Subprime hurts Technical Olympic; Fedders better; MagnaChip down

By Stephanie N. Rotondo

Portland, Ore., March 12 - The issues affecting subprime mortgage lenders helped weaken Technical Olympic USA Inc.'s bonds Monday as investors continued to show concern in that sector.

A trader said the "subprime implosion," combined with delayed financial results, dropped the homebuilder's notes as much as 3 points during the trading day.

Meanwhile, a fresh rumor is helping, not hurting, Fedders Corp.'s bonds. Sellers have also stepped back, prompting a shortage of available bonds and buyer's competing for the notes.

No news is not always good news, at least in the case of MagnaChip Semiconductor Ltd. The company saw a decent sized drop in its bonds, but traders cannot account for why.

Traders reported an overall quiet day, though one market participant said the market was "reasonably firm."

At another desk, a trader said there was very little action in the market across the board.

"It's dead across the board; it's not just high yield and distressed," he said. "It'll make for a very boring week."

Technical Olympic drops 3 points

Technical Olympic saw its bonds weaken on continued worries of investors.

A trader said the 10 3/8% notes due 2012 fell the largest, losing 3 points to come in at 89 bid, 89.5 offered.

The trader said a lack of financial figures - the company delayed the report its quarterly results - and the recent subprime implosion have hurt the Hollywood, Fla.-based homebuilder.

The company builds homes in the $200,000 to $300,000 range and, according to the trader, "that's where the subprime problems are coming from."

The subprime problem stems from investors concern that a surge in companies lending to people with poor credit could spill into other sectors. Investors have been weary of the subprime market, hurting many mortgage lenders, such as New Century Financial Corp. That company warned early Monday that its financial woes could continue, as investors have cut off short-term funding.

In other subprime news, Doral Financial Corp.'s floating-rate notes "caught a bid," according to one trader. He saw the notes up a quarter of a point at 94.25.

The trader added, "People are trying to short them, but I don't know why."

The trader also noted he did not see an actual market on the bonds.

Fedders sees improvement

After finishing Friday in a 55 bid, 56 offered context, Fedders' 9 7/8% bonds due 2014 opened at around 58 and then bounced around at those mostly higher levels, at one point spiking as high as 61 for a brief period before coming off that peak to settle in around 58. However, late in the session, there were a series of small trades in a 53 bid, 55 offered context.

The sellers have cleared out, according to a trader, who called the notes 58 bid, 59 offered. He said the gain is due to buyers competing for the bonds.

At another shop, a trader said that the bonds were ending at around 55.5 bid, 56 offered, which he called unchanged on the day.

But another trader thinks the notes are around 54 bid, looking for an offer. He said the day's trades were small and therefore not necessarily an accurate reading.

But what traders have agreed on is the freshest rumor out on the Liberty Corner, N.J.-based company.

A trader told Prospect News that he heard the company's new $90 million refinancing deal could close as early as next week.

"That's a good rumor," said another trader. "I like that rumor."

The company has until March 30 to satisfy certain requirements set forth in the commitment letter with Goldman Sachs Credit Partners LP. Kent Hansen, executive vice president of administration, said in an interview with Prospect News, "We're working hard to get those done as quickly as we can."

Hansen also said that the company expects to pay the late coupon payment, which was due March 1, within the grace period.

"As soon as the refi is signed, they can pay the coupon," a trader said.

Hansen did, however, decline to comment on an estimated closing date.

MagnaChip down

MagnaChip lost 3 points during trading, according to a market source, but he could not figure out why.

"None of the other chip companies were down," he said.

He pegged the Seoul, South Korea-based semiconductor producer's 8% notes due 2014 trading in the 66 context. He called the bonds a "very weak credit."

The trader said the senior floating-rate notes due 2011 also fell, closing at 87.5.

At another desk, a trader said the notes were down about a point for most of the session, but he said that late in the day, there was more selling, which dropped the bonds a total of 3 points on the day, to 64 bid, 68 offered.

No fresh news has come out on MagnaChip, though last week did see the chip maker's bonds drop about 2 points on Thursday, then regain 1.5 points by Friday.

Remy softens

A trader saw Remy International Inc.'s bonds - which on Friday had pushed to the upside, probably on short covering after several days of declines - once again heading downward.

He quoted the Anderson, Ind.-based automotive electrical systems maker's Delco Remy 8 5/8% senior notes due 2007 down a point at 72 bid, 74 offered, while its junior notes - its subordinated 11% notes due 2009 and 9 3/8% notes due 2012 - were also down a point at 16 bid, 18 offered.

The company's bonds have recently been roiled by rumors that Remy was hunting for debtor-in-possession financing - a possible sign it intends to file for Chapter 11, market participants said.

The company declined to comment on the rumors Monday.

Broad market mixed

A trader saw Dana Corp.'s bonds better, with the bankrupt Toledo, Ohio-based parts company's 6½% notes due 2009 up 1.5 points at 75 bid, 76 offered.

Outside of the autos, he saw Movie Gallery's 11% notes due 2012 down a point at 89.5 bid, 90.5 offered. He saw Tembec's bonds lower across the board, with its 8 5/8% notes due 2009 at 79 bid, 80 offered, its 8½% notes due 2011 at 70 bid, 72 offered and its 7¾% notes due 2012 at 66 bid, 68 offered, all down a point.

Masonite loan paper loses

Masonite International Inc.'s term loan traded lower as the company announced financial results for the fourth quarter and a reduction of business by its largest customer, according to a trader.

The term loan ended the day at 99 5/8 bid, 99 7/8 offered, down from previous levels of 99¾ bid, par offered, the trader said.

For the fourth quarter, Masonite's sales were $585 million compared with $595.2 million in fourth-quarter 2005, operating EBITDA was $69 million compared with $49.6 million in 2005 and consolidated adjusted EBITDA was $75.8 million compared with $69.5 million in the prior-year period.

"Masonite felt the full impact of weakness in both the new residential construction and the repair and remodeling markets during the fourth quarter," said Kenneth W. Freeman, chairman and chief executive officer, in a company news release. "Despite difficult market conditions, our profitability improved significantly compared to the fourth quarter of 2005."

For the full year, the company reported net sales of $2.465 billion compared with $2.429 billion in 2005, operating EBITDA was $302.4 million compared to $228.1 million in 2005 and adjusted EBITDA was $332.6 million compared to $298.4 million in the prior year.

The main news affecting the term loan, however, seemed to be Masonite's loss of business with an important customer, a trader added.

In the earnings announcement, Masonite said that its largest customer will reduce its volume of business with the company by about 50% starting later this year as a result of price increases implemented by Masonite during 2006.

"Although we are disappointed with this decision, it is essential that we ground Masonite on a solid foundation of selling our door products at prices that provide us with appropriate returns for the value we provide," said Freeman, in the release. "We are actively pursuing opportunities to accelerate growth with existing and new customers, and we are evaluating selective adjustments in capacity as we strive to balance supply and anticipated demand."

Masonite is a Mississauga, Ont.-based manufacturer of residential and commercial doors.

Sara Rosenberg and Paul Deckelman contributed to this article.

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