Delphi, Dura paper weaker; Level 3 dips on numbers; Technical Olympic active, better

By Stephanie N. Rotondo

Portland, Ore., Oct. 23 - The automotive sector took a dip Tuesday, with Delphi Corp. leading the way.

Talk that the automotive parts supplier will amend its reorganization plan has apparently spooked some market participants. The bonds started to slide in the previous session, where they lost about 1 to 1.5 points. During Tuesday trading, the bonds fell as much as 3 points.

Also weaker in the sector was Dura Automotive Systems Inc.'s debt. The senior paper has fallen over the last few sessions, though just slightly - a point here and there. But traders are at a loss to explain why the bonds are losing ground, and at least one believes the previous gains in the notes were due to technicals.

Level 3 Communications Inc. posted its third-quarter financials early in the day. Though the company met its quarterly expectations, it cuts guidance for the rest of the year, prompting the bonds to slide down.

After being quiet over the last few days, activity in Technical Olympic USA Inc.'s paper picked up once again. Traders called the bonds better by as much as 2 points on the day, while the bank debt was also seen stronger.

One trader noted that there has been no news as to whether the homebuilder cured a potential default at its Wellington LLC joint venture with Centex Homes.

"I guess it was not that big a deal," he said.

Delphi, Dura weaker

Delphi bonds were seen weaker again as talk of an amended reorganization plan spooked would-be investors.

One trader called the bonds down 3 points, its 6.55% notes that were to have come due last year and its 6½% notes due 2009 at 93 bid, 94 offered.

Another trader called the bonds down just 1 to 1.5 points, with both the 2009 and 2006 paper around 94.

The trader noted that he thought the bonds would have been lower in the previous session, after investors absorbed the news that the automotive parts supplier would postpone a hearing on its disclosure statement. The company announced late last week that the hearing would be rescheduled, giving it more time to further negotiate with its stakeholders.

Elsewhere, a trader said Delphi's bonds were down a point, with the 6.55% notes at 94 bid, 95 offered, the 6½% notes due 2009 at 94.25 bid, 95.25 offered, the 6½% notes due 2013 at 93 bid, 94 offered, and the 7 1/8% notes due 2029 at 95 bid, 96 offered.

Meanwhile, Dura Automotive's bonds were "hit toward the end of the day," a trader said. He pegged the 8 5/8% notes due 2012 at 46.5 bid, 47 offered.

"I always kind of thought they were overvalued in the first place," the trader said of the senior issue. He said that the bonds' previous upward climb was likely due to short covering.

Another trader called the senior issue "off pretty hard" at 45 bid, 47 offered. He noted that the bonds had been at 49 bid, 50 offered last week.

So that's down 3 to 4 points this week already," he said.

Most of the volume occurred in the afternoon, the trader added. "It looks like somebody's trying to get out," he said.

In the subordinated debt, the trader said things have been "very quiet," the 9% notes due 2009 at 1.25 bid, 1.75 offered.

Still, he was unsure what was moving the bonds.

"Maybe they are just trading down with the rest of the autos," he said. "People are moving on."

A trader also saw Dana Corp.'s paper unchanged on the news that the company had received approval on its disclosure statement.

Federal-Mogul Corp.'s paper was slightly lower, attributed to follow through from the previous session. A trader slated the notes at 89 bid, 90 offered.

Level 3 dips on numbers

After posting a loss for the third quarter of 2007 and cutting its EBITDA guidance, Level 3's bonds moved lower.

A trader called the bonds active and "down a little," its 9¼% notes due 2014 closing around 94 and its 8¾% notes due 2017 at 91.

Another market source pegged the 9¼% issue lower in heavy trading, around the 94 level, down from its Monday close at 95.625, and well down from intraday levels as high as 99 reached during an abortive rally try around mid-morning.

Another trader called the bonds down 2 points at 93.5 bid, 94.5 offered. Still another quoted them at 94 bid, 94.5 offered and said "the trend on them was lower all day."

Level 3's other bonds were also mostly lower, with its 8¾% notes falling about 2.5 points at one point in the day to a low around 90 before coming off that bottom to end at 91, still down 1.5 points on the session. Its 12¼% notes due 2013 were down more than a point at 107.375.

For the third quarter, Level 3 reported a net loss of $174 million, compared to a net loss of $202 million for the previous quarter.

Market players have been watching and waiting for the communications company to turn around its business. But delays in integrating newly acquired businesses have prompted concern in the marketplace.

The company acknowledged the delays, stating that they were working to correct the problems as quickly as possible.

"Our integration plan assumed that our new, integrated processes and systems, Project Unity, would be developed and deployed in stages starting in 2007 and running throughout 2008," said Kevin O'Hara, president and chief operating officer of Level 3, in a press release. "While the fundamental approach was sound, we made some implementation decisions that in retrospect made achieving our provisioning throughput targets more difficult. As a result, we fell short this quarter in increasing our provisioning capabilities to the level we expected."

Tousa notes active, better

Technical Olympic's debt was deemed active and slightly better to unchanged on the session.

One trader called the 9% notes due 2010 up 1 to 1.5 points at 63.5 bid, 64.5 offered. He said there was "no particular news" driving the bonds.

Another trader said the subordinated paper was the active issue, the 10 3/8% notes due 2012 better at 18 bid, 19 offered.

The trader added that he "didn't see much" in the senior paper. "They didn't go anywhere," he said, calling the notes unchanged at 62 bid, 63 offered.

At another desk, a trader said Technical Olympic debt was "better bid," its 9% notes up 1.5 to 2 points at 64 bid, 65 offered. He placed the 8¼% notes due 2011 at 63.5 bid, 64.5 offered, also up 1.5 to 2 points.

The homebuilder's first-lien bank debt was also stronger on Tuesday as rumors of a refinancing have been circulating throughout the market.

The Hollywood, Fla.-based homebuilder's first-lien term loan was quoted at 98 bid, 99 offered and the second-lien term loan was quoted at 93 bid, 94 offered, with both of these tranches up about three-quarters of a point on the day, the trader said.

When asked whether the bankruptcy rumors that were previously floating around have gone away, the trader responded, "Oct. 28 is when liens will be perfected. Preference issues will go away. It was there fiduciary duty to file now if they're insolvent."

According to a trader, homebuilders and related names are starting to attract more and more attention from distressed investors.

"People are doing a lot of homework on homebuilders [and the like]," he said. Companies like Standard Pacific Corp., Hovnanian Enterprises Inc. and William Lyon Homes are attracting the most attention.

"Guys are starting to look at those as probably the next to come down," he said.

But Beazer Homes USA Inc. was a name many players are staying away from, he said.

"Folks don't want to play Beazer [bonds] because of the accounting issues," he said.

And while it appears that Beazer will likely get consents from debt holders to amend certain provisions of its indentures, the trader does not see the market getting all worked up about it.

"Big deal," he said. "[The bondholders] got blackmailed."

The trader said Beazer's 8 3/8% notes due 2012 - deemed the "most active issue" - were "up some" at 78 bid, 80 offered.

Broad market mixed

Calpine Generating LLC's third-lien floating-rate note due 2011 fell 2.5 points to 40.5 bid, 41.5 offered.

Tembec Inc.'s 8 5/8% notes due 2009 once again gained late in the day, closing at 49.

Another trader said the bonds moved up to 48.5 bid, 49.5 offered from 47 bid, 48 offered, while at another desk, a market source saw the 8½% notes due 2011 up 2.5 points at 42.5.

Swift Transportation Co Inc.'s 12½% notes due 2010 were seen a point better at 60.5 bid, 62.5 offered.

A trader said Movie Gallery Inc.'s 11% notes due 2012 were unchanged around the 26 bid level.

Movie Gallery auction ends

The auction on Movie Gallery Inc.'s loans to cash settle LCDS and LCDX index trades took place on Tuesday, with the final pricing ending up at 91.5, and "all orders got filled," a trader said.

"During the first part of the auction, market makers had to make a market. The midpoint of that this morning was 90 7/8. Once posted, people could place firm limit offers to buy and sell. There was more bidding than offers by $30.5 million. Then final pricing was determined and everything cleared," the trader remarked.

The official administrators of the auction were Creditex Group Inc. and Markit Group Ltd. It was done in partnership with 11 major credit derivative dealers.

The credit event on Movie Gallery was declared after the company failed to make a Sept. 10 interest payment on its first-lien loan.

During the auction, dealers submitted orders electronically on the Creditex platform. The auction submissions were delivered to Markit electronically, which calculated and verified the results.

Meanwhile, Movie Gallery's first-lien term loan ended the day at 90.5 bid, 91.5 offered, up from Monday's levels of 90.25 bid, 91.25 offered, the trader said.

Right after the first stage of the auction, the first-lien term loan was being quoted at 91 bid, 92 offered, the trader added.

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

Sara Rosenberg and Paul Deckelman contributed to this article.

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