Technical Olympic bonds rebound; Spectrum notes slide; Tembec debt hurt by news

By Stephanie N. Rotondo

Portland, Ore., July 24 - Tuesday's distressed market was called "definitely soft" by one trader and echoed by other market players throughout the day.

"The market fell apart in the last hour," the trader said just after the closing bell. "Folks just don't want to play."

"The market took it on the chin again," said another trader.

Another source, however, saw the market picking up toward the end of the day, noting that sectors such as housing - which were hit recently in response to subprime mortgage woes and low demand - rebounded about point or so during trading.

Still, the second trader was not so sure the rebound was real.

"Maybe it rebounded in some spots," he said, but attributed that to short covering.

But Technical Olympic USA Inc.'s bonds - one of the aforementioned housing sector names - were seen slightly better, traders said, despite disappointing news in the mortgage sector.

As the market reacted to the news, other sectors felt the heat as well. Spectrum Brands Inc., a consumer products company, has seen its bonds weakening of late, and Tuesday's session was no different. A trader said that the company, which warned of poor earnings recently, is also being affected by investors' lack of confidence.

Temebc Inc. announced it would temporarily close another of its mills, a move aimed at reducing production in response to a lower demand. The news, however, hurt the forest products company's bonds, which fell as much as 2.5 points on the day.

"We're all waiting to pick up the pieces," a trader said of the heavy distressed and high-yield markets. "But nobody knows when that is going to be."

Technical Olympic rebounds

Homebuilders have been weakening lately and were further hurt by mortgage lender Countrywide Financial Corp.'s report that quarterly profit had dipped 33% on continued subprime mortgage concerns.

A trader said Technical Olympic's bonds were "all over the place," with the 10 3/8% notes due 2012 actually up a couple points at 66 bid, 67 offered while the 7½% notes due 2015 were deemed unchanged at 55.5 bid, 57.5 offered. He also saw the 7½% notes due 2011 down at 59 bid, 62 offered.

"It is weird how the separate issues traded differently during the day," he said.

The trader also mentioned he saw Beazer Homes Inc.'s 8 3/8% notes due 2012 at 84 bid, 86 offered, noting that "more buyside guys are asking about Beazer."

Another trader said that Technical Olympic's bonds rebounded a little during the session, with the 9% notes due 2010 closing at 87 after moving as low as 84. He also saw the 10 3/8% notes go as low as 64 before coming back to close at 66.5.

"The market felt better toward the end of the day," he said.

Still, traders agree that concerns in the subprime sector are affecting the housing industry, as well as consumer-driven products as a whole.

"As a result of the news from Countrywide Financial, the entire mortgage market got slammed," a trader said. "The issue was Countrywide took hits on prime level mortgages - so it is not just the badly underwritten subprime borrower experiencing problems."

Spectrum slides

In the distressed consumer products realm, Spectrum Brands' bonds were seen sliding yet again and actively quoted.

A trader quoted the 11¼% notes due 2013 down 1.5 points to 78 bid, 79 offered and the 7 3/8% notes due 2015 - which trade under the Rayovac Corp. name - at 68 bid, 69 offered.

Another trader saw the Rayovac bonds lower at 68.5 bid, 69 offered.

According to the second trader, there are multiple reasons why Spectrum's bonds have been slipping - not the least of which is the company's dire financial warnings that came out recently.

"People are generally concerned about the crisis in the housing market and inflation pressure and the impact that has on consumer spending," he said. For a consumer products company, that can mean bad news.

"The bullish scenario is they were going to make some asset sales," the trader continued. But with market conditions as they are, he doubted a buyer could be found and asked what kind of multiple would be factored.

"You don't have a lot of positive tailwinds for this credit," he said.

Fedders Corp., the maker of air conditioners and other air quality solutions, is also struggling under the weight of the subprime market, along with wetter weather in many parts of the country.

A trader saw the 9 7/8% notes due 2014 weaker at 28 offered, no bid. He said the bonds closed Monday's session at 30.

"It is raining everywhere," he said. "Nobody cares about air conditioners."

Also feeling pinched are retailers, whose lifeblood is linked to consumer spending.

Linens n'Things notes have been trading actively in recent weeks, but the value is slowly edging downward. A trader pegged the floating-rate notes lower at 67 bid, 68 offered.

The 9% notes linked to Harry & David, a purveyor of fine foods, were also seen softening, down about 4 points, a trader said. He placed the notes around 95, after closing the previous day around par.

Tembec dips

News that it would close yet another mill resulted in a loss in Tembec's bonds, traders reported.

A trader saw the 8 5/8% notes due 2009 "down a little bit" at 53.5 bid, 54.5 offered and the 7¾% notes due 2012 at 47 bid, 49 offered. He added that only "small pieces" traded.

"We might as well just trade the Canadian dollar," he said of the bonds that are typically moved more by the strength or weakness of the loonie. "It is more liquid."

Another trader said the bonds saw a "pretty healthy drop" of 2 to 2.5 points during the session. He saw the 8 5/8% notes at 54 bid, 55 offered and the 8½% notes due 2011 at 47 bid, 48 offered.

The Canadian forest products company announced Tuesday shutdowns at its Pine Falls, Man., newsprint mills, including a one-week stint in September and a four-day furlough in December.

The closures - the second announced in recent months - are aimed at reducing production, which has been hit due to the strength of the Canadian currency and weak demand.

Broad market lower

Dura Automotive Systems Inc.'s bonds were called lower on the day, with one trader pegging the 9% notes due 2009 at 3.25 bid, 4 offered and the 8 5/8% notes due 2012 at 63 bid, 65 offered.

Another trader saw the bonds down a few points, with the 8 5/8% notes at 64 bid, 65 offered, which he said was down 5 points from Friday.

LifeCare Holdings Inc.'s bonds were "off quite a bit," a trader said, placing the 9¼% notes due 2013 at 56 bid, 58 offered.

Meanwhile, Blockbuster Inc. and Movie Gallery Inc. bonds continue to weaken, after Monday's news that Netflix Inc. had made another move in its price war against Blockbuster.

A trader pegged Movie Gallery's 11% notes due 2012 down 3 points at 25 bid, 26 offered and Blockbuster's 9% notes due 2012 down 2 points at 82 bid, 83 offered.

At another desk, a trader saw the 9% notes at 82 bid, 83 offered, also called down 2 points, while the 11% bonds were seen at 25.5 bid, 26.5 offered.

Hines Horticulture Inc.'s 10¼% notes due 2011 were deemed "down a little bit" at 73.5 bid, 74.5 offered.

A trader said activity in American Color Graphics Inc.'s 10% notes due 2010 had died down after Monday's announcement that the company intended to merge with Vertis Inc.

"People are still waiting for more information," he said, placing the debt at 83 bid, 85 offered.

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