Earnings prompt dip in Technical Olympic notes; Movie Gallery stable on earnings

By Stephanie N. Rotondo

Portland, Ore., March 19 - The wait was over Monday as Technical Olympic USA Inc. released its fourth-quarter and annual results, prompting mixed results in its bonds.

A trader surmised that the company has "more debt ahead of them," as the homebuilder continues talks with the mezzanine lenders of its Transeastern joint venture. One settlement possibility mentioned was the issuance of new debt or equity.

In other earnings news, Movie Gallery Inc., which posted its fourth-quarter and annual results Friday, saw little price movement in its bonds. A trader said the notes were unchanged.

Meanwhile, Collins & Aikman Products Co. and Fedders Corp. are delaying filing of their earnings reports. A trader said the delay did not spark activity in auto parts maker Collins & Aikman, noting, "they very rarely trade."

Elsewhere, Bally Total Fitness Holding Corp. is continuing to be a big name, though a trader said the company's bonds are not moving as heavily as they were last week. The trader also noted a rumor that the fitness operator's bondholders had hired a law firm to represent them.

Overall, traders reported a busy Monday.

"It was a very decent day," a trader said.

Technical Olympic mixed

Technical Olympic's subordinated notes fell about 2.5 points, according to one trader familiar with the name, as the Hollywood, Fla.-based company released its quarterly results.

The trader placed the 10 3/8% subordinated notes due 2012 at 82 bid, 82.5 offered. He said the 9% senior notes due 2010, however, were unchanged at 94 bid, 94.5 offered.

"It looks like they have more debt ahead of them," he said of the earnings report. "But it was coming."

For the fourth quarter of 2006, the homebuilder posted a net loss of $243.8 million, including $97.9 million of non-cash, pre-tax, impairment related charges and a $275.0 million pre-tax loss contingency related to the proposed settlement for the potential restructuring of the Transeastern joint venture, according to a press release.

The company also posted a 6% increase in homebuilding revenue at $688.4 million, despite a 34% decrease in consolidated net sales orders, at 1,110 orders.

For the fiscal 2006 year, the company reported a net loss of $201.2 million, compared with net income of $218.3 million for the previous year.

"Despite our fourth quarter revenue growth over the record levels of 2005, the effects of the rapidly deteriorating housing market negatively impacted our net income," said Antonio B. Mon, president and chief executive officer, in a press release. "Our margins declined due to our reducing prices and increasing incentives in order to maintain sales velocity in light of the larger issues of adverse market conditions, which include increased cancellations, decreased demand, too much supply, and low affordability."

The company also said it continues to discuss settlement options with lenders of its Transeastern joint venture. The release stated that a settlement could result in the issuance of new equity or debt by Technical Olympic or its subsidiaries. The company also is looking to terminate the joint venture's rights under option contracts and any other obligations.

However, the company said, "There is no assurance that TOUSA will be able to reach satisfactory settlements in these negotiations. Any settlements are likely to involve the company having to incur more indebtedness which could, among other things, increase its debt servicing obligations and reduce its ability to incur indebtedness in the future."

For the fiscal year ended Nov. 30, 2006, Transeastern reported a net loss of $468.0 million, a significant portion of which loss can be attributed to $279.8 million in inventory impairments and write-off of land deposits and abandonment costs.

Movie Gallery stable

Movie Gallery posted its fourth-quarter results on Friday, showing a 1.9% decrease from the same quarter the previous year.

Still, a trader reported that the Dothan, Ala.-based movie rental chain saw its bonds unchanged on the day at 90 bid, 91 offered. Another market source, however, called the 11% notes due 2012 up 3 points from Friday at 90.75.

Movie Gallery posted total revenues of $663.3 million, down from $676.4 million in the fourth quarter of 2005. The company did, however, show an increase in its operating income, coming in at $18.7 million, compared with an operating loss of $514.0 million in the same period last year.

At the end of its fiscal year, Movie Gallery had total cash and availability under its old revolving credit facility of $69 million. As of Friday, the company also had total cash and availability under the new $900 million revolver of more than $111 million.

Collins & Aikman stagnant

In other earnings news, Collins & Aikman said it would have to delay posting its 10-K, according to a filing with the Securities and Exchange Commission. The company attributed the delay to its former independent auditor KPMG LLP being unable to complete its 2004 and 2005 audits.

The news did little for the company's bonds, however. According to a trader, the company's 10¾% notes due 2011 "very rarely trade."

"The sellers finished selling a long time ago," the trader added.

The trader placed the senior notes, which he said saw "tiny" trades, at 3.5 bid, 4 offered.

In other distressed auto parts supplier names, one trader called Remy International Inc.'s 8 5/8% notes due 2007 up 1.5 points. He quoted the notes as closing at 76.

He said there was no news out on the company, but he "saw buyers coming in."

At another desk, however, a trader called the notes down at 72.

Fedders unchanged

Liberty Corner, N.J.-based Fedders also asked to delay filing its 10-K, stating in a filing with the SEC that efforts have been redirected to the refinancing of its credit facility.

According to a trader, the company is close to signing a refinancing agreement with Goldman Sachs Credit Partners LLC. The air quality solutions producer announced earlier this month that it had signed a commitment letter with Goldman Sachs, but the deal was contingent on certain conditions being met by March 30.

But being this close to finalizing the deal "didn't make a difference" in the company's bonds, the trader said. He called the 9 7/8% notes due 2014 unchanged at 57 bid, 58 offered.

Bally's buzzes

Fitness center operator Bally's continues to be a name bandied about, though a trader said the company's bonds traded "very little compared to last week."

The trader said he saw a bid of 92.25 on the Chicago-based company's 10½% notes due 2011. He called that up half a point, while another market source pegged the notes as closing at 92.75, down a quarter of a point.

The trader said the company has engaged in a number of conference calls with its investors. He heard buzz in the rumor mill that the company's bondholders had hired the law firm of Akin Gump Strauss Hauer & Feld LLP to represent them.

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