Tembec weakens on currency moves; Fedders quiet; MAAX boosted; Calpine up

By Stephanie Rotondo

Portland, Ore., Sept. 20 - The distressed bond market was deemed unchanged to slightly lower Thursday as investors started coming down from their highs.

One trader attributed the lack of volume on the day to "buyer fatigue."

"I think guys are pacing themselves to get through the month," he said.

As the Canadian loonie and the U.S. dollar hit parity, Tembec Inc.'s bonds suffered under the weight. Trader said the bonds, which are largely affected by the strength of the currencies, fell a couple of points across the board.

Money and price concerns prompted the Canadian forest products company to curtail its lumber sales - at least temporarily - last week. Sales resumed Monday, with a higher price sheet attached. Still, the company announced it was making yet another move to curtail production.

Many market players had hoped for it, but did not expect it. But on Thursday, Fedders Corp. told a bankruptcy court that it would bring a liquidation plan to the table by the end of the year.

It came as a surprise to one trader that the bonds did not move on the news. He said the debt was largely unchanged.

Meanwhile, "a tremendous short squeeze" got credit for boosting MAAX Corp.'s bonds well over par. To at least one trader, it was the "great story of the day."

Expectant investors are eagerly awaiting new valuation details from Calpine Corp. News that the company would release the information helped the bonds gain on the day.

Dollar strength hurts Tembec

Tembec's bonds were seen slipping as the strength of the Canadian loonie trumped that of the U.S. dollar.

A trader said the forest products company's bonds were down a couple points across the board, pegging the 8½% notes due 2011 down 1.5 points to 42 bid, 42.5 offered. He added that the bonds slipped to as low as 40 bid, 42 offered during the session.

Another trader quoted the 7¾% notes due 2012 at 40 bid, 41 offered and the 8½% notes at 41 bid, 42 offered. He also saw the 8 5/8% notes due 2009 at 46 bid, 47 offered.

A trader said "with the Canadian dollar doing its thing, Tembec was lower," the 7¾% notes down 2 points at 39.5 bid, 40.5 offered. Another saw the 8 5/8% notes off 3 points at 45 bid, 47 offered.

The U.S. dollar hit parity with the Canadian currency for the first time since November 1976. That means that one U.S. dollar equals one Canadian unit.

The decrease in the strength of the U.S. dollar is attributed to the recent interest rate cut from the Federal Reserve.

"They make their money in U.S. dollars," a trader said, "and pay their expenses in Canadian dollars."

"The rate cut really crushed the U.S. dollar," the trader added.

The Canadian company has been hurt of late by the strength of its currency. Last week, Tembec announced it was temporarily pulling its lumber off the North American market. Lumber sales resumed earlier this week.

On Wednesday, the company also announced yet another mill closure, this time at one of its Quebec sawmills. The mill will close on Oct. 8 for two weeks to curtail production.

Fedders unchanged on liquidation

In a Delaware bankruptcy court Thursday, representatives for Fedders told the court that the company is planning to liquidate.

The liquidation news comes just one day after the company's unsecured creditors objected to a $79 million debtor-in-possession proposal, led by Goldman Sachs.

A trader said the 9 7/8% notes due 2014 were unchanged at 15 bid, 16 offered, which he said "is not right."

"The bonds didn't trade, so therefore they are not down," he said. "But they should be."

According to court papers, Fedders said it expects to bring a liquidation plan before its creditors by the end of December. The company also asked for approval on a $33 million loan - less than half of its original proposal - to keep the company going through bankruptcy.

Shorts boost MAAX

One trader called MAAX Corp. the "great story of the day," as the bonds moved higher on a "tremendous short squeeze."

The trader said the 11¼% notes linked to the holding company jumped to 105 bid, 110 offered.

"People were in dire need of finding these bonds," he said.

To that end, the trader quoted Daniel Drew, a famous 19th-century bear: "He who sells what isn't his'n/Must buy it back or go to pris'n."

Elsewhere in housing-related names, Technical Olympic USA Inc.'s 10 3/8% notes due 2012 were lower by 1 point at 38.

Calpine flies on valuation

According to one trader, "everything softened - except Calpine; they were flying."

He said the 8½% notes due 2011 moved up to 107.5 bid, 108.5 offered from 105 at the open. He attributed the increase to Wednesday's news that the company would release new details on its valuation before the new plan is voted on.

Another trader saw the bonds at 107 bid, 108 offered, up 2.5 points.

At another desk, a trader called the 8½% notes due 2008 up 2 points, at 107 bid, 108 offered, while the convertibles were also up - the 7¾% notes due 2015 jumped up 5 points at 90 bid, 92 offered, the 6¼% notes due 2014 moved up 2 points at 82 bid, 84 offered and the 4¾% notes due 2023 were up 2.5 points at 91.5 bid, 93.5 offered.

Another trader called the bonds "active again," with the 2011 issue up at 107.

Movie Gallery loan dips

Movie Gallery Inc.'s first-lien term loan was weaker during Thursday's market hours, probably just on some profit taking, although, Standard & Poor's did come out with a downgrade on the company's ratings, according to a trader.

The first-lien term loan was quoted at 87 bid, 89 offered, down from around 89 bid, 91 offered, the trader said.

"I don't think the downgrade caught anyone by surprise," the trader said. "We've been expecting the Chapter 11 filing. "It probably would be down either way. Things have been ticking up all week and now people are just taking some profits."

As for Movie Gallery's corporate debt, a trader called the 11% notes due 2011 unchanged at 35.5 bid, 36 offered. Another trader called the bonds down 3 points at 35 bid, 37 offered.

On Thursday, Standard & Poor's downgraded its corporate credit rating on Movie Gallery to D from CC, its second-lien term loan to D and affirmed its first-lien and senior unsecured debt rating of CC.

The downgrade reflects Movie Gallery's decision to defer the payment of interest due on Sept. 10 on its second-lien loan beyond the payment grace period.

For the same reason, earlier this week, Moody's Investors Service downgraded the corporate family rating to C from Caa3, the revolver to Caa1 from B2, the synthetic letter-of-credit facility to Ca from Caa2, the first-lien term loan to Ca from Caa2 and the second-lien term loan to C from Caa3.

Movie Gallery is a Dothan, Ala.-based video rental company.

Elsewhere in the industry, Blockbuster Inc.'s 9% notes due 2011 were quoted at 90 bid, 91 offered.

Neff loan lower on profit taking

Neff Corp. was another name that saw bank levels drop in trading on Thursday as it too was affected by the profit taking seen during the session, according to a trader.

The company's second-lien term loan was quoted around 88 bid, 90 offered, down from around 90.5 bid, 91.5 offered, the trader said.

On the bond side, a trader said the 10% notes "backed up," edging down to 68 bid, 70 offered from the 71 bid area previously.

However, another trader quoted them at 73.5 bid, 75.5 offered, which he said was down from 79.5 bid, 80.5 offered recently.

Neff is a Miami-based construction equipment rental company.

Broad market mixed

The short squeeze may be over in Remy International Inc.'s bonds, at least in one trader's mind.

The trader said the 9 3/8% notes due 2012, which just two weeks ago were near 120, closed the day around 105.

The trader also noted that there was not much activity in Dura Automotive Systems Inc.'s senior bonds, although the 9% subordinated notes due 2009 traded at around 3. Holders of that debt asked a court to approve its "X-clause," or its entitlement to the stock distribution.

Bon-Ton Stores Inc.'s debt was "moderately active," a trader said. He placed the 10¼% notes due 2014 down 1 point at 95.5 bid, 96 offered.

Sara Rosenberg contributed to this article.

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