Distressed market under pressure again; Tousa bonds fall; Swift lower; Federal-Mogul sees little lift

By Stephanie Rotondo

Portland, Ore., Oct. 18 - After most of the market retreated in the previous session, Thursday's activity in distressed land was no different.

"Everything was in today - again," a trader said. "But I guess it could be worse."

The trader said things "started off negative from the get-go."

"Traders are trying not screw up what they've made this year in one bad trade as liquidity dries up," he added.

Another trader said the junk sector was "all over the place," categorizing the day as choppy.

Feeling the pressure, Technical Olympic USA Inc.'s bonds buckled as investors wondered what was happening inside the company.

"There is no news," a trader said. "I think that is part of [the losses]."

"People want to know what they are going to do," he said.

But while the bonds slipped as much as 3 points, the homebuilder's term loan was stronger as market players hoped for a bankruptcy filing.

Meanwhile, Swift Transportation Co. Inc.'s debt dipped after competitor Knight Transportation posted its quarterly financials - and they were not good. Market sources said the whole trucking industry was in trouble as oil prices rise and retailers continue to report weak sales.

In the automotive realm, Federal-Mogul Corp. posted better income in the third quarter of fiscal 2007. Traders said the bonds tried to move up on the news but managed to close only slightly better to unchanged on the day. Still, one trader said he saw "better buyers" for the name.

Activity slowed down in Spectrum Brands Inc.'s bonds, but traders said the debt continues to slide after Wednesday's news that the company would delay an asset sale.

Tousa bonds dip, loan gains

Technical Olympic's bonds were "whacked - bad," according to one trader, as the market was looking for news, though there was none to be had.

The trader quoted the 9% notes due 2010 at 63 bid, 64 offered and the 10 3/8% notes due 2012 at 16 bid, 17 offered, both down about 1.5 points. He called the 7½% notes due 2015 down 3 points at 14 bid, 16 offered.

Another trader pegged the 10 3/8% notes at 16 bid, 17 offered and the 9% notes at 62 bid, 63 offered. At another desk, a trader said the home builder's bonds were "active and lower," its 10 3/8% notes "down a little" at 15 bid, 17 offered and the 9% notes off 2 to 3 points at 63 bid, 64 offered.

Elsewhere, a trader called the bonds down 2.5 to 3 points "across the board," with its 8¼% notes due 2011 falling to 62 bid, 64 offered, down 3 points, its 9% notes down 2.5 points at 64 bid, 66 offered, and its 10 3/8% notes off 3 points at 16 bid, 18 offered.

Another trader saw the 9% notes down 2 points at 62.5 bid, 64.5 offered, while its 7½% notes were 3 points lower at 14.5 bid, 16.5 offered.

Friday is the deadline for the company to cure a potential default at its Wellington LLC joint venture with Centex. The company was informed last month that the loan-to-value ratio was in breach of a covenant on the JV's credit facility. To correct the breach, the Hollywood, Fla.-based homebuilder must inject $10 million.

Market players have been questioning if, when and how the company would manage to cure the problem. Just one day before the deadline, investors were hoping to hear what might be happening, but there was no word from the company.

"There is absolutely nothing," a trader said of the company's silence. He added that there has been some "noise" about possible fraudulent conveyance, noting that the company paid too much for its stake in the JV. Still, there has been nothing concrete to go on.

"I think what we really need from them now is something definitive, like why hasn't the stock traded in four days," he said.

Meanwhile, the first-lien bank debt was stronger as the potential for a bankruptcy filing seemed more and more likely to market players, a trader said.

The first-lien term loan was quoted at 96.5 bid, 97.5 offered, up from Wednesday's levels of 96.25 bid, 96.75 offered, the trader said. The revolver was quoted at 97 bid, 97.5 offered, up from 96.5 bid, 97 offered.

"People are still banking on recoveries. There's a growing view that a Chapter 11 filing is going to happen," the trader said.

In the rest of the sector, a trader saw Standard Pacific Corp.'s bonds "actually up a couple" of points on the session, its 7% notes due 2015 and 6¼% notes due 2014 both up 2 points to 69 bid, 71 offered.

WCI Communities Inc.'s 9 1/8% notes due 2012 were down half a point at 78.5 bid, 80.5 offered. However, a source at another desk pegged those bonds up a point at 78.

Swift notes lower on sector turmoil

A trader said there was "definitely better sellers" in Swift Transportation's bonds, as the debt was weighed down by sector troubles.

The trader placed Swift's 12½% notes due 2017 lower at 61 bid, 62 offered, while another said the bonds were "beat up bad," 4 points lower on the day at 60 bid, 62 offered.

Another trader, who noted the debt was "sucking it up today," quoted the bonds at 61.5 bid, 62.5 offered, with a low of 61 during the session.

Another source said the 12½% notes fell to 60 bid, 62 offered from 62.5 bid, 64.5 offered.

The slide in the bonds came as fellow trucking company Knight Transportation released poor third-quarter figures. Two analysts then downgraded the company, citing overall troubles in the industry.

As oil prices continue to climb, a trader said, and retailers continue to underperform, the whole sector will be heavy.

The price of crude oil has been increasing since tension between Turkey and Kurdish rebels has escalated. The price per barrel gained $1.16 to close at $88.56 - close to a record high.

Meanwhile, retailers have been moving lower as consumer spending has grown weaker. Bon-Ton Stores Inc. reported poorer-than-expected quarterly results on Wednesday, pushing the entire sector lower. A trader said the company's 10¼% notes due 2014 "gave back what they bounced up from," closing at 90 bid, 90.5 offered.

"Retailers were knocked down a little out of the chute," a trader said, adding that they managed to come back from their lows. He pegged Linens n'Things floating-rate notes lower at 65.

Federal-Mogul better, unchanged

Federal-Mogul posted better third-quarter results, prompting one trader to see "better buyers" in early trading.

The trader said the bonds - which tend to trade in line with each other - closed at 91 bid, 92 offered, essentially unchanged.

"But more people were lining up on the bid side," he said. "That leads me to believe that things will move up."

Another trader called the bonds "up a little," at 91 bid, 91.5 offered. He added that there was not a lot of activity in the name.

The Southfield, Mich.-based automotive parts supplier posted net income of $14 million for the third quarter ended Sept. 30, compared to net income of $3 million for the same quarter a year ago.

In a press release, the company said that is was "hopeful" its reorganization plan would be approved and the company could then emerge from bankruptcy. The company has previously stated that it wants to leave Chapter 11 by the end of the year.

Elsewhere in the autosphere, a trader said Dura Automotive Systems Inc.'s 8 5/8% senior notes due 2012 were "a little better" in the high-40s, though not very active.

A trader said Delphi Corp.'s 6.55% notes due 2006 fell half a point to 97.5 bid, 98.5 offered. He called Dana Corp.'s 6½% notes due 2008 a point lower at 83 bid. 85 offered.

Spectrum continues slide

Spectrum Brands' corporate debt continued to slide down, though activity was not nearly as much as it was in the previous session, a trader said.

The trader said the 11¼% notes due 2013 ended the day at 84 bid, 85 offered, while the 7 3/8% notes due 2015 closed at 71.5 bid, 72.5 offered.

Another trader called both issues down 1.5 points, the 11¼% notes at 83.5 bid, 85.5 offered and the 7 3/8% notes at 71.5 bid, 72.5 offered.

At another desk, a trader saw the bonds easing, its 11¼% notes due 2013 down another point to 84.5 bid, 85.5 offered.

The Rayovac battery maker's bonds started to fall Wednesday after the company announced it would delay an asset sale due to current credit trouble. According to several market sources, many were counting on that sale.

Movie Gallery DIP opens for trading

Movie Gallery Inc.'s debtor-in-possession financing facility allocated and freed for trading on Thursday, with levels quoted above the original issue discount, according to a trader.

The $50 million revolver was quoted at 98.5 bid, 99.5 offered and the $100 million term loan was quoted at 99.25 bid, par ¼ offered, the trader said.

Both tranches are priced at Libor plus 350 basis points and both were sold at a discount of 98.5.

Goldman Sachs is the lead bank on the $150 million deal that was oversubscribed by existing first-lien lenders.

Proceeds from the DIP facility will be used to refinance the company's existing revolver at a lower interest rate and provide additional working capital.

In addition, Movie Gallery's first-lien term loan was stronger on Thursday with no clear reason for the positive momentum, according to a second trader.

The first-lien term loan ended the day at 90.25 bid, 91.25 offered, up from Wednesday's closing levels of 89 bid, 90 offered, the trader said.

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

Broad market lower

A trader said Buffets Inc.'s bonds were being talked about again, pegging the 12½% notes due 2015 at 69.5. He said more people are wondering if they should get involved in the name and what kind of value is there.

"You love for people to file bankruptcy in the first year of issuance," he said of the debt, which was released earlier this year. "That always works out well."

The trader also said he saw Fedders Corp.'s 9 7/8% notes due 2014 "drifting lower into no-man's land" at 12 bid, 14 offered. Still, he added that the bonds are very tied up and there are not many bonds trading. He also noted that the bond's performance will be affected by the housing sector.

Tembec Inc.'s bonds were deemed 1 to 2 points lower across the board, its 8 5/8% notes due 2015 at 45.5 bid, 46.5 offered and its 8½% notes due 2011 at 40.5 bid, 41.5 offered. A trader quoted the 8¾% notes due 2012 at 40 bid, 40.5 offered, adding "they are probably lower, like 39.5 [bid], 40.5 [offered]."

Thornburg Mortgage Corp.'s 8% notes due 2013 were called unchanged at 87 bid, 87.5 offered.

Sara Rosenberg contributed to this article.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.