Tousa debt rallies; Residential Capital bonds, bank debt drop; Delphi notes better

By Stephanie N. Rotondo

Portland, Ore., Nov. 16 - Tousa Inc. and Residential Capital LLC once again dominated distressed debt trading, continuing momentum from the previous session.

Technical Olympic's bonds started lower, but ended up on the day. But traders attributed the gains to different things: one said the move was caused by a bondholder call held in the afternoon, while another said it was short covering.

The bonds had slipped significantly in the previous session after the homebuilder released its quarterly results and warned that its ability to continue operations was questionable. It also asked its bondholders to organize a debt-for-equity swap.

Continued concerns about ResCap's future pushed the mortgage lender's bonds and bank debt down as much as 7 points on the day. But questions remain whether the company will find relief.

Delphi Corp.'s bonds, after also being weighed on in the previous session, actually ended the week slightly better. A trader attributed the increase to more buyers than sellers of the name.

Still, the market as a whole remained softer at the close of the week. As the Thanksgiving holiday looms, market players wondered what the coming week would bring.

Tousa debt rallies

Bonds of Tousa, the former Technical Olympic, continued to decline in early trading, but by time the session wrapped up, the debt had gained as much as 5 points.

Early in the day, a trader quoted the 9% notes due 2010 at 36. Come the end of the day, however, the trader said the bonds had moved up to 37 bid, 39 offered.

"Something definitely stirred it up this afternoon," he said, noting that there was a bondholder call with the company's restructuring advisor, Lazard Freres.

Another trader said the senior paper - including the 8¼% notes due 2011 - had moved up 5 points to around 40. However, he attributed the gains to short covering.

"[The bondholder call] was nothing earth shattering," he said. According to the trader, the call dealt with the progress related to restructuring.

"It's developing and moving forward," he said.

At another desk, a trader pegged the 9% notes around 39 and the 10 3/8% notes due 20112 at 5.5.

"It's not pretty," he said.

Yet another trader - who characterized the homebuilder's situation as a "nightmare" - said the 10 3/8% notes traded in small size at 20. However, he said the market was 3.75 bid, 7.25 offered. He also saw the 7½% notes due 2011 at 6.5 bid.

"They have been pretty volatile," a trader said of activity in the bonds. He called the senior paper unchanged at 36 bid, 39 offered, but noted that the debt "traded toward the higher end toward the end of the day."

The Hollywood, Fla.-based company's corporate and bank debt began slipping earlier in the week as the market anticipated poor quarterly results. Once the figures came out late Wednesday, the bonds started losing ground more rapidly.

"As we have written in prior reports, TOA [Tousa] bondholders should expect limited liquidity in trading of TOA notes and a potentially lengthy 'work-out' period as TOA attempts to refinance its debt," Gimme Credit LLC analyst Vicki Bryan wrote in an afternoon report. "TOA's situation is particularly difficult given its prominent exposure to the Florida housing market, which could remain depressed for years. We maintain our sell on TOA, and continue to expect that TOA notes will underperform well into 2008."

Elsewhere in the sector, Standard Pacific Corp.'s 7% notes due 2015 closed down 3 to 4 points at 64 bid, 65 offered.

ResCap notes continue slide

Keeping its momentum, Residential Capital's bonds held their downward pace in Friday's session on concerns regarding the company's future.

A trader said the senior debt, such as the 6 3/8% notes due 2010, traded at 55 bid, 56 offered. Another trader called the bonds "pretty active and lower again," with the floating-rate notes due 2008 down 6 to 7 points around 70. The trader added that longer dated paper was down just 3 to 4 points.

"It certainly seems like a mess," the trader said. "People are clearly concerned over it."

But as the Minneapolis-based subsidiary of GMAC Mortgage continues to struggle, the market is left wondering if a bailout will come, "whether it be Cerberus [Capital Management] or someone with deep pockets," the trader said.

Another trader, who said the bonds were down "pretty good again, at least 4 points," agreed that investors are wondering what will happen to the mortgage lender.

"There's a lot of debt there," he said.

Over on the bank debt side, a trader said the paper fell another 5 points from Thursday's session.

The bank debt was quoted at 73 bid, 75 offered during the late afternoon, the trader said.

"The perception is that the tangible net worth covenant will be busted before the 2008 maturity," the trader said. "People think they're filing for bankruptcy."

Delphi bonds edge up

A trader called Delphi's bonds "a little bit better," after the bonds had decreased in the previous session on news that the company had proposed amendments to its reorganization plan.

The trader quoted the 6.55% notes that were to have matured last year and the 6½% notes due 2009 at 72 bid, 73 offered.

"There is no particular reason," he said. "It felt like it was better to buy at the end of the day yesterday."

"There is no new news," the trader continued. "It is simply a matter of more buyers than sellers."

Hines better

Hines Horticulture Inc.'s 10¼% notes due 2011 traded in size higher at 76.5, a trader said. He could not account for the gain, though he said there were "numbers out, but nothing spectacular."

For the third quarter ending Sept. 30, the nursery supplier reported net sales of $31.8 million, compared to net sales of $35.8 million for the same quarter the previous year. The company narrowed its net loss, however, to $7.7 million from $30.3 million.

Fewer buyers of Sea Containers

It was a case of fewer buyers that drove Sea Containers Ltd.'s bonds lower, a trader said.

"There are very few buyers of anything illiquid right now," he said. "That is why these are trading so weak."

The trader called the 7 7/8% notes due 2008 down 3 points at 64.

Broad market lower

A trader said Movie Gallery Inc.'s 11% notes due 2012 traded down 6 points around the 24 level on the news that the Dothan, Ala.-based company had pushed back its bankruptcy emergence date. But another trader said the bonds have not traded in round lots for some time. He said a small piece moved at 23.5 bid, 24 offered.

"It's irrelevant," he said.

The second trader also saw Blockbuster Inc.'s 9% notes due 2012 at 84.75, which he called "way off."

Linens n' Things floating-rate note continued to slide, with one trader pegging the bonds at 58. Another quoted the debt at 57 bid, 59 offered.

"It's officially under 60, on its way to zero," he quipped.

Calpine Corp.'s bonds fell about 2 points, a trader said, as one of the company's advisors prepared to release a new valuation report.

"That kind of had people spooked," he said.

The 8½% notes due 2011 closed at 107 bid, 108 offered, the trader said, while another market source pegged the 7 7/8% notes due 2008 down a couple points to 105 bid, 106 offered.

Buffets Inc. "gave back a couple points," a trader said. He quoted the 12½% notes due 2014 at 51 bid, 52 offered.

Sara Rosenberg contributed to this article.

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