Transeastern bank debt plummets; auto parts supplier bonds better

By Paul Deckelman and Sara Rosenberg

New York, Sept. 27 - Transeastern, the joint venture between Technical Olympic USA, Inc. and Falcone Group, saw its bank debt nosedive on Wednesday as the financial position of the company has investors worried, market sources said.

Elsewhere, automotive supplier names were generally higher for a second consecutive session, continuing to ride the momentum built up on Tuesday's news that a big majority Delphi Corp.'s unionized hourly workers have agreed to take early retirement incentives to leave the troubled Troy, Mich.-based parts supplier.

Even the recently badly battered Dura Automotive Systems Inc.'s senior bonds were seen having improved on the session.

Transeastern takes a tumble

Transeastern's term loan closed out the day quoted at 79 bid, 81 offered, with trades going off at the 80 level during the session, a market source said. By comparison, the last time the paper traded previously, which was on Friday, the trading level was around 98 to 99.

"The company had a call on Monday to update lenders on how poorly the business has been doing. Liquidity is very tight. They're going to have to amend but they haven't put anything formal out yet. I think they have some technical defaults now so they may have to ask for waivers," the source said.

"They're might be talk of bankruptcy but I don't think these guys are going to voluntarily file. The debt is recourse to Technical Olympic and Technical Olympic wouldn't want them to file for bankruptcy. But, bankruptcy might be the best thing for bank debt holders," the source continued.

"Monday, after the call, people were trying to figure out what was going on. The only people who knew were the lenders and Deutsche, the lead bank. Today, though, the company made the news public so everyone got their hands around it and that's why it crashed. Also, right after the news was made public, Moody's put out a release," the source added.

On Wednesday, Technical Olympic publicly announced that it met with the lenders to the Transeastern joint venture to update them on the financial position of the joint venture and the Florida housing market conditions.

The company said that when the Transeastern joint venture was formed in August 2005, it had more than 3,000 homes in backlog and projected 2006 deliveries of approximately 3,500 homes.

"Since that time, the Florida housing market has become more challenging, characterized by weak demand, an over supply of new and existing inventory homes, increased competition, and an overall lack of buyer urgency," said Antonio B. Mon, president and chief executive officer of Technical Olympic in the news release.

"These well-documented conditions have caused elevated cancellation rates and downward pressure on margins, due to increased sales incentives and higher advertising and broker commissions. Although we anticipated a gradual slowdown in the Florida housing market, these conditions have been more severe than anticipated and have negatively impacted the joint venture's ability to meet its projections," Mon added in the release.

The company went on to say that Transeastern's revised sales and delivery projections are not adequate to support its existing capital structure.

Transeastern is exploring various options to fix the liquidity problem including, requesting waivers from its lenders regarding potential defaults and permitting future advances under the revolver, and restructuring land bank obligations.

Technical Olympic and Falcone said they do not intend to contribute further capital under the current structure.

In reaction to the announcement, Moody's Investors Service placed all of the ratings of Technical Olympic under review for possible downgrade.

On Monday, Standard & Poor's revised its outlook on Technical Olympic to negative but affirmed the company's ratings.

On Wednesday, a trader said that Technical Olympic's bonds were sharply lower, its 7½% notes due 2015 falling 3 points to 78.5 bid, 79.5 offered, while its 9% notes due 201 lost 1¾ points to end at 95.5 bid, 96.5 offered.

Auto parts names higher

A trader saw the names of various auto parts companies better, the whole sector having apparently caught a bid after Tuesday's advance, which was fueled by Lear Corp.'s confidence that it would be able to reach a deal with financier Wilbur Ross to sell its interiors business, domestic as well as international, to Ross. Tuesday's surge was also related to Delphi Corp.'s announcement late in the day that most of its UAW-represented hourly workers had agreed to take early retirement, which the company is using to greatly reduce its labor costs going forward.

In Wednesday's trading, he saw Lear's 8.11% notes due 2009 up 1½ points at 97 bid, 98 offered, while its 5¾ notes due 2014 were up ¾ point at 81 bid, 81.5 offered.

Delphi's 6½% notes due 2009 were meantime seen up 1½ points at 87.5 bid, 88.5 offered, while its 7 1/8% notes due 2029 were 2½ points better at 84.5 bid, 85.5 offered.

Among other automotive parts-maker names, Dura's badly battered 8 5/8% senior notes due 2012 were "up a bit," he said, at 44 bid, 45 offered, a 2 point gain, although its 9% notes due 2009 were seen down another ¾ point to just 4.5 bid, 5.5 offered.

Dana Corp.'s bonds were all seen up about 2 points on the session, its 6½% notes due 2008 at 67.5 bid, 68.5 offered, and its 5.85% notes due 2015 at 63 bid, 64 offered.

News report pushes up Iridium

A trader saw the bonds of failed satellite telecommunications operator Iridium plc up a point, its 11% notes that were to have matured last year rising to 26.5 bid, 27.5 offered.

The trader cited a Wall Street Journal story that indicated that Iridium's former corporate parent, Motorola Inc., might have to pay the bondholders if the latter are successful in pressing their claims against the Schaumburg, Ill.-based electronics giant.

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