Thornburg better but Countrywide falls on probe news; GM spins wheels; Abitibi debt plans taking shape

By Paul Deckelman and Paul A. Harris

New York, March 10 - Thornburg Mortgage Inc. - whose bonds were battered all the way down into the upper 20s Friday on new troubles for the Santa Fe, N.M.-based mortgage lender - was seen bouncing back smartly from its oversold levels on Monday - even though there was no fresh positive news out and the company's shares continued to take a beating.

Bond market angst seemed to focus instead on sector peer Countrywide Financial Corp., whose bonds were seen down several points on weekend news reports that the Calabasas, Calif.-based mortgage originator is being investigated by the FBI on suspicion of securities fraud, part of the feds' wider investigation into concerns about possible improper practices in the subprime mortgage industry.

That Countrywide news was the latest blow to financial companies, including E*Trade Financial Corp. and Residential Capital LLC, who also picked up some sour sentiment slopping over from the investment-grade market, where rumors that Bear Stearns & Co. was having liquidity problems pushed that company's paper and a number of other financial names lower, even though that scuttlebutt was hotly denied by Bear Stearns.

Apart from the financials, General Motors Corp.'s bonds were seen lower in active trading. Level 3 Communications Inc. went to a lower level on news of a top executive change at the company.

Six Flags Inc.'s bonds were off despite a narrower fourth-quarter loss.

In the primary realm, AbitibiBowater Inc. disclosed some of the details of its recently unveiled $1.5 billion financing plan, which will include issuance of new bonds. It also announced the beginning of an exchange offer for its short-dated existing bonds. Despite those developments, traders did not see movement in the Abitibi paper.

Market indicators again lower

A market source saw the widely followed CDX index of junk market performance down about 5/8 point Monday to around 86¼ bid, 86¾ offered. Meanwhile, the KDP High Yield Daily Index lost 0.22 to end at 73.26, while its yield pushed out by 6 basis points to 9.83%.

In the broader market, declining issues led advancers by a better than five-to-three margin for a second straight session. Overall activity, reflected in dollar volumes, was little changed from Friday's greatly reduced levels.

"Was it ugly enough for you?" quipped one of the traders in noting the widespread losses, particularly in the already hard-hit financial sector that includes mortgage providers and REITS. Another agreed that "it was just an ugly market in finance."

"I didn't see a whole lot of price action," yet another trader observed, although he did add that he saw a few things "firm up a little."

But he said that overall, junk players weren't especially focused on what was going on. For one thing, he pointed out, Lehman Brothers is having a conference in warm and sunny Orlando, Fla., starting around mid-week, and "a lot of people were just dotting their I's and crossing their T's before they head out. Also, a lot of accounts may have gone down early with their families to the Orlando area ahead of the conference."

Another distracting factor, he said, that probably helped to "weigh a little on the market in terms of liquidity" was the televised Big East college basketball tournament, part of the annual "March Madness" hoops orgy that gets a lot of Wall Streeters thinking more about point spreads than bond spreads at this time of year.

And an additional distracting factor - he said that "much of the talk" around his and other shops on Monday actually revolved around this - was the fascinatingly lurid new drama involving the so-called "Client Number Nine," said to be New York governor Eliot Spitzer. The New York Times on Monday reported that Spitzer was under investigation for allegedly patronizing a high-priced prostitute last month in Washington. Spitzer made a televised apology to his family and the public for unnamed personal lapses but did not deny or otherwise directly address the allegations. The trader said that given Spitzer's high-profile crusading against alleged Wall Street abuses when he was New York's attorney general prior to his election as governor two years ago, "there was a degree of some schadenfreude around the trading floors - people definitely found it ironic, to say the least."

Another trader agreed that the Spitzer revelations were "big news. People were definitely spending a lot of time watching it."

Thornburg bounces back

The revelations about a politician who had built his reputation as "Mr. Clean" came as a surprise. Another unexpected development Monday was the brisk rebound seen in the badly battered bonds of Thornburg Mortgage, particularly the 10 to 12 point slide which those 8% notes due 2013 had suffered on Friday, when they fell into the upper 20s when the company said it had received a big new batch of margin calls for which it did not have the money and warned that its ability to continue as a going concern was in doubt.

A trader saw Thornburg's 8% notes due 2013 "actually up" by 6 points at 34 bid, 36 offered.

Another trader likewise saw the bonds had "bounced a bit" to 34 bid, 35 offered, up from 28 bid, 30 offered on Friday. A market source at another desk saw the bonds get as good as the 35.5 level, up more than 7 points on the day. And yet another source said the bonds had gotten as good as the 40 level before dropping back from that peak to close at 34 - still up more than 4 points on the day in active trading.

Nobody had seen any specific news out that might explain the sudden rise, other than a feeling that the bloodletting Friday had gone too far, and the realization that bondholders would certainly get some kind of a return in a restructuring scenario.

But while bondholders apparently felt that the selling had been overdone, equity investors - who likely would receive little or nothing in a restructuring - felt no such thing and continued to punish the company's New York Stock Exchange-traded shares, which lost $1.08, or more than 60% of what little remaining value they had, to finish at 71 cents a share. Volume of 34.6 million was about four times the normal turnover.

Countrywide off on fed probe

But while Thornburgh seemed to get a reprieve of sorts from junk bond players, no such charity was afforded to Countrywide, whose bonds "were all down across the board, " a trader said, pegging its 3¼% notes slated to come due this May at 94.5 bid, 96 offered, down 1½ points on the day, and its 6¼% notes due 2016 off 3 points at 65 bid, 67 offered, hurt by weekend news reports that the lender was the subject of an investigation by the FBI.

Another trader saw the 31/4s at 95.5 bid, 97 offered, which he said was off only a little from previous levels around 96. But he said the company's 6¼% notes due 2009 were down 3 points at 84 bid, 86.5 offered.

Weekend news reports in The New York Times and The Wall Street Journal, citing unidentified sources said to have knowledge of the case, indicated that Countrywide is being investigated over whether it misrepresented its financial condition and the quality of its loans in securities filings. Countrywide said Monday that it was unaware of any such investigation. Bank of America, which is in the process of acquiring the largest independent U.S. mortgage lender, said that its plan to buy Countrywide was still "on track."

ResCap, E*Trade off

A trader said that other financial names were "just getting whacked" in the wake of the Countrywide news and the gyrations in Bear Stearns paper and other high-grade financials' bonds and shares. Among them, he said was E*Trade Financial's 7 7/8% notes due 2015, down 4 points at 66 bid, 68 offered. He also saw the company's 7 3/8% bonds drop to that level "from the low 70s on Friday, so both have dropped."

Residential Capital's 8 7/8% notes due 2015 meantime lost 2 points to 49 bid. Also lower was ResCap corporate parent GMAC LLC's 8% bonds due 2031, which fell by 2 points to 70 bid, 71 offered, while its 6 7/8% notes due 2012 were seen off more than 2 points on Monday to about the 75 level.

GM bonds take a downside ride

A trader saw GMAC's 49% owner, auto giant GM, also riding along on the downside, with its 8 3/8% notes due 2033 down 1½ points to 73.5 bid, 74.5 offered. Another trader saw those benchmarks "down a couple" at 72 bid, 73 offered.

A market source said that the benchmark bonds were among the most actively traded issues of the day, quoting them more than 2 points lower around the 73 level.

GM said on Monday that it had shut down part or all of 28 assembly plants nationwide, idling some 37,000 employees, as the United Auto Workers union continued its walkout against American Axle & Manufacturing Holdings Inc., a major GM parts supplier. The affected GM plants make pickup trucks, sport-utility vehicles and vans.

Level 3 off as president leaves, CFO stays

Surprise announcements from the executive suite at Level 3 Communications were seen as the catalyst behind a fall in the Broomfield, Colo.-based telecom network operator's bonds. A trader cited it as the likely catalyst in the 2 point fall of the company's 9¼% notes due 2010 and its 9¼% notes due 2014, down some 1½ points. Both finished around an 80-81 context.

Level 3 unexpectedly announced that company president, chief operating officer and co-founder Kevin O'Hara would leave the company, citing a need for "a different perspective" for the company, which has been a chronic money-loser.

Level 3 also said that Sunit Patel will remain as chief financial officer. Level 3 had been searching for a replacement for Patel for five months, following its announcement last fall that it was seeking a new CFO with operational experience in working out the company's problems as well as financial savvy, which was seen as Patel's long suit.

Six Flags off on 'fair' earnings.

A trader saw Six Flags' 9¾% notes due 2013 down a point at 59.5 bid, 61.5 offered, while at another desk, its 8 7/8% notes due 2010 were down a point at 68.5 bid.

The trader noted that the company was out with its quarterly report, which saw it post a narrower loss in the fourth quarter; he said that the release "was fair - not bad, not good, just fair."

The New York-based theme park operator said that it had a loss after preferred dividends of $132.4 million, or $1.39 per share, well down from a year-earlier loss of $195.2 million, or $2.07 per share. However, it should be noted that the results for the prior-year period included an $89.2 million, or 95 cents per share, loss from discontinued operations.

On a continuing-operations basis, the company's loss increased to $130.8 million, or $1.43 per share, versus a loss of $100.5 million, or $1.12 per share a year earlier.

Abitibi little moved as financing plans emerge

A trader saw AbitibiBowater.'s bonds not much moved following last week's big slide; he quoted the 6.95% notes coming due April 1 at 78 bid, 79 offered, "right where they were trading [Friday]" and also noticed "no activity" on the 8.85% bonds due 2030, although he said the latter "could be down 1 or 2 points."

FairPoint starts roadshow

Encouraging words were difficult but not impossible to turn up as Prospect News made the rounds on Monday.

In a primary market that was more or less starved for news sources noted that FairPoint Communications Inc./Northern New England Spinco, Inc. began a roadshow on Monday for a $540 million offering of 10-year senior unsecured notes (B3/B+).

Pricing is set for next week.

Banc of America Securities, Lehman Brothers and Morgan Stanley are joint bookrunners for the merger deal.

Too dire

One sell-sider, not in the FairPoint deal, took exception to Moody's B3 rating, asserting that it seems too dire.

Noting that the company has $21.26 billion of debt and $6.6 billion of adjusted EBITDA, the source marked leverage at 3.3 times, and commented that leverage such as that is not bad for a telecom.

"Remember when the forward calendar had $15 billion of new deals, including the likes of Dollar General, with nine-times leverage?" the sell-sider remarked.

"The B+ rating on FairPoint, from Standard & Poor's, seems right.

"The B3 from Moody's seems too low.

"It makes you wonder if Moody's, now, is being too biased toward the negative on everything."

Aside from FairPoint the only other deal in the market is Ainsworth Lumber Co. Ltd.'s $50 million to $75 million offering of six-year senior secured first-lien notes, via Barclays.

The new notes offer is backstopped by certain holders of the existing notes in return for warrants to purchase approximately 35% of the currently outstanding shares.

On Monday Ainsworth announced that the early deadline for the concurrent exchange offer has been extended by one week.

The early deadline is now set for Friday, at which time the exchange offer is also set to expire.

An informed source said that there have been no changes to the Ainsworth notes offer.

The backlog

A sell-side source observed that late last week a Quebec Superior Court justice approved the LBO of Bell Canada parent company, BCE Inc., by the Ontario Teachers' Pension Plan and Providence Equity Partners Inc.

The sell-sider added that for BCE's lenders, Citigroup, Deutsche Bank, RBS Securities and TD Securities, the ruling almost certainly spells more writedowns, known around the market as "the backlog."

The BCE financing includes C$11.3 billion U.S. dollar-equivalent bonds, including up to $7.5 billion senior notes and $3.8 billion subordinated notes. There is also a C$23.05 billion credit facility.

One firm recently took measure of the backlog.

In its US Leveraged Finance Update for the March 3 to March 7 week BMO Capital Markets stated "Although the near-term forward calendar remains thin, the shadow backlog still looms large, at roughly $68 billion. Of that sum, some $39 billion has funded and sits heavily on bank balance sheets. That funded debt could yield some stealth prints or block sales, as evidenced by the roughly $1.2 billion

second chunk of Harrah's bridge-to-bonds last month, the $1 billion Alltel PIK-toggle in late November and the Biomet and TXU/TCEH add-ons, also late last year."

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