Distressed housing names punished; Countrywide off on advance scrutiny; Dura to launch exit financing

By Paul Deckelman

New York, Nov. 26 - Distressed housing sector names like Standard Pacific Corp., Tousa Inc. and, especially, WCI Communities Inc. were seen taking it on the chin Monday amid a general retreat in housing sector stocks and bonds after a Citigroup analyst either downgraded or cut his price target on the stocks of more than a dozen sector companies.

Countrywide Financial Corp.'s longer-dated bonds were seen lower and its short-dated paper remained well below the par levels at which it would normally trade as the beleaguered Calabasas, Calif.-based mortgage giant's shares dived 10% when a frequent congressional critic raised new questions about the company and called for an investigation of advances it had received from the Federal Home Loan Bank system.

In the bank debt market, participants said that Dura Automotive Systems, Inc. has scheduled a bank meeting for Wednesday morning to launch its proposed $425 million senior secured exit financing credit facility.

Homebuilder names take a tumble

The homebuilder sector was getting hammered Monday, traders said, in light of a Citigroup equity analyst's downgrade of a slew of builder names.

Among the more distressed names, a trader saw Beazer Homes USA Inc.'s 8 5/8% notes due 2011 at 74 bid, 76 offered, down ½ point on the day but well down from early peak levels around 76 bid, 77 offered. He saw Tousa's 8¼% notes due 2011 and its 9% notes due 2010 each down 1 point, at 37 bid, 39 offered and 36 bid, 38 offered, respectively. Standard Pacific's 7% notes due 2005 were down 2 points at 60 bid, 62 offered.

The big loser, he said, was WCI Communities' 9 1/8% notes due 2012, which tumbled at least 5 points to 59 bid, 62 offered.

Also among the losers Monday, another trader said, was Hovnanian Enterprises Inc.'s 8 5/8% notes due 2017, which he called down 1 point at 73 bid, 74 offered.

A market source saw Hovnanian's 6 3/8% notes due 2014 down a point at 70 bid.

The homebuilders all sagged after Citi Investment Research analyst Stephen Kim - who had just upgraded the sector in early October - now wrote in a research note that "the group has underperformed the market by more than 10%."

He said that it probably won't be until next year's second half that there will be "sufficient data" to allow investors to view the sector optimistically.

He reduced his stock ratings to "hold" from "buy" on a group of homebuilder including Standard Pacific, and lowered his price targets on several others, including Hovnanian and Beazer that he already rated as a "sell."

Countrywide pushed lower as stock dives

A market source saw Countrywide Financial's 6¼% notes due 2016 fall about 2 points on the session to just over 58 bid on heavy volume, with a number of large block trades seen. Its bonds had gyrated around in a 5 point range during the session, and had appeared to have stabilized around the 60 area, little changed on the day, before being pushed down to their closing level in late-day dealings.

Another market source said she saw "ugliness there - I don't know if bankruptcy is in the wind for them - who knows - but there's a lot of talk."

A trader in distressed high-yield bonds said that his shop was now watching the credit, despite its still nominally investment-grade credit ratings at Baa3/BBB+/BBB+ for most of its bonds.

"It can't really be high-grade when they've got one-year paper trading at [a yield of over] 30% - it's way below high-grade now."

He called the company's 3¼% notes due 2008 "very active," chalking it up to the high current yield the bond is carrying. The $1 billion issue was most recently trading at 88, he said, translating to a 32% yield - while the price, just below the 90 level, was still respectable enough, unlike the company's longer paper, some of which trades at badly distressed levels in the 60s and even the 50s. "I think [the yield] is an indication what people really think of Countrywide," he asserted. "If you have short-term debt with those kind of yields, there's a lot of concern whether or not they make it."

Another trader agreed. He pegged Countrywide's bonds - at least its short-dated paper - "pretty much unchanged," with the 3¼% 2008 notes holding steady at 86 bid, 88 offered, while its 4¼% notes slated to mature on Dec. 19 were stable at 97.5 bid, 98.5 offered.

However, with the latter bonds scheduled to be paid off in less than a month's time, such paper would normally be trading right at the par level - but the trader said that "with as much speculation [as there is] about what's actually going to happen at Countrywide, people are leaving it alone.

"It should be at par," he continued, "but it's a couple of points off because of the uncertainty about what's actually going on with Countrywide. No one's getting a really good handle on it."

Its bonds "are up a bunch, they're down a bunch - they've been down more than up recently - but they're kind of all over," because, he reiterated, "no one has a real good handle on what exactly is going to happen. There's rumors they're not going to be able to make interest payments - so the 61/4s are trading at that 58-59.5 level, and were down 2 points on the day. So those guys were trading way off - and these [short bonds] aren't trading right on top of par, just because people are unsure what's going to happen."

Countrywide's convertible senior debentures due 2037 were meantime seen lower at 77.9205 from Friday's finish at 78.7318.

The company's New York Stock Exchange-traded shares into which the latter notes can be converted meantime nosedived $1.01, or 10.47%, to finish at $8.64 on volume of 54.8 million, nearly 1½ times the usual turnover.

Besides the turmoil affecting the financial sector of the equity and debt markets generally, there was more bad news Monday for Countrywide investors in the person of the company's frequent nemesis, Sen. Charles Schumer, who accused Countrywide of treating the Federal Home Loan Bank system "like its personal ATM," and called for an investigation of the $51.1 billion in advances from the FHLB's Atlanta branch which Countrywide had received during the nine months ended Sept. 30. Almost half of that sum - $22.27 billion - was borrowed in the third quarter, as the credit crunch intensified. Countrywide secured the FHLB loans with $62.4 billion of mortgage loans as collateral, or 78% of its mortgage holdings - but Schumer charged that at a time when Countrywide's loan portfolio "is deteriorating drastically, FHLB's exposure to Countrywide poses an unreasonable risk."

The advances to Countrywide, the nation's largest independent mortgage lender, accounted for fully 37% of the advances which FHLB Atlanta made to mortgage lenders such as Countrywide - a concentration which the New York Democrat warned "may pose a risk to the safety and soundness" of the FHLB, which is composed of 12 regional government-chartered banks owned by over 8,100 U.S. financial institutions.

Broad market mostly lower

In other names, a trader saw Thornburg Mortgage, Inc.'s 8% notes due 2013 down 1 point at 83 bid, 85 offered, while Solo Cup Co.'s 8½% notes due 2014 lost 2 points to 85 bid, 87 offered. Movie Gallery Inc.'s 11% notes due 2012 were down 1 point at 25 bid, 27 offered.

The trader saw Calpine Corp.'s paper mixed - while its 8½% notes due 2011 firmed a point to 100.75 bid, 101.75 offered, "that was the only one that was up - the others were all off," including the bankrupt San Jose, Calif.-based power producer's 4¾% convertible notes due 2023, off 4 points to 92.5 bid, 94.5 offered and its 7¾% converts due 2015, 5 point losers at 91 bid, 93 offered.

A trader at another desk meantime saw LifeCare Holdings Inc.'s 9¼% notes due 2013 up 3 points to 57 bid, 59 offered on "technical reasons, people covering positions." He saw no news out on the Plano, Tex.-based hospital operator.

He also saw James River Coal Co.'s 9 3/8% notes due 2012 up 2 points after the Richmond, Va.-based coal operator raised its 2008 EBITDA estimates, citing a stronger coal market.

Dura to launch funding facility

In the bank loan market, a market source said that Rochester Hills, Mich.-based automotive components maker Dura - currently in the end-stages of its Chapter 11 reorganization - will launch its $425 million exit financing facility on Wednesday.

The facility consists of a $125 million revolver, a $225 million first-lien term loan B and a $75 million second-lien term loan, the source said, adding that price talk is expected to emerge at the launch.

Goldman Sachs and Barclays Capital are the lead banks on the deal that will be used to help repay the company's debtor-in-possession facility and pre-bankruptcy second-lien term loan, as well as to fund plan distributions.

Sara Rosenberg contributed to this report.

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