slumping auto sales have caused some to believe that the Detroit automakers might be facing potential bankruptcy if they are not able to restructure quickly enough. For its part, GM is also struggling under the pressure of its GMAC unit, as well as its offspring, Delphi Corp.

On Monday, GMAC said it planned to only finance customers with what is considered "excellent" credit scores, around 700. Previously, the company's financing pool consisted of nearly 40% sub-700 scorers. The company also finances about 45% of GM's sales.

Casino bonds rally

The gaming sector "bounced a little," a trader said, in line with the rest of the bond market. However, the trader added that it was "not the most active sector."

Isle of Capri's 7% notes due 2014 opened at 55 before hitting a high of 61, the trader said. Trump Entertainment's 8½% notes due 2015 moved up to 31 from 25 last week, despite a downgrade from Moody's Investors Service.

MGM Mirage's 7½% notes due 2016 were also "up a couple points" at 68.5 from 65 on Friday.

At another desk, Isle's debt was seen up nearly 12 points at 59.5 bid, while MGM's 6 5/8% notes due 2015 gained 5.5 points to 68 bid. Boyd Gaming's 7¾% notes due 2012 moved up 4 points to 83 bid.

Another trader said he saw no late day levels in Trump's paper, which were at 28 bid, 33 offered in early trading. MGM's 7½% notes increased 3 points to 66 bid, 68 offered.

Harrah Entertainment LLC's 10¾% notes due 2016 opened at 41 bid, 42 offered, but closed lower at 38 bid, 39 offered, another trader said.

Late Friday, monthly revenue numbers from Atlantic City were released. The monthly report showed a 15% decline - the biggest drop in revenue since 1978 - to $356 million. The drop was partly attributed to inclement weather and the pre-Labor Day weekend falling in August.

Trump's revenue fell the most at a hefty 33%. Harrah's revenue fell 8.3%, while MGM and Boyd-owned Borgata Hotel Casino & Spa fell 5%.

As the current economy has forced most to tighten their belts, would-be gamblers have stayed away from gaming centers such as Atlantic City. But the Jersey Shore's smoking ban has also played a role. As a result, city council members voted to put off a blanket ban that would have gone into effect on Oct. 15.

Meanwhile, Las Vegas' gambling revenue has also faltered. During the first eight months of the year, the city has seen wagers fall 6.7%, with a 7.4% decline on the Strip in August alone.

Broad market rebounds

Pilgrim's Pride Corp.'s 8 3/8% notes due 2017 were "moving around a lot," a trader said. He quoted the issue at 38 bid, 41 offered, up 5 points.

The poultry producer's debt had previously "had a lot of downward momentum," the trader said, as feed prices continued to escalate. While he conceded that the gains could be short covering, he still maintained that the move was "positive" for the company.

Idearc Inc.'s 8% notes due 2016 had a better day, after losing over the last few sessions. A trader quoted the bonds at 21 bid, 22 offered, up from 17 bid, 18 offered.

Lehman Brothers' senior paper - such as the 6 7/8% notes due 2018 - got as high as 12.25 before coming back down to 10 bid, 11 offered, a trader said. Still, he called that up from Friday levels of 9 bid, 10 offered.

But another trader called that down 1.5 points, pegging the issue at 8 bid, 10 offered.

Washington Mutual Inc.'s holding company paper, like the 4.2% notes due 2010, closed at 62 bid, 65 offered, according to one source, and at 64 bid, 65 offered, according to another.

Charter Communications Inc.'s 10¼% notes due 2010 finished around 68.5, while its 11% notes due 2011 hit a high of 53 before settling back to 52 offered. The 8% notes due 2012 were called 8 points better at 84 bid.

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