Margin calls hurt Thornburg; RH Donnelley, Idearc weaker; Abitibi bonds fall on numbers

By Stephanie N. Rotondo

Portland, Ore., Feb. 28 - Distressed bond traders had a little more to keep them busy Thursday as the week began to run down.

Thornburg Mortgage Inc. announced early in the session that it has been inundated with margin calls on some of its securities. That forced the mortgage lender's corporate debt down as much as 8 points, before coming off those lows to close anywhere from 4 to 6 points lower.

A narrower fourth-quarter loss and an affirmed rating did not do much to help RH Donnelley's debt, which fell after the directory publisher lowered its 2008 forecast. Those bonds had previously been edging higher, while its sector peer, Idearc Inc., has continuously moved lower.

Abitibi Consolidated Inc. reported its fourth-quarter figures, as well, after twice delaying the report. The numbers did not fare well for the Canadian company's bonds, which fell about 5 points on the day. The company said that it was looking at refinancing options for upcoming maturing debt, which also weighed heavily on the bonds.

With most of the news coming out in the morning, early trading seemed more active than it has been of late. However, by the afternoon, a trader said there was "not a lot going on."

Margin calls hurt Thornburg

An increase in margin calls put pressure on Thornburg Mortgage's debt, pushing the bonds down anywhere from 4 to 6 points.

A trader said the mortgage lender's 8% notes due 2013 traded as low as 78 bid, 82 offered, before coming off those lows to close at 81 bid, 83 offered. Another trader said the bonds closed at 81.5 bid, 82.5 offered, down from 89 bid, 90 offered previously.

At another desk, a trader saw the paper fall 6 points early on in the session before rallying back to close only 4 points down at 82 bid, 83 offered from 86 bid, 87 offered.

"The margin calls [are] not a good thing when your leverage is 20 to 1," the trader said.

Another trader, who said the bonds were "beat up pretty good," saw the notes end the day at 80 bid, 82 offered.

The New Mexico-based company said the margin calls on a portfolio of securities backed by alt-A mortgages are coming as the value of that debt has plummeted 10% to 15% since the end of January.

In its filing with the Securities and Exchange Commission, the company said its exposure to the loans is $2.9 billion and, so far, it has paid $300 million of the margin calls, thus significantly reducing its liquidity.

Elsewhere in the mortgage sector, Residential Capital LLC's bonds, such as its 6½% notes due 2013, were seen down 2 points at 56 bid, 58 offered, probably pulled lower in the wake of the Thornburg debacle.

At another desk, ResCap's 8 3/8% notes due 2015 were pegged down a point at 57 bid.

However, Countrywide Financial Corp.'s bonds were little changed on the day, a trader said, quoting its 6¼% notes due 2016 still around 85 bid, 87 offered and its 3¼% notes coming due in May at 98.5 bid.

"Countrywide did nothing," he declared.

RH Donnelley notes slide

Despite posting a narrower fourth-quarter loss, RH Donnelley's bonds slipped at least 4 points after the company reduced its 2008 guidance.

One trader pegged the 8 7/8% notes due 2016 at 65.5 bid, 66.5 offered from 69.75 bid, 70 offered previously. Another trader quoted the bonds at 64 bid, 66 offered.

The phonebook publisher reported a net loss of $12.1 million, compared to $50.8 million the year before. Revenue was 10% higher at $680.8 million.

Still, the company lowered its forecast for 2008, estimating that revenue will fall between $2.6 billion and $2.7 billion. The company attributed the decreased outlook to an expected decline in ad sales.

Even with the lowered guidance, Fitch Ratings said it would not affect the company's rating.

In other name-related news, RH Donnelley also announced that Jake Winebaum, president of its interactive division, was resigning to spend more time with his family.

That came just one day after sector peer Idearc announced that its top executive, John J. Mueller, would also leave the post he had been in for just one week. That news, coupled with a potential rating downgrade from Moody's Investors Service, prompted the company's debt to slide.

The downward trend continued during Thursday trading. A trader said Idearc's 8% notes due 2016 were "still dropping," closing at 64 bid, 65 offered. Another trader placed the bonds down 2.5 points at 64.5 bid, 64.75 offered from 67 bid, 67.5 offered.

Abitibi bonds fall on earnings

Abitibi Consolidated, also known as AbitibiBowater, had a "mixed bag" of a day after reporting its fourth-quarter earnings.

Several traders reported that the forest products company's bonds were down around 5 points, but another trader said it depended on which issue you were looking at.

"Early on, it was down 6 or 7 points," he said, noting that longer dated paper was not pushed down as much.

"Some of the stuff was not down too much," he said. "It was kind of a missed bag."

The trader saw the longer-dated issues, such at the 8.85% notes due 2030 and the 8½% notes due 2029, "close to 50," while shorter paper, like the 5¼% notes due 2008, were "a couple points" weaker, trading with an "87-handle."

The 8.55% notes due 2010 ended the day around 62. The 7 7/8% notes due 2009 were "plus/minus 70," the trader said, adding that just two days ago the paper had been at 75.

"Over the past couple days, those are down pretty good," he said.

After twice delaying reporting its results due to complications related to the merger of the two companies, AbitibiBowater finally produced its fourth-quarter numbers. For the quarter, the company posted a loss of $250 million, attributed to a decrease in the demand for newsprint.

The company also said that it might not be able to meet upcoming financial obligations - it has $350 million of debt maturing through 2009 - because of "negative conditions" in the current marketplace. As such, the company is looking into refinancing options.

Broad market mixed

A trader said Charter Communications Inc.'s "old" 10¼% notes gained about half a point to 92.25 bid, 93.25 offered from 91.25 bid, 92.25 in the previous session.

"But that is better than the average Charter paper," he added.

Another trader said the cable operator gave back some of the gains it incurred in the previous session, with the 11% notes due 2015 closing around 70.

At another desk, Charter's 8% notes due 2012 were seen down half a point at the 94 level, while the 11% notes were off 2 points to about 70 bid.

Earnings boosted Yankee Candle Co.'s 8½% notes due 2015. A trader quoted the notes around 85.5.

Young Broadcasting Inc.'s 10% notes due 2011 - which on Wednesday were seen having gained 3 points - continued to firm, up another point Thursday to 70 bid.

Herbst loan slips

Herbst Gaming Inc.'s term loan plummeted during market hours on the back of news that the company has hired an adviser to evaluate financial and strategic alternatives, according to a trader.

The term loan was quoted at 75 bid, 79 offered post news, down from 81 bid, 83 offered on Wednesday, the trader said. In the beginning of the week, the term loan was being quoted at 84 bid, 86 offered.

On Thursday afternoon, Herbst said that it hired Goldman, Sachs & Co. to help evaluate various alternatives including a recapitalization, refinancing, restructuring or reorganization of its obligations or a sale of some or all of its businesses.

"The company has a long history of providing gaming services in Nevada and we believe in the strength of the Terrible's brand; however, the recent impact from Question 5, the Nevada smoking ban, and general economic weakness has required us to explore our alternatives. We are confident that our retention of a financial advisor will help us capitalize on the strength of our brand and position the company to maximize long-term value," said Ed Herbst, chairman, president and chief executive officer, in the release.

Herbst Gaming is a Las Vegas-based casino and slot route operator.

Solutia exit loans begin trading

Solutia Inc. closed the books on its exit financing credit facility at noon ET on Thursday and then proceeded to allocate and break the deal for trading by early evening, according to a trader.

The $1.2 billion seven-year term loan B (B1/B+) was quoted at 92½ bid, 93½ offered on the break, and then moved up to 93 bid, 94 offered, where it closed the day, the trader said.

The term loan B, which ended up filling out in the end, is priced at Libor plus 500 basis points, with a 3.5% Libor floor for four years, and was sold at an original issue discount of 91.

During syndication, pricing on the term loan B was increased from Libor plus 350 bps, the Libor floor was added, with it first being proposed at 3.25% for three years and then being revised prior to close, and the original issue discount was increased from the 96 area.

"It's trading up well. Not too many guys are flipping. It's juicy paper," the trader added about the term loan B.

Solutia's $1.65 billion senior secured credit facility also includes a $450 million asset-based revolver (Ba1) priced at Libor plus 175 bps.

During syndication, the asset-based revolver was upsized from $400 million.

Citigroup, Goldman Sachs and Deutsche Bank acted as the lead banks on the credit facility that funded on Thursday. These banks have also committed to provide the company with a $400 million senior unsecured bridge facility.

Proceeds from the facility, along with the bridge loan, are being used to pay creditors under the company's plan of reorganization and to fund ongoing operations now that it has emerged from Chapter 11.

Solutia and the banks had been arguing over the exit financing for weeks, and even went to court over the dispute, because the banks were trying to back out of the debt commitment by using the market material adverse change provision.

The banks claimed that an adverse change occurred in the loan syndication, financial or capital markets since Oct. 25 that, in their reasonable judgment, materially impaired syndication of the facility.

The company, however, argued that the ongoing conditions in the credit markets began long before Oct. 25 and, therefore, the banks were required to fund their commitments.

As part of the recent resolution, the banks agreed to waive the market material adverse change provision and Solutia agreed to dismiss the lawsuit, with prejudice, that it filed on Feb. 6 against the banks.

Solutia is a St. Louis-based manufacturer and provider of performance films, specialty chemicals and nylon products.

Sara Rosenberg and Paul Deckelman contributed to this article.

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