Tousa bonds, loan slip; MagnaChip notes better; Delphi debt dips; ResCap falters

By Stephanie N. Rotondo

Portland, Ore., Nov. 15 - It was another "ugly" day Thursday - at least according to one trader - as the distressed bond market took another tumble.

"Everything is down a couple points," a trader said.

Technical Olympic USA Inc.'s debt - corporate and bank - continued to fall from the previous session as numbers came out and, as expected, they were not good.

But even while the figures showed no surprises, the question that begged to be answered was "Where is the bottom?" With real estate values continuing to decline, most market players are beginning to reassess what the homebuilder's assets are worth and, in the event of a bankruptcy, what would be covered.

MagnaChip Semiconductor LLC's bonds, however, firmed after the company announced its plan for an initial public offering. The company also said that proceeds from the IPO would be used to pay down debt. Still, the bonds came off of their session highs but still closed better.

The market did not react positively to the news that Delphi Corp. planned to amend its reorganization plan. The proposed changes would cut payouts to its creditors and shareholders - again - as well as its payment to its former parent. As a result, the Troy, Mich.-based company's bonds fell as much as 4 points on the day.

More concerns of default surround Residential Capital LLC, which is causing its bonds to fall. The mortgage lenders bonds fell as much as 8 points on the day as the market wondered if its parent, GMAC, would bail it out for the second time this year.

Tousa drops on numbers

Homebuilder Technical Olympic posted its quarterly figures late Wednesday night, and the results were as expected: not good.

"Tousa's numbers had no real surprises as far as we can tell," one trader said of the numbers. He added that there was "continued malaise and gloom in the industry."

But while the market had anticipated the numbers to be weak, that did not stop the bonds from falling.

"They are really way down now," one trader said of the 9% notes due 2010, which he pegged at 35 bid, 37 offered.

Another trader called the senior issue down 5 points around 36, and the subordinated issues - the 10 3/8% notes due 2012 and the 7½% notes due 2011 and 2015 - also softer at 6 bid, 7 offered.

At another desk, a trader quoted the 9% notes at 35.5 bid, 37.5 offered. He said that he never saw a market for the subordinated pieces but heard they were 3 bid, 5 offered.

Yet another trader saw the 9% notes close at 36 bid, 37 offered and the 10 3/8% notes end at 6 bid, 7 offered.

"Tousa's bonds are getting hit back to the day's lows," another trader said, placing the 9% notes at 36.5 and the 8¼% notes due 2011 at 37.

The Hollywood, Fla.-based company's second-lien term loan was also weaker, though on little volume, on disappointing third-quarter numbers and bankruptcy buzz.

The second-lien term loan ended the day at 85 bid, 87 offered, down about half a point from previous levels, one trader said.

That same trader placed the company's first-lien term loan at unchanged levels of 96 bid, 97 offered, explaining that the second lien was down because it has less protection than the first lien.

However, a different trader was quoting the first-lien term loan down a point on the day at 95 bid, 96 offered.

For the third quarter, Technical Olympic reported a net loss of $619.7 million, or $10.42 per diluted share, compared to net loss of $80 million, or $1.34 per diluted share, last year.

The results include a $40.7 million increase in the pre-tax loss contingency relating to the Transeastern JV settlement, and $530.6 million of pre-tax charges resulting from goodwill impairments and the write-down of assets including inventory impairments, impairments of investments in unconsolidated joint ventures, and write-off of deposits and abandonment costs.

Excluding the impact of the Transeastern JV settlement and the pre-tax charges, the company's net loss would have been $25.6 million, or $0.43 per diluted share.

Also in the quarter, homebuilding revenues decreased 15% to $492.9 million from $576.8 million last year, EBITDA was $32.3 million compared to $101.2 million in the third quarter of 2006, and consolidated net sales orders were 892 compared to 1,330 last year.

Going concern doubt

In its earnings release, the company said that, based on stockholders equity being $48.3 million as of Sept. 30, it believes there is substantial doubt about its ability to continue as a going concern. To that end, the company is looking at all its options, which could include filing for bankruptcy if it cannot restructure its debt. The company also said it is mulling the possibility of a debt-for-equity swap. The homebuilder's stock fell 12 cents, or 48%, to 12.9 cents.

As the market continues to digest the news, one analyst is wondering where the bottom is.

"It was well-expected that these guys would post weak numbers," the analyst said. "And they absolutely lived up to that expectation."

With operations costs softer and "huge" write-offs, the analyst believes that the company is positioning itself for a bankruptcy filing, which he expects in December or January - likely triggered by coupon payments due at that time.

But with 44% of the company's inventory in Florida and "a good portion" in Phoenix and Las Vegas, the analyst said the question becomes "Where is the bottom?"

"A lot of folks are trying to assess that," the analyst said of the floundering real estate market. "It is a real finger-in-the-wind type of thing."

And with so many questions being left unanswered, it is not surprising that "there is a reluctance to step in and buy these [bonds] at these prices," the analyst said. "You have to ask, 'What are their assets worth?'"

Earlier this year, when Technical Olympic was dealing with issues surrounding its Transeastern JV, it was widely believed that in the event of a bankruptcy, the company had enough assets to cover its debt. But as the real estate values have steadily declined since that time, it has become harder to believe.

"Folks still believe that the senior notes are the fulcrum security," the analyst said. "They would need a severe write-down from here for that to not be the case."

"In order to be betting on these bonds at this point, you need to be able to take a stand and say [this is where the bottom is]," he continued. Alas, "fewer and fewer buyside accounts are willing to take that stand."

MagnaChip debt better

News of an initial public offering helped boost MagnaChip Semiconductor's bonds, though the debt closed down from its daily high.

A trader said the senior floating-rate note due 2011 climbed 4 points on the news to 93 bid, 94 offered, but drifted back down to 91 bid, 92 offered. The 8% notes due 2014 also came off its highs around 82 to end at 80 bid, 81 offered.

"Sellers are taking advantage of such a strong price move," the trader said of the dip. "That is rare in this market."

Another trader said the 8% subordinated notes moved "all the way up" to around 80, after closing the previous session at 73 bid, 74 offered.

Elsewhere, a trader said the 8% notes were quoted as high as 83, but "nobody was playing up there." He said the bonds ended the day at 78 bid, 80 offered. The trader also saw the floater at 92 bid, 93 offered.

Another trader said the 8% notes firmed to 76 bid, 78 offered from 72.5 bid, 74.5 offered and its 6 7/8% notes due 2011 rose to 89 bid, 91 offered from 84 bid, 86 offered.

In a filing with the Securities and Exchange Commission, Seoul, South Korea-based MagnaChip said it was planning an up to $575 million IPO. The company also said that it plans to use proceeds from the IPO to repurchase about $200 million of its corporate debt.

But according to one trader, "they never gave a level of where they would buy the bonds back," attributing that to the bond's slip from its highs.

"At 84, 85, it feels like the company is not going to pay that," he said.

Delphi dips

The market at large reacted badly to new proposed amendments Delphi wants to make to its current reorganization plan.

One trader said the automotive parts supplier's bonds fell 4 points on the day, its 6½% notes due 2013 closing at 70 bid, 70.5 offered, its 6.55% notes that were to have come due last year at 70.5 bid, 72 offered and its 7 1/8% notes due 2029 at 71 bid, 73 offered.

Another trader called the debt down 3 points, with the senior debt ending in the low-70s.

At another desk, a trader agreed with the 4-point loss, pegging the 6.55% notes at 71 bid, 72 offered and the 2013 issue at 70 bid, 71 offered.

"The market was somewhat negative on [the plan amendments]," a trader said. "There is already objection from its creditors, so it obviously was not received extremely positively."

The proposed changes, backed by former parent General Motors Corp. and plan investors Appaloosa Management LP, would cut the payment to GM as well as payments to its creditors and shareholders.

"Basically, they are trying to shift value from the senior bondholders to lower parts of the structure," a trader said.

But the company's creditors are trying to stop the changes from going through, which would reduce their recovery yet again. A hearing will be held on the amended plan on Nov. 29.

ResCap notes flounder

Residential Capital, better known as ResCap, was "hit pretty good," a trader said, on concerns that the subsidiary of GMAC will default and potentially fall into bankruptcy.

A trader said that issues that mature between 2010 and 2015 fell 5 points into the 50s, while shorter dated paper, like the floating-rate notes due 2008, dropped 7 to 8 points. He pegged the 2008 issue at 76 bid, 78 offered, down from the mid-80s.

Another trader said there were "lots of trades" in the "actively quoted" name. He quoted the 6 7/8% notes due 2015 at 56 bid, 57 offered and the 6 1/8% notes due 2008 at 69 bid, 72 offered.

The trader also saw the mortgage lender's term loan lower at 78 bid, 81 offered.

"There's a lot of ways to look at that one," the trader said. He added that he thinks more market players will start looking at the name as it has "a lot of bonds to trade."

At another desk, a trader saw several of the ResCap issues trading around the same lower levels - the 6% notes due 2011, the 6½% notes due 2012, the 6½% notes due 2013 and the 6 7/8% notes due 2015. They finished at 56 bid, 58 offered, down from 58 bid, 60 offered in the morning and well down from 63 bid, 65 offered on Wednesday, when he said the bonds also fell.

ResCap, another trader said, "got pushed lower." He said that he had heard that "at some of the bigger shops, it was being moved from the high-yield desks to the distressed desks. That may have caused some of the additional pressures [on the name] as people repositioned."

GMAC and other investors have already injected more than $1 billion into the struggling company and the question plaguing many investors is whether GMAC - along with its parent GM - will be willing to fork over more cash.

Realogy bonds, loan dip

Realogy Corp., which released earnings Wednesday, saw its bonds slide on the disappointing numbers.

A trader called the bonds down "a couple points from yesterday," its 12 3/8% notes at 67.5 bid, 68.5 offered and its 10½% notes 77.5 bid, 78.5 offered.

Another trader said the company's bank debt was "down a little bit" at 89 bid, 90 offered.

Another source said the bank debt, which began to fall in the previous session, rolled with the market's momentum, settling at 89.5 bid, 90.5 offered.

As Realogy is a private company, its earnings were not released to the general public.

Broad market lower

A trader said he saw Fedders Corp.'s 9 7/8% notes due 2014 trading around 7.

"If I had to guess, I'd say the market was 6 bid, 9 offered," he said.

Neff Corp.'s debt was under pressure, reacting to the fallout from the failed Cerberus/United Rentals deal. A trader placed the 10% notes due 2015 at 64 bid, 65 offered.

Elsewhere, United Rentals' bonds saw "a bunch of activity," a trader said. He said the 7¾% notes due 2013 fell to 93 bid, 94 offered while the 7% notes due 2014 dipped to around 91.

Primus Telecommunications Group Inc.'s 8% notes due 2014 were called quiet at 55.5 bid, 57 offered. A trader said the 14¼% notes were quoted at 101.5 bid, 102.5 offered, but no trades occurred.

"That seemed kind of lower," the trader said. "But in this market, everything is coming down."

Sara Rosenberg and Paul Deckelman contributed to this article.

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