Icahn-WCI talks weigh on bonds; Thornburg Mortgage paper continues to slide

By Stephanie N. Rotondo

Portland, Ore., June 20 - Just as the week - and the stock market - was winding down, distressed bond investors learned that billionaire investor Carl Icahn was in talks with WCI Communities Inc. regarding their restructuring options.

In a regulatory filing, Icahn said his firm was speaking with a special committee set up by the homebuilder's board late last week. Though he gave no details, he said it was possible a "transaction" between the parties might be in the cards. The news put pressure on the company's debt, though its 4% convertibles "ran up," a trader said.

Meanwhile, Thornburg Mortgage Inc. continued to lose weight, marking three straight sessions of losses. Investors were apparently still anxious after the company said Wednesday that its future remained uncertain.

Overall, traders reported a weaker market, in line with an ever-decreasing equity market. The Dow Jones Industrial Average closed down 220 points on the day and more than 450 points over the week.

Icahn-WCI talks weigh on bonds

WCI Communities' debt structure ended mixed Friday after Icahn said he was in talks with the struggling homebuilder regarding its restructuring options.

A trader said the Bonita Springs, Fla.-based company's bonds traded actively on the announcement. He saw the 4% convertible notes due 2023 run up to a high of 72 bid, 74 offered before coming back down to 71 bid 72 offered. The 9 1/8% notes due 2012 ended the session at 41 bid, 43 offered.

"There was a print at 46 after the news," he said. "But that was crazy; that's way too high."

Another trader pegged the 9 1/8% notes at 42 bid, 45 offered, noting that the 6 5/8% notes due 2015 and the 7 7/8% notes due 2013 trade about even with that issue. Another source called the 9 1/8% notes "down a couple" to around 42 versus Thursday levels of 44 bid, 45 offered.

In a filing with the Securities and Exchange Commission, Icahn said he and his firm - which own almost 15% of WCI's equity - were discussing "alternative restructuring proposals" with WCI. Icahn said the talks could lead to his company "entering into a transaction with [WCI]."

Late last week, WCI said its board - incidentally chaired by Icahn - had formed a special committee to evaluate its options. The liquidity-light company posted an $84.1 million loss for the first quarter of the year as revenue fell almost 60%.

One of the biggest hurdles the company is facing is the 4% convertible notes, which become putable at par in August.

In an afternoon report, Gimme Credit analyst Vicki Bryan said it was "not surprising" that Icahn was taking charge of discussions. She also said that it seems unlikely the company will be sold off before the $815 million in unsecured debt is restructured. But it is also probable that there are not a lot of potential buyers," she said.

But bondholders could get an even rawer deal if they reject any potential offers, she said, as the company would then likely have to file bankruptcy - and recoveries would fall even more.

More troubles for Thornburg

Declines that began Wednesday continued into Friday trading for Thornburg Mortgage's bonds.

A trader said the 8% notes due 2013, which fell 15 points on Thursday, slipped another 5 points during the last trading day of the week, closing at 52 bid, 58 offered.

"They got hammered again," he said, adding that there was a low print of 49.

Another trader placed the debt at 53 bid, 55 offered, stating, "they're getting crushed."

"There is some panic over what is going to happen with the [shareholder] vote and whether or not they are going to be able to survive," another trader said. He saw the bonds end the previous session in the "mid- to high-50s" and end Friday "in the same sort of context."

In a regulatory filing Wednesday, the Santa Fe, N.M.-based mortgage lender said its fate remained uncertain, even with its refinancing plan announced two months ago. The company has already received $1.35 billion from a MatlinPatterson-led investor group. That cash was used to repay creditors to avoid bankruptcy.

The company has also received shareholder approval to turn control over to the investors, considered by Larry Goldstone, chief executive, a step in the direction of "normalcy."

But the company still has to complete a tender offer for its preferred shares. Thornburg needs to repurchase 90% of those shares, for which it is offering $5 a share. But preferred holders have not been quick to pony up, as the offered price is a significant discount from the original purchase price.

The company has until June 30 to complete the deal, although it is expected that the company will request an extension.

Broad market mostly weaker

VeraSun Energy's 9 3/8% notes due 2017 were unchanged at 56 bid, 58 offered, as were Aventine Renewable Energy Holdings' 10% notes due 2017 at 63 bid, 65 offered.

A trader said Smithfield Foods Inc.'s bonds were "not much different than yesterday," its 7% notes due 2011 at 93 bid, 94 offered and its 7¾% notes due 2013 at 92 bid, 93 offered.

Among distressed retailers, Linens n'Things Inc.'s floating-rate notes due 2014 dipped 2 points, while Claire's Stores Inc. "got smoked again," its 10½% notes due 2017 at 40 and its 9 5/8% note due 2015 at 45.

Spectrum Brands Inc.'s bonds, which had run up in the previous session, "seemed a fair bit heavier," a trader said. He quoted the 11% notes due 2013 at 87, down 3 points.

Profit taking was blamed for losses in Charter Communications Inc.'s paper. The 11% notes due 2015 fell 2 to 2.5 points to 82.5, while the 9.92% notes due 2011 were also weaker at 65.

Trump Entertainment Resorts Inc.'s 8½% notes due 2015 closed softer at 64.5.

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