Linens n'Things debt gyrates on news; Standard Pacific bonds boosted; Tousa slips

By Stephanie N. Rotondo

Portland, Ore., Oct. 26 - News that Linens n'Things had entered into a new credit agreement sent the company's bonds "popping" Friday.

But investors went back and forth on whether the deal would mean good or bad things for the struggling retailer - and the bonds gyrated as popular opinion fluctuated.

Meanwhile, Standard Pacific Corp. released its third-quarter results late Thursday. Despite the disappointing numbers, the bonds were seen gaining, as investors and analysts alike were apparently buoyed by what they heard in the company's conference call Friday.

Elsewhere, fellow homebuilder Technical Olympic USA Inc.'s debt continued to slide. According to one trader, there is still some concern that the company could file for bankruptcy - even as soon as this weekend, as the company prepares for its Oct. 28 meeting on preference issues.

Canada's Tembec Inc. continues to be a name the market is interested in. The bonds, which tend to follow the strength of the Canadian loonie, were seen gaining earlier in the week, but come the end of the trading session, traders were mixed - some said the bonds are continuing to edge higher, while others say the debt is dipping.

Linens n'Things bonds gyrate

Linens n'Things' bonds were "popping up," a trader said, on the news that the retailer had received a new credit facility. But the debt gave up its early gains to close unchanged to just slightly higher on the day.

"It is a short-term positive, for sure," a trader said of the new credit line that will increase the company's liquidity. But, "it gives them more room to hang themselves with if they don't turn it around in the long run," he added.

And the market seemed to agree with him. Early in the day, investors viewed the news as good, prompting the Linens n'Things floating-rate notes to trade as high as 71, the trader said. But, as is typical in the recent wishy-washy market, the bonds gave up their rally attempt, closing at 66 bid, 66.5 offered, which the trader deemed unchanged.

At another desk, however, a trader called the bonds 1 point better around 66.

"They were higher out of the chute," the trader said, attributing the increase to short covering. He noted that there was some concern in the marketplace regarding pricing and terms of the new facility.

"I am surprised it didn't move a little more," he said. "But the sector stinks."

Another trader said the notes got as high as 70 before they "puked back" the gains to close at 66 bid, 66.25 offered.

Late Thursday, the national home retailer announced that it had entered into an agreement with GE Capital Markets Inc. for a new $700 million credit facility, which would entirely replace Linens n'Things' facility with UBS Securities LLC.

"The new facility is beneficial to the company compared to its prior credit facility in several respects," the company said in a press release. "Among other things, the company has obtained increases in its advance rates on inventory and accounts receivable for its borrowing base computation as well as the elimination of all financial maintenance covenants. As a result of entering into this facility, the company's liquidity position will be significantly enhanced compared to its existing credit facility."

Standard Pacific better

Despite lower-than-expected third-quarter numbers, Standard Pacific's bonds were "up a good deal," according to one trader.

The trader pegged the 9¼% notes due 2012 at 57.5 bid, 58, up 3 to 4 points from 54.5 bid, 55 offered.

Another trader deemed the bonds up 1 to 2 points across the board, its 6 7/8% notes due 2011 around 76.5 and its 7% notes due 2015 around 74.

At another desk, a trader said the 7% notes rose a point to 74 bid, 76 offered. The company's other bonds were up a point as well.

Another trader said the company's numbers were "better than expected," seeing the bonds better by 2 to 3 points "across the board," its 6½% notes due 2008 at 92 bid, 93 offered.

The Irvine, Calif.-based homebuilder posted a quarterly net loss of $119.7 million, compared to a net profit of $30.8 million the previous year. But the first trader said he had heard that the company's conference call "went well," which explained why the bonds were boosted.

In a sector where there is very little optimism, Standard Pacific told investors and analysts during the call that its Mission: Possible program was successful. According to a Dow Jones Newswires report, the sale held in late September in Southern California resulted in 227 deals - more than what had been expected. The cancellation rate equals about 10%, which is lower than most other homebuilders.

Tousa notes unchanged

A trader said that trading in Technical Olympic's debt was "quiet" for most of the day, though the bonds "started to pop in the morning."

The trader said the 8¼% notes due 2011 were lifted to 60.5 early in the trading day from 59.5 bid, 60.5 offered the previous day. The notes then got as high as 60.5 bid, 61.5 offered but ended up closing at 61.5 offered, no bid.

The trader said the 9% notes due 2010 ended the day unchanged at 60.5, while he saw nothing but wide markets in the 10 3/8% notes due 2012, at 15 bid, 17.25 offered.

"That was too wide to even get involved in," he said. He added that there was not a lot of activity in the subordinated debt.

Another trader called the bonds "down a bit," with the 9% notes at 59.5 bid, 60.5 offered. He said that the subordinated issues - the 10 3/8% notes and the 7½% notes due 2011 and 2015, respectively - "didn't really trade," but pegged the paper at 15.5 bid, 16.5 offered.

"There has been a bit of price convergence," he said of those issues.

Yet another source called Technical Olympic's 8¼% notes unchanged at 58 bid, 60 offered.

Meanwhile, the Hollywood, Fla.-based company's first- and second-lien term loans headed lower as the Oct. 28 meeting to deal with, among other things, preference issues is fast approaching.

The first-lien term loan went out at 97½ bid, 98½ offered, down from 98 bid, 99 offered on Thursday, and the second-lien term loan went out at 92¼ bid, 92¾ offered, down from 93¾ bid, 94¾ offered, a trader said.

The company's revolver was unchanged at 98½ bid, 99 offered.

"There's some profit taking ahead of the Oct. 28 meeting. [There is] still a chance they could file for bankruptcy this weekend. [It] seems like banks have given them some breathing room if they want it, which I think they would, but there's still a risk," the trader explained, citing the proposed amendments to the indentures.

If the amendment is approved, pricing on the first-lien term loan would be increased to Libor plus 500 bps and the revolver pricing grid would be changed so that pricing can range anywhere from Libor plus 250 bps to Libor plus 525 bps, depending on ratings and leverage.

In return, the amendment would fix potential non-compliance with one or more of the covenants under the first-lien term loan and revolver resulting from certain asset impairment charges, deposit write-offs and abandonment charges.

Tembec: Up or down?

Topsy-turvy Tembec was either a touch lower or slightly better at the close of the week, depending on whom you asked.

One trader called the bonds weaker, its 8 5/8% notes due 2009 at 50.5 bid, 51.5 offered, after getting as high as 52.5 bid, 53.5 offered. The other issues were also lower, he said, though not as active. He quoted the 8½% notes due 2011 at 43 bid, 44 offered and the 7¾% notes due 2012 at 42 bid, 43 offered.

But another trader called the bonds "up again," the 8 5/8% notes a half point better at 51.5 bid, 53 offered.

Another trader saw Tembec's 8 5/8% notes up 1 point at 51 bid, 52 offered, while its 8½% notes lost half a point to end at 43.

Movie Gallery loan slips

Movie Gallery Inc.'s first-lien term loan gave up some ground in trading on market technicals, according to a trader.

The first-lien term loan ended the day at 89½ bid, 90½ offered, down from 90 bid, 91 offered, the trader said.

"There was really nothing specific pushing it down," the trader added.

On the corporate debt side, a trader pegged the 11% notes due 2012 at 30 bid, 32 offered, up from recent levels around 26 bid, 27 offered.

Sara Rosenberg and Paul Deckelman contributed to this article.

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