Rumors spur activity in Doral bonds, stock; Technical Olympic weakens

By Stephanie N. Rotondo

Portland, Ore., March 22 - Rumors spurred a surge in activity in Doral Financial Corp.'s bonds Thursday as traders speculated what could be next in the distressed financial institution's future.

A merger with another Puerto Rican bank or news of a possible recapitalization also helped an almost 25% increase in the company's stock.

"Oh my god," said one intrigued trader familiar with the name.

"That could be very positive for bondholders," he added of the possible merger.

Meanwhile, Technical Olympic USA Inc.'s notes are continuing to weaken. The company has seen hard times of late, with subprime woes, poor earnings and outlook and a slumping housing market plaguing the homebuilder.

After closing on its new $90 million refinancing deal, Fedders Corp. is seeing better numbers in its bonds. The company almost lost its shirt after missing a coupon payment earlier this month.

Elsewhere, Northwest Airlines Corp.'s bonds were steady during trading as a group of hedge funds publicly released its holdings in the company's debt and equity. Delta Air Lines Inc. saw a high of 58 in its most active issue but settled in a half point down on the day.

Doral floaters active

Doral's floating-rate notes "got active" in late afternoon trading, spurred by buzz in the rumor mill.

A trader saw the bonds due in July at 94 bid, 94.5 offered. At another desk, a trader said the notes came in at 94.25 bid, 94.5 offered.

The buzz on the Puerto Rican bank was that a merger with fellow Puerto Rico bank W Holding was on the horizon. Another rumor moving around was that the bank was looking to recapitalize.

"It's like on the edge of a knife," a trader said of the bank. "People feel this could be reorganized to survive."

He said the bank has been touted as having the worst loan coverage in history and is also seeing a liquidity crunch.

But, he also said that it looks like bondholders are not looking to be part of a reorganization but perhaps want a payoff. He said investors are going short on the bonds and buying up the preferreds.

He also said he did not understand why a company would merge with Doral, calling it an "expensive takeout." He surmised that any company looking to buy the bank would want a "really good deal."

The bank saw also saw a spike in its equity on the merger news. A trader called the rumor "wild speculation," adding that an early morning surge was due to an order imbalance, which triggered short covering. Then the merger buzz began.

At market close, Doral's stock was seen up 37 cents, or 24.03%, to $1.91.

In other distressed banking news, Fremont General Corp. saw its bonds better by about 2 points, though a trader said that could be "bogus." He saw the 7 7/8% notes due 2009 at 96.5 bid, 97.5 offered, though on small trades.

The lender announced earlier this week that it had sold $4 billion of its subprime loans to an undisclosed seller.

Technical Olympic weaker

Technical Olympic's bonds are looking for shelter as the floor continues to drop out from under the notes.

A trader called the 10 3/8% notes due 2012 down about 3.5 points at 76 bid, 77 offered. He also saw the 7½% notes of 2015 at 69 bid, 71 offered, which he called "unchanged on the day, but still a tremendous drop off" from previous levels.

The Hollywood, Fla.-based homebuilder has been plagued with poor earnings and a slumping housing industry. The subprime meltdown did its damage as well, as the company builds home in the $200,000 to $300,000 range - ripe for subprime lenders.

Fedders up on small trades

Fedders' new $90 million refinancing deal is continuing to help its 9 7/8% notes due 2014. A trader pegged the notes up at 59 bid, 61 offered.

The Liberty Corner, N.J.-based company missed its coupon payment earlier this month. The company entered into the grace period while looking for refinancing on its debt. The close of the refinancing deal came just over a week before the end of the grace period.

The company has also delayed filing its fourth-quarter and annual results. The company said in a filing with the Securities and Exchange Commission that efforts typically focused on preparing those documents had instead been directed toward the refinancing.

Airlines mixed

Northwest Airlines bonds were relatively unchanged as a group of hedge funds publicly disclosed their trading activity in the distressed airline's stock and debt.

A trader placed the company's 10% notes due 2009 at 87 bid, 88 offered. He said they may be slightly off, as they were trading at 88.5 in the morning.

A judge had ordered the group, consisting of eight investment firms and one individual, to disclose how much they had invested into the company. The group has been fighting the airline, saying a merger would bring more value to the company.

Northwest has said it has no plans to merge even after emerging from bankruptcy and is looking to go forth with its own reorganization plan.

In other distressed airline paper, Delta's 8.30% notes due 2029 came in at 56 bid, 56.5 offered, according to one trader. He said the notes traded as high as 58 during the day.

Another trader called the notes 55.5 bid, 56.5 offered.

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