TOUSA weaker; ACG, Vertis notes gain; Delphi dips; Blockbuster, Movie Gallery slip

By Stephanie N. Rotondo

Portland, Ore., July 23 - A poor housing sector research note released Monday prompted most homebuilders to weaken during the session but none as much as Technical Olympic USA Inc. (TOUSA), traders reported.

Traders said the homebuilder's bonds fell as much as 8 points during trading. The losses were also attributed to problems associated with the company's attempt to sell some of its bank debt.

Meanwhile, merger news prompted gains of as much as 5 points in American Color Graphics Inc.'s (ACG) and Vertis Inc.'s bonds. One trader called the news "interesting" and said he looked forward to hearing more details of the agreement.

Delphi Corp.'s bonds continued the slide they started late last week, with traders placing the Troy, Mich.-based automotive parts supplier's bonds down several points on the session.

While there were several reasons given for the debt's dip, most market players agreed that a potential union strike was not helping investor confidence.

A continuing price war between Netflix Inc. and Blockbuster Inc. saw Blockbuster's bonds fall a couple points. The news that Netflix would lower its prices - a move aimed at regaining market share from Blockbuster - also hurt Movie Gallery Inc.

A trader noted that it seemed odd to lump Movie Gallery in with the other two, as Movie Gallery was the only one without an online presence - precisely the battleground for the price war. Still, he said that sector troubles are not helpful to the already struggling company.

TOUSA bonds drop

The housing market continued to tumble on Monday, this time spurred by a less-than-stellar research note published by Deutsche Bank analysts.

While one trader said the entire sector had fallen, including names such as Beazer Homes Inc. and Hovnanian Enterprises Inc., it was Technical Olympic's bonds that seemed to get the most attention in the distressed market.

A trader pegged the 9% senior notes due 2010 down around 87. Another trader also called the senior issue around 87, while the 10 3/8% notes due 2012 were seen down 5 points at 66.

At another desk, a trader called the Hollywood, Fla.-based homebuilder "down pretty hard," losing as much as 8 points on the session. He pegged the 10 3/8% notes down at 63 bid, 64.5 offered and the 7½% notes due 2015 at 55 bid, 58 offered.

As the sector continues to lose strength, analysts at Deutsche Bank reiterated many investors' concern.

"Our recent conversations with builders around the country find that housing demand has continued to wilt in the summer heat, with conditions sequentially worsening in the past four to six weeks," analysts Nishu Sood, Lou Taylor and Rob Hansen said in a research note published Monday. "Pricing pressure persists, with many markets in list-price reduction mode, as builders struggle to find demand that continues to slow as a result of mortgage-market contraction."

On top of the market pressure, TOUSA is also believed to be having problems internally. One trader said that the company is looking to sell some of its bank debt, while another said he heard there were some problems in that area.

"Buyers are not willing to buy it," the trader said.

Still, another trader said the buzz last week was that TOUSA would post better quarterly figures than some of its competitors.

"I guess we will have to wait and see," he said.

ACG, Vertis notes higher

News that it had signed a letter of intent to merge with Vertis Communications sent American Color Graphics bonds up as much as 5 points during trading.

A trader quoted the 10% notes due 2010 up 4 or 5 points in the mid-80s, while another trader saw the bonds at 84 bid, 86 offered.

The first trader also saw Vertis' 10 7/8% notes due 2009 up 3 to 4 points at 99 bid, par offered. The second trader said those bonds were "up several points," also at 99 bid, par offered.

"It will be interesting to see what they are going to do with the [ACG] bonds," the second trader said, adding that he is looking forward to seeing more details.

Vertis' chairman and chief executive officer, Mike DuBose, will helm the new company. Steve Dycott, ACG's current CEO, is expected to remain with the merged company.

Under the terms of the merger, owners of ACG will receive 10% equity in the new company and 8% of the mezzanine subordinated notes from Vertis.

A definitive merger agreement is expected Aug. 13.

Delphi bonds weaker

Delphi bonds continued to slip on news that some of its smaller unions had stepped up their efforts in their threat to strike.

A trader saw the 6½% notes due 2009 off at around 125, after trading north of 130 last week.

The bonds were "terribly bullish" in the early parts of last week, he said, as many investors thought there could be pre- and post-petition recovery. Now, it would seem, that is not the sentiment.

Another trader saw the 6½% notes due 2013 at 123, down from last week's high around 128.

"A crimp in the plan could be a negative for the bonds," the trader said on the speculation that the threatened strike was hurting the bonds.

Still, he said, there could be other technical factors. He pondered that investors could be selling stock and buying bonds. However, at the debt's currently high price, he is seeing "a lot of sellers and the buyers may have backed off."

In other distressed automotive names, Dura Automotive Systems Inc.'s 9% subordinated notes due 2009 were seen "continuing to drift down," a trader said. He slotted the notes at 3.5 bid, 4.5 offered.

Movie rental sector down

News that Netflix had made yet another strategic move in its price war with Blockbuster prompted the Dallas-based movie rental chain, along with its rival Movie Gallery, to lose several points in its bonds.

A trader said Movie Gallery's 11% notes due 2012 "came in" to below 30. Another trader saw the bonds in the 29.5 bid, 30 offered general context. The second trader also saw Blockbuster's 9% notes due 2012 fall to 84.5 bid, 85 offered.

At another desk, a trader also saw Blockbuster's debt lower at 84 bid, 84.5 offered. Another trader called the bonds "down a couple points" at 84 bid, 85 offered.

Online move provider Netflix announced Sunday that it would lower the price of two of its more-popular subscription plans by $1, making the plans competitive with Blockbuster's current fees.

The cut is the second of its kind this year. Earlier in the year, Netflix lowered its subscription rates by $1 in an attempt to gain market share from Blockbuster.

"It doesn't look good for Movie Gallery," a trader said, noting that the Dothan, Ala.-based movie rental chain has no online presence, which has hurt the company's market share. "They are pretty much caught in the middle" of the Netflix/Blockbuster price war, he said.

"People are not optimistic about those bonds," he added.

Hines notes slip

Hines Horticulture Inc.'s bonds are continuing to slip, as a trader speculates that the market is expecting poor second-quarter results.

The trader quoted the 10¼% notes due 2011 at 74.5 bid, 75 offered.

The trader said the company has restated its financials, a feat the company has been attempting since earlier this year. However, it is the recent resignation of its chief financial officer that has people talking.

Robert A Ferguson left the nursery supplier on July 17. Speculation in the market is that Ferguson may have been pushed out of his post.

"The whisper is that the board saw the second-quarter preliminary numbers," the trader said. "And they thought, 'if that is the best he can do...'"

The bonds have seen decent activity of late, which typically means something is going on, especially in a name such as this that rarely trades.

Broad market mixed

A trader saw 155 East Tropicana LLC, also known as Hooters, 8¾% notes due 2012 trading near par, which "is about where they have been," he said.

The trader also saw TransMeridian Exploration Inc.'s 12% notes due 2010 up slightly at 94.25 bid, 94.5 offered on news that the oil drilling company had reopened some of its fields. He said the stock also rose 30 cents, or 19.35%, to $1.85. He noted that the stock was around $1.06 about a week and a half ago.

Elsewhere, a trader called Linens n'Things' floating-rate notes active during the session, though they closed lower. He pegged the bonds down 1.5 points from Friday at 67 bid, 67.5 offered.

The trader said other retailers were also weaker, such as Burlington Coat Factory Warehouse Corp. Its 11 1/8% notes due 2014 were seen around 91.5.

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