Beazer bonds up on news, Tousa better; Movie Gallery loan lower; Retailers mixed

By Stephanie N. Rotondo

Portland, Ore., Oct. 11 - Thursday's trading in the junk market centered on homebuilders, traders reported, as Beazer Homes USA Inc. said it would restate some of its financials based on findings from an internal probe.

The news sent the bonds up as much as 4 points as investors breathed a little easier, finally knowing what the inquiry had turned up. By the end of the day, however, the bonds had lost some of their gains, though they still ended up.

Tousa, Inc. (formerly Technical Olympic USA Inc.)'s bonds - its senior paper, at least - also were continuing their rally, prompted earlier in the week by the hiring of financial advisor Lazard Freres.

Rumors that a potential reorganization plan is being shopped around caused Movie Gallery Inc.'s loan to weaken. On the bond side, a trader gave several markets for the debt as he quipped that no one really cared.

Weaker-than-expected sales in September resulted in what one trader called a "mixed bag" for retailers. While some names in the sector, such as Linens n' Things and Claire's Stores Inc., were deemed better, others, like Brookstone Inc., were called lower on the report.

Overall, the day was categorized as everything from "choppy" to "generally strong" to lower.

"The market started strong," a trader said. "But it headed south late in the day."

Beazer, Technical Olympic bonds up

Beazer Homes' bonds were moving up as some of the uncertainty regarding an internal probe cleared away.

One trader said the homebuilder's 6 7/8% notes due 2015 were up to 77 bid, 78 offered from 74 bid, 75 offered in the previous session. He said the 8 5/8% notes due 2011 were up a point to 81.5 bid from 80.5 bid, 81.5 offered.

Another trader said the bonds gained as much as 3 to 4 points during the trading day, though they ended up closer to just 2 points. He quoted the 8 3/8% notes due 2012 at 81 bid, 82 offered, the 6 7/8% notes at 77.5 bid, 78.5 offered and the 6 3/8% notes due 2014 at 81.5 bid, 82.5 offered.

At another desk, a trader pegged the 6 7/8% notes at 77.5 bid, 78.5 offered.

Another trader saw the bonds up 1½ to 2 points, with the 8 3/8% notes at 81.25 bid, 82.25 offered, its 8 5/8% notes at 82.5 bid, 83.6 offered, up from 80 bid, 81 offered, its 6½% notes due 2013 at 77.25 bid, 78.25 offered and its 6 7/8% at 77 bid, 78 offered.

He ascribed the movement to investor relief that the other shoe had dropped - finally - in the company's internal investigation, which had been originally announced several months ago.

Beazer, currently under investigation by the Securities and Exchange Commission for fraud, said an internal inquiry showed accounting errors dating back to 1999. The errors were found in the company's sale-leaseback program. The company said it would restate its financials as appropriate.

The company also found that its mortgage unit had violated certain federal regulations.

At least one trader was confused as to why the bonds were better on the news. But another trader said "knowing the damages is a comfort." He added that there could be some short covering involved in the gains.

Still, another source was hesitant.

"It's tough to like that until the FBI [which is currently also investigating the company] makes a statement," he said.

Elsewhere in the homebuilding sector, Tousa's senior debt "held in there," a trader said, while the "juniors continue to slide."

Like Beazer's bonds, he said, the senior notes "ran up first thing in the morning, then just drifted back a little" by the end of the day.

The trader said the 9% notes due 2010 went as high as 68 bid, 69 offered in early trading, but closed at 67 bid, 68.5 offered - but they "still ended the day positive," he said.

The 10 3/8% notes due 2012, meanwhile, fell 2 points to 22 bid, 24 offered.

The trader noted that Beazer and Tousa paper made up most of the volume in distressed trading.

Another trader pegged Beazer's 9% notes - "really the one everyone pays attention to," he said - at 67.5 bid.

But another trader called the 10 3/8% notes off 1½ points at 22.25 bid, 24.5 offered, while another said its 8¼% notes due 2011 down 2¼ points at 64.5 bid, 66 offered and its 9% notes due 2010 fell to 66 bid, 67.5 offered from 68.75 bid, 70.25 offered.

Movie Gallery loan weaker

Movie Gallery's first-lien term loan was softer on continued rumors that the company may make a prepackaged Chapter 11 filing, a trader said.

The first-lien term loan ended the session at 89 bid, 90 offered, down about ½ point on the day, the trader said.

Over the past few days there has been talk that the company is putting together a bankruptcy plan and lining up a debtor-in-possession financing facility.

Rumor has it that if the company files, its existing second-lien term loan will be turned into PIK debt, its existing first-lien term loan will be left in place with a bump in coupon and its existing revolver will be rolled up into a DIP, the trader said.

"I think people thought the $150 million DIP was all new money. Maybe they didn't know the revolver was going to be wrapped up into it. Or maybe I have it wrong and it's all new money. Who knows - it's all just rumor at this point," the trader added.

Meanwhile, a distressed bond trader quoted the movie rental chain's 11% notes due 2012 at 33 bid, 34 offered...or was it 31 bid, 33 offered?

"Nobody cares," he said. "It didn't even trade today."

The trader, who readily admits he is not a fan of the company, said there might be some hesitation in the market given who is behind the restructuring efforts.

"The group that is pushing the restructuring - let's just say they have been involved in other deals that haven't really worked out," he said.

With that in mind, he wonders if the market is not overly thrilled at the idea of getting involved in the name.

Still, he concedes that there could be something that the market at large does not know.

"Maybe they are seeing something that others have missed," he said of Aspen Advisors' enthusiasm in the company.

Under the plan that is supposedly being circulated by Aspen, bondholders stand to receive 95% of the new equity in the reorganized company. The trader, however, called the potential deal "audacious."

"It is, as they say, an audacious plan," he said. "I just don't like their prospects going forward in a declining business. They are still top heavy."

Retailers mixed on sales report

A slow sales report for September prompted what one trader called a "mixed bag" in retail names.

The trader said Linens n' Things floating-rate notes started the day lower, but managed to close up at 71 bid, 72 offered. Brookstone, on the other hand, saw its 12% notes due 2012 slip ½ point to par.

Another trader called Claire's Stores' bonds "pretty damn active" on the day, its 9¼% notes closing at 90.5. He said the bonds opened at 89.5 bid, 90.5 offered. He said the bonds gained as much as 2 points during the day, but came back 1 point by the close.

The trader also saw Dollar General Corp.'s debt "pretty damn strong" as the 11 7/8% notes due 2017 closed up to 93.75 bid from 92 bid, 93 offered in the previous session. The 10 5/8% notes due 2015 were also deemed better at 99.25 bid, up from 98.5 bid, 99.5 offered.

A market source said Bon-Ton Stores Inc.'s 10¼% notes due 2014 lost a point to 96 bid, 97 offered,

Weather and economic concerns were called the catalyst for the weak September sales report, published by the International Council of Shopping Centers and UBS. The report showed sales for the month rose 1.7%, compared to a year-ago gain of 4% and an estimated increase of 2.5%.

Broad market better

Trump Entertainment Resorts Inc.'s 8½% notes due 2015 were seen climbing back up after losing some ground in the previous session.

A trader placed the bonds up at 86.75 bid, 87.25 offered from around 85. Another trader pegged the bonds at 86 bid, 87 offered.

The first trader attributed the previous losses to a poor revenue report from Atlantic City's gaming commission. He said he had heard that Trump's figures were the worst of all the resort-town's casinos.

Meanwhile, one trader called Tembec Inc.'s debt "a little higher," while another said the bonds had been seeing gains due to a rumored asset sale.

The first trader quoted the 8½% notes due 2011 at 42.5, up from the opening level of 41.5 bid, 42.5 offered. He also saw the 8 5/8% notes due 2009 at 46.5 bid, 48 offered and the 7¾% notes due 2012 at 40.5 bid, 41.5 offered, up from 39 bid, 41 offered.

The second trader slated the 8½% notes at 42.25 bid, 42.5 offered.

Calpine Corp.'s 8½% notes due 2011 are continuing their surge up, as one trader placed the notes at 119 bid, 120 offered.

"That's a heck of a move," he said. "I wish I would have bought more at 109."

Automotive parts supplier Federal-Mogul Corp. also saw its bonds better at 91 bid, 92 offered.

A trader said more market players are looking at Tekni-Plex Inc.'s bonds. The trader said the 8¾% notes due 2013 closed at 93 bid, 94 offered and the 12¾% notes due 2010 ended at 70.75 bid, 71.25 offered, both up 1 point on the day.

Sara Rosenberg and Paul Deckelman contributed to this article.

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