Technical Olympic USA higher on quarterly numbers; Tembec firms; Northwest Airlines dips

By Stephanie N. Rotondo

Portland, Ore., May 10 - Better-than-expected quarterly results helped push Technical Olympic USA Inc.'s notes a little higher Thursday, though traders said there was not much volume.

However, the company did not answer investors' questions regarding its joint venture's debt and where it could fall if the company has to assume the outstanding obligations.

Meanwhile, Tembec Inc. is seeing its bonds continue to firm, though traders are at a loss to explain why.

Generally, the bonds are seen fluctuating with the strength of the Canadian dollar, which has fallen in the last two sessions. But traders are dismissing that notion, stating that the currency is only "modestly weaker."

Northwest Airlines Corp. was seen weaker following a sector snap that left most major carriers down, a trader said.

The overall dip in airline paper was generally attributed to a rise in oil prices Thursday. Prices for light sweet crude for delivery in June, which had previously fallen on larger-than-expected stockpiles, rose 26 cents to close at $61.81 per barrel.

Technical Olympic better

Despite a quarterly loss posted Thursday, Hollywood, Fla.-based homebuilder Technical Olympic saw its bonds edge up slightly.

One trader said the $66 million net loss, while worse than a profit of $55 million a year ago, was better than investors had been expecting.

The trader said Technical Olympic's 9% senior notes due 2010 were up about a point at 96 bid, 97 offered, while the 10 3/8% subordinated debt due 2012 rose "1.5 points or so" to 80.5.

At another desk, a trader said the 9% notes came in a 95, which he called up 2 points. The subordinated notes were pegged at 80.25 offered. He also said the bonds did not see a lot of activity.

Another trader said the bonds were "up a couple of points across the board." He saw its 8¼% senior bonds 2 points better at 95 bid, 96 offered and its 7½% subordinated notes due 2016 up 3 points at 70 bid, 71 offered.

First-quarter figures include a $78.9 million estimated pretax loss contingency related to the restructuring of the Transeastern JV, as well as $42 million in pretax charges from a write-down of assets.

Still, those items excluded, earnings came in at 36 cents a share - about 50% more than the 24 cents many market participants were expecting.

But, the earnings did not satisfy the thirst for information on what is going on with the joint venture.

"They haven't resolved the major issues with the joint venture partnership," the first trader said.

The company has stated that it may have to incur more debt to settle the problems between the JV and its lenders. The company has also said that, failing to settle the issue, it would have to look at all of its options.

The trader, however, does not see bankruptcy in the company's future.

"I think they are going to take in a lot more debt than people think," he said. "They are not going to go bankrupt, but it is going to hurt."

The trader also noted that a turnaround in a currently slumping housing industry would be needed to help the company with its "very heavy debt load."

Tembec pushes higher

Tembec's bonds were seen up a few points, though a trader was unable to account for the gain.

"They tend to trade on nothing," he said. "But they were definitely better."

The distressed bond trader quoted the 8 5/8% notes due 2009 "up a couple points" at 64.25 bid, 64.5 offered. He also saw the 7¾% notes due 2012 up 3 points in the 55 levels.

Another trader saw Tembec's 8 5/8% notes, which had jumped anywhere from 3 points to 5 points on the session on Wednesday, up nearly another point, ending at 63.75 bid, 64.75 offered.

Elsewhere, a trader saw the bonds at 64 bid, 65 offered, up a point, but he was puzzled by the recent strengthening trend. He dismissed the suggestion that it was linked to fluctuations in the Canadian currency; while the dollar was "moderately weaker" for a second straight day, he didn't see it as "having much impact" on the Tembec bonds. "It was just up on no news," he said.

Yet another trader agreed that the currency fluctuations probably were not keeping the bonds up, suggesting investor hopes of a restructuring might be propping up the issues.

At another desk, the company's 8½% notes due 2011 were seen up an additional point at 56.

Also out of that Canadian forest products sector, one of the traders saw Vancouver, B.C.-based Ainsworth Lumber Co.'s 7¼% notes due 2012 up a point at 74.25 bid, 75.25 offered, saying that its latest quarterly numbers were considered "OK numbers" - probably a relative term meaning "not as bad as expected," since the company posted a net loss for the quarter of C$22.8 million on sales of C$135 million, compared with net income of C$22.7 million on sales of C$292.6 million a year ago.

The decrease in net income and sales is primarily the result of deteriorating OSB sales prices in combination with reduced shipment volumes due to production curtailments.

Another trader called the numbers "absolutely terrible," and suggested that technical factors like short covering and restructuring hopes were the catalyst for the rise.

Northwest dips

A trader said Northwest Airlines structure was off a bit, falling in line with the entire sector's snap.

The trader called the Eagan, Minn.-based airline's 10% notes due 2009 "off a point" at 76 bid, 77 offered. Elsewhere, a trader saw the 10% notes dip a point to 76 bid, 78 offered.

On the equity side, the bankrupt company's stock fell 2 cents, or 15.38%, to 11 cents.

The company announced earlier this week that a majority of its creditors had approved its reorganization plan. The plan will go before a bankruptcy court on May 16 for approval. The airline has said it hopes to exit Chapter 11 protection by June.

In other distressed airline paper, a trader saw Delta Air Lines Inc.'s stubs down 0.125 point at 7.125 bid, 7.625 offered.

Bally unchanged

Fitness club operator Bally Total Fitness Holding Co.'s debt was deemed unchanged by a trader, who said that only odd lots of the debt traded after news emerged that the company had agreed to pay a forbearance agreement consent fee to its senior noteholders.

The trader quoted the 10½% senior notes due 2011 at 96.

Although the trader did not see the news affecting the bonds, he did seem interested.

"How much are they going to pay?" he asked.

According to the agreement, approved by 80% of the bondholders, the Chicago-based company will pay $1.25 per $1,000 principal amount of notes.

Broad market firm

MagnaChip Semiconductor Ltd.'s 8% notes due 2014 were seen continuing to firm, quoted up 1.5 points on the session to 73.5 bid, 74.5 offered. A trader said there was no news out on the South Korean computer-chip manufacturer.

Meanwhile, Solutia Inc.'s 7 3/8% notes due 2027 were seen a point better at 91.5 bid, 92.5 offered, while its 6.82% notes due 2037 were also up a point at 92.5 bid, 93 offered.

Thursday came and went with no news from Fedders Corp. A trader told Prospect News earlier in the week that Thursday was the company's deadline to file its quarterly report.

Still, the Liberty Corner, N.J.-based company's 9 7/8% notes due 2014 were seen up, in a matter of speaking. A trader said he saw the notes at 50.25, with a high price of 55.

"That's just odd lots, though," he said. "Somebody is just marking them up."

The trader also said a bondholders' conference call is coming up, though he did not yet know when.

Paul Deckelman contributed to this article.

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