New Century up in subprime bounce; Technical Olympic sinks lower; Remy better

By Stephanie N. Rotondo

Portland, Ore., March 15 - New Century Financial Corp. benefited from a subprime lender bounce in Thursday's markets after spending most of the week tanking downward.

The company's preferreds made a significant recovery, and the equity saw an increase as well - despite being dropped from a listing on the New York Stock Exchange this week.

But the bounce did not help Technical Olympic USA Inc. A distressed trader said the homebuilder's bonds fell as much as 3 points during the trading day.

Elsewhere, Remy International Inc. saw its bonds gain, though a trader could not explain the movement.

While the stock market improved over the course of the day - and investors tried to shake off their weariness - bond traders reported that the distressed market was still relatively quiet. Traders did note, however, that distressed paper seemed to reject its equity counterpart's volatility.

"Everything seemed to firm a little," one trader said.

"Fedders is stable; Milacron is stable. Everything else I traded today was stable," said another trader, who spent most of his day immersed in the subprime sector.

New Century rebounds

The subprime mortgage sector was seen making a significant comeback, according to a trader familiar with the industry.

"There was a massive bounce in all these lenders," he said.

In fact, New Century's preferreds were called 50% better, increasing to nearly $10 from its previous level of about $6.50. On the equity side, the trader said the company's stock - recently booted from the NYSE - increased 100%, closing at $1.40 from the previous day's close of 70 cents.

"You see that, though, in these penny stocks," he said.

Times have been tough for New Century and other subprime lenders of late. Investors have been weary of the sector since housing prices began to slide and borrowers are missing payments.

New Century has been hit particularly hard, teetering on the edge of bankruptcy. An Associated Press report said federal investigators are now looking into whether admitted accounting errors were caused by bad bookkeeping or by fraud.

Last month the company said it failed to accurately total losses from loan repurchases and would have to restate financial results for the first three quarters of 2006. The revelation prompted the company's creditors to cut off funding and demand a buyback of billions in mortgage loans.

Technical Olympic hammered down

The subprime bounce did little to help Technical Olympic's bonds, as a trader said the homebuilder's 10 3/8% subordinated notes fell about 3 points.

The distressed trader said the bonds due 2012 last traded at 85.25.

The Hollywood, Fla.-based company, which builds residences in the $200,000 to $300,000 range, has suffered as mortgage lenders have tanked. A delayed reporting of earnings is also not helping, a trader said earlier in the week.

Remy improves

Remy's bonds were seen several points improved on Thursday, although a trader said, "I don't know what's going on there."

He saw the Anderson, Ind.-based automotive electrical systems manufacturer's Declo Remy 8 5/8% notes due 2007 having moved up to 75 bid, 76 offered from prior levels at 72 bid, 74 offered, while its 11% notes due 2009 and 9 3/8% notes due 2012 were each likewise up 3 points at 19 bid, 20 offered and 18 bid, 19 offered, respectively.

The company was recently reported to be trying to arrange a new workout loan that could end up being a debtor-in-possession financing if Remy is not able to reach a consensual out-of-court restructuring with its bondholders.

The company had previously announced the hiring of the Rothschild investment banking firm as a financial adviser to help pursue delevering transactions.

According to published reports, several major institutional and hedge fund lenders have gotten restricted and are talking to Remy about the funding, although those talks at this point are in their preliminary stages.

Broad market better, steady

Movie Gallery Inc. recouped some of the losses earned in Wednesday trading. A trader saw the Dothan, Ala.-based movie rental retail chain's 11% notes due 2012 at 88 bid, 88.75 offered "all day long." The day's numbers equaled an almost 1-point increase from the previous day.

In the automotive arena, a trader saw Dana Corp.'s 6½% notes due 2008 up by 2 points on the day at 76.5 bid, 77.5 offered against a backdrop of the bankrupt Toledo, Ohio-based parts manufacturer turning to the courts this week to terminate labor contracts and retirement benefits for employees represented by the United Auto Workers and United Steelworkers.

The trader meantime saw no movement in bankrupt Troy, Mich.-based components manufacturer Delphi Corp.'s 6.55% notes due 2006, still hovering around 111 bid.

Among the airline issues, a trader saw Northwest Airlines Corp.'s 10% notes due 2009 up 3 points at 84.5 bid, 85.5 offered, although he saw rival bankrupt carrier Delta Air Lines Inc.'s 8.30% notes due 2029 close to unchanged at 53 bid, 54 offered.

The trader saw other well-known distressed names like Tembec Inc., Calpine Corp., Fedders Corp. and Movie Gallery Inc. essentially unchanged from Wednesday's levels.

Kelson loan makes comeback

Kelson Holdings LLC's second-lien term loan started to come back a little on Thursday after spending the last few days in somewhat of a downward spiral due to market conditions, according to a trader.

The second-lien PIK loan ended the session at 97½ bid, 98 offered, up from Wednesday's closing levels of 96 bid, 96¾ offered.

"The distressed market felt a little stronger, as did high yield," the trader said in explanation of the rebound.

Kelson, a company wholly owned by Harbinger Capital Partners, is a holding company established for the management and ownership of certain power plants.

Bally gets bopped

Back in bond activity, Bally Total Fitness Holding Corp.'s 10½% notes due 2011 slid badly in late dealings Thursday, after the Chicago-based fitness club operator said that it is looking at restructuring its $827 million of debt - and might be forced into a bankruptcy filing if it cannot do so.

After a pretty uneventful session, those bonds - which had closed on Wednesday around 100.5 - began sliding in active afternoon size trading, first to around the 85 level, before ultimately going home at 89.25 after closing out the session in hectic activity.

Bally's 9 7/8% notes scheduled to mature a month from now, on the other hand, were little changed, investors apparently believing that the bonds will be money good next month. They actually rose a bit, to 96.5 bid, from about 95 at Wednesday's close.

"I think all of us had been waiting to see something on them," a trader noted.

The company, in a filing with the Securities and Exchange Commission, said that it would not be able to file the 10-K annual report for 2006 with the SEC that was due on Thursday, and said it did not know when that report might be filed. The company announced plans to write off as much as $37 million in asset values because it overestimated how long memberships taken out by customers would last.

It said that it had hired Jefferies & Co. as a financial advisor - and warned that if it were unable to satisfactorily restructure its debt it might have to consider a Chapter 11 filing.

Bally is looking at a pending maturity of its 9 7/8% notes on April 15.

"We were hoping they would have some sort of resolution on that piece [of debt] sooner than now," the trader said, "because it became short-term debt once we rolled into this year."

The trader said that "people had thought that even if they have trouble with the 9 7/8% subordinated notes, that the 10½% senior notes would be fully covered. Obviously, people may not feel like that any more.

"In general, we have been waiting - and expecting to hear more out of this company, sooner than now."

Sara Rosenberg and Paul Deckelman contributed to this article.

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