Homebuilders gain despite negative news; Uno's slips on Dominos' numbers; Insight 'pops'

By Stephanie N. Rotondo

Portland, Ore., Feb 26 - The distressed bond sector continued to feel firmer during Tuesday's session, traders reported, though activity remained light.

"It seemed kind of stronger, but there is not a lot going on," a trader said.

Indeed, Standard & Poor's addressed the lack of activity in its US High Yield Prospects report, noting that there were "few positives" for the junk arena in the first part of 2008.

"With recessionary expectations revised upward and profits expected to trend downward, we see little evidence to support high-yield bonds in the near term," the report said.

Even as the distress ratio and default tally climb, investors are more concerned with the possibility - or perhaps probability - of recession to take anything remotely looking like a risk.

One of the areas investors have been largely avoiding is the housing sector. Amid a housing slump and subprime mortgage crisis, several homebuilders seemed on the verge of a breakdown, and market participants ran the other direction.

But during Tuesday trading, traders said distressed homebuilders, such as Tousa Inc. and Hovnanian Enterprises Inc., were slightly better to unchanged despite the onslaught of negative news regarding that industry.

Meanwhile, it was unclear why anyone would link Domino's Pizza with Uno's Restaurant Holdings Corp. But whatever the reason, Uno's bonds were seen moving lower, attributed to poor numbers from competitor Domino's Pizza.

In less-often heard names, Insight Health Systems' debt "popped" a little, a trader said, as news of an asset sale emerged.

Homebuilders up despite bad mojo

Distressed homebuilders saw their bonds rally, albeit slightly, despite the plethora of negative news facing the industry.

A trader quoted Tousa's 10 3/8% subordinated notes due 2012 at 11 bid, 12 offered, up from their all-time lows around 7. The 9% senior notes were seen wide at 56 bid, 59 offered, and the 8¼% notes due 2014 closed around 56 bid, 57 offered.

The trader called Hovnanian Enterprises' 8 7/8% notes at 55.5 bid, 56.5 offered, while another pegged that issue at 55 bid, 55.75 offered.

The first trader also quoted WCI Communities Inc.'s 9 1/8% notes due 2012 at 56 bid, 57 offered.

At another desk, a trader saw all of Hovnanian's bonds quoted up around a point at 69 bid, 71 offered, including the company's 6½% notes due 2014, 2015 and 2016 and its 7½% notes due 2016.

Standard Pacific Corp.'s 7% notes due 2015 also moved up to 72 bid, 73 offered from prior levels at 69 bid, 71 offered, while Beazer Homes USA Inc.'s 8 5/8% notes due 2011 were a point better at 78 bid, 80 offered.

The struggling sector continues to face turmoil as a dreaded recession looms. Within the industry, it seems the bad news just will not stop coming.

According to several reports released Tuesday, housing prices continue to drop while foreclosures steadily increase. S&P's Case-Shiller home price index indicated that home prices fell 8.9% in the fourth quarter of 2007, compared to the previous year. That is the biggest decline in at least 20 years.

Potential foreclosures hit 57% in January, according to RealtyTrac Inc. On Monday, existing home sales were also shown to have slipped. According to news reports, inventories are also up, and at the current levels, it would take at least 10 months to clear out, assuming sales increased.

Given the current state of the housing industry and the mortgage sector, it is no surprise that homebuilders are offering all types of incentives to sell their products. But even if a builder can manage to sell a home, only those with solid credit will be able to find financing.

In the mortgage sector, Residential Capital LLC's 8 3/8% notes due 2015 were seen up half a point at around the 59.5 bid level. ResCap parent GMAC LLC's benchmark 8% notes due 2031 were deemed up a point at 80 bid, 81 offered, although its 7% notes due 2012 were being quoted down half a point at 84.5 bid.

Uno's slips on poor sector numbers

It appeared that many considered all pizzas to be alike, as poor numbers from Domino's Pizza drove Uno's Restaurant's bonds down.

A trader said the 10% notes due 2011 fell 8 to 10 points to 35 bid, 43 offered. He said the tightest market he saw throughout the day was 40 bid, 42 offered. Either way, that was down from around 50 bid in the previous session.

"They are just getting lower and lower and lower every time you see them," he said.

Still, he noted that some market players wondered what was "comparable" about Uno's and its delivery counterpart.

"It's not like all the restaurants haven't been getting pummeled of late," he added.

Domino's, the largest pizza delivery chain in the United States, reported a 47.9% decline in its fourth-quarter net income from the previous year to $16.2 million. For the full fiscal year of 2007, net income slipped 64.3% to $37.9 million. The company attributed the lower numbers in part to increased interest expense.

Insight bonds 'pop' on asset sale

Insight Health announced an asset sale agreement during Tuesday trading, prompting the company's bonds to "pop," though only a tad.

A trader placed the 8.49% notes due 2011 at around 70. He said the previous market was 67 bid, 72 offered.

"They traded inside that, but toward the higher end," he said, adding that, "Those bonds are pretty quiet to begin with."

According to a press release, the diagnostic imaging company entered into a definitive asset purchase agreement with RadNet Management Inc. to sell six of its Southern California locations for $8.5 million.

Broad market mixed

Quarterly numbers released last week drove Radio One Inc.'s debt down to around 70 from its previous levels in the 80 to 90 range. A trader said the 6 3/8% notes due 2013 remained at that level even after S&P placed the company on CreditWatch negative.

"Like always, [S&P] is ahead of the curve," he quipped.

Spectrum Brands Inc.'s 7 3/8% notes due 2015 closed around 65.75. Another source called that issue a half point better at 66 bid.

A trader saw no change in Metaldyne Inc. paper, its 10% notes due 2013 at 66 bid, 67 offered and its 11% notes due 2012 at 44 bid, 46 offered.

Elsewhere in the autosphere, Visteon Corp.'s 7% notes due 2017 were better by half a point to a point at 67 bid.

PolyPore Inc.'s 8¾% notes due 2013 traded up to 95.75, a trader said. The trader noted that the company posted "good numbers" earlier this month.

RH Donnelly's 8% notes due 2013 closed around 80. Another source saw the 8 7/8% notes due 2016 lose half a point to around 70.

Sector peer Idearc Inc.'s 8% notes were fairly actively traded, but one market source saw them hanging in around the same 68 bid, 70 offered context where they recently have been.

Paul Deckelman contributed to this article.

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