Technical Olympic bonds softer; Movie Gallery bonds slide; Dura paper mixed

By Stephanie N. Rotondo

Portland, Ore., July 25 - Technical Olympic USA Inc.'s bonds were seen heavier during Wednesday's session despite an early attempt to stage a comeback.

The homebuilder's bonds have been struggling of late, with overall market concerns linked to the subprime market and a poor housing outlook weighing the debt down. Now, it seems, the company is adding insult to injury with a new bank deal, said to be putting more pressure on the bonds.

Meanwhile, traders are saying that Movie Gallery Inc. is a name that continues to be brought up by market players. Many are wondering what will happen next for the struggling movie rental chain, as the bonds continue to slide deeper into distressed territory.

Dura Automotive Systems Inc.'s notes were mixed on the session, a trader reported. While the subordinated notes - currently slated to be wiped out post-bankruptcy - were called unchanged, the senior notes felt weaker.

As July quickly nears its end, traders are watching the distressed bond markets, hoping for increased volatility.

"It was a disappointing day," a trader said. "I was hoping to see more follow through" from the previous day's declines in the marketplace.

"I don't know what's going on," he said. "Guys are still looking for new ideas," but so far, there have been few of those.

Technical Olympic softer

A new bank deal priced at a 12% yield was fingered as the culprit for added pressure on Technical Olympic's bonds, a trader said.

The trader saw the 9% senior notes due 2010 lower at 85 bid, 85.5 offered. Another trader quoted the 7½% notes due 2011 "a little weaker, but not much," at 58 bid, 60 offered. He also saw the 10 3/8% notes due 2012 at 66 bid, 67 offered, which he called "pretty much unchanged."

"They tried to get stronger and then just kind of faded away," the trader said.

The Hollywood, Fla.-based homebuilder increased pricing on all tranches under its $1.2 billion credit facility and made second-lien call premiums juicier for investors, according to a market source.

The $700 million revolver and the $200 million first-lien term loan (B2/B-) are now both priced at Libor plus 375 bps, up from original talk at launch of Libor plus 350 bps, the source said.

The first-lien term loan still carries 101 soft call protection in years one and two.

Meanwhile, the $300 million second-lien PIK toggle term loan (Caa2/CCC-) is now priced at Libor plus 725 bps, up from original talk of Libor plus 650 bps, the source continued.

If PIK pricing is elected on the second lien, pricing bumps up by 75 bps.

In addition, the second-lien term loan is now non-callable for one year, then at 102 in year two and 101 in year three, as opposed to just carrying call protection of 102 in year one and 101 in year two, the source remarked.

Citigroup is the lead arranger, bookrunner and administrative agent on the deal.

Security is substantially all of the company's assets.

Financial covenants include minimum adjusted consolidated tangible net worth, maximum ratio of debt adjusted consolidated tangible net worth, minimum ratio of EBITDA to interest incurred, maximum ratio of units owned to units closed, maximum ratio of land to adjusted consolidated tangible net worth, maximum ratio of unsold units to units closed, maximum ratio of outstanding secured debt and letters of credit to book value of inventory.

Proceeds will be used to fund settlements related to the Transeastern joint venture, including the repayment of Transeastern's $400 million of senior debt in full.

As part of the settlement, Transeastern will become wholly owned by the company and merged into one of its subsidiaries.

The settlement is expected to close on or about July 31.

Movie Gallery weaker

A trader said that Movie Gallery continues to be a name talked about in the marketplace, as the bonds have been on a perpetual slide.

The trader said the bonds lost a few more points during the day's session, with the 11% notes due 2012 closing at 23 bid, 24 offered. Another trader agreed with that quote, adding "it is definitely losing steam."

"I think the smoke and mirrors are gone," the trader continued. He noted that, with uncertain cash flows, many market players are having difficulty coming up with a valuation scenario.

"Folks are still watching it," the first trader said.

However, "folks" have just a few more weeks to do that: a forbearance deal with its senior lenders gives the company until Aug. 14 to come up with a solution to its financial difficulties. But, if the Dothan, Ala.-based movie rental chain incurs another default on its credit facility or forbearance agreement, then all bets are off and the lenders can exercise their rights - potentially forcing the company into bankruptcy.

In the rest of the sector, Blockbuster Inc.'s 9% notes due 2012 were also weaker again, at 78 bid, 80 offered.

Dura mixed

Dura's bonds were seen weaker, according to a trader, but there was no real explanation for the losses.

The trader called the 9% subordinated notes due 2009 unchanged at 3.5 bid, 4.5 offered but saw the 8 5/8% senior notes due 2012 softer at 62 bid, 63 offered.

At another desk, a trader saw the senior bonds down another 3 points to 61 bid, 63 offered.

Dura's subordinated notes meanwhile stayed around the 3 bid, 5 offered area at which they have lately been seen.

Under the current draft of Dura's reorganization plan, holders of the company's subordinated debt will receive no recovery, while senior debtholders will own a majority of the post-bankruptcy entity.

At a court hearing held Tuesday, the company chose to reschedule a hearing to discuss a $160 million rights offering, backstopped by Pacificor LLC, Bennett Management Corp. and Wilfrid Aubrey LLC. The court session was originally set for Aug. 1 but has been put off until Aug. 15 to let more investors file their comments on the deal.

Autos down

Among other names in the distressed automotive parts supplier realm, Dana Corp., which has recently come under fire from Appaloosa Management LP - a major shareholder in the company - also, saw its bonds move lower.

A trader pegged the 6½% notes due 2009 at 99 bid, par offered, down from the previous day's levels of 102 bid, 103 offered.

Elsewhere, a trader saw the 6½% notes due 2008 at par bid, 101.25 offered, down about 0.75 point on the day. He saw no fresh news out about the bankrupt Toledo, Ohio-based auto parts company.

The manufacturer of automotive components has defended an investment deal with Centerbridge Capital Partners, though Appaloosa and other shareholders have stated that the deal leaves stockholders empty handed once the company emerges from bankruptcy.

A trader also saw Visteon Corp.'s bonds - which on Tuesday had fallen 2 points - down another point on Wednesday, although he saw no fresh news out about the Van Buren Township, Mich.-based parts supplier and former Ford Motor Co. subsidiary.

He said Visteon's 8¼% notes due 2010 eased to 91 bid, 93 offered, while its 7% notes due 2014 remained about 10 points behind that, at 81 bid, 83 offered.

And, lastly, Delphi Corp.'s 6.55% bonds that were to have come due last year were deemed unchanged at 121 bid, 123 offered.

Broad market lower, unchanged

Spectrum Brands' 11¼% notes due 2013 were seen at 78.25 bid, 78.75 offered by one trader, who said he was "not a fan of that story."

Another trader pegged the toggle notes at 78 bid, 79 offered, which he called unchanged.

That trader also saw Hines Horticulture Inc.'s 10¼% notes due 2011 at 73.5 bid, 75 offered.

"More and more people are talking about Hines Horticulture," he said. When asked what was being bandied about, he said there were many questions surrounding the typically inactive name.

Another name the trader saw gaining attention was French Lick Resorts & Casino LLC. He said the 10¾% notes due 2014 - which were released late March and were priced at par - were trading at 74 bid, 77 offered.

Fedders Corp.'s 9 7/8% notes due 2014 were called "off" at 28, though it was noted that the bonds traded as high as 29 later in the day.

Linens n'Things floating-rate notes were called "down again" at 64.5 bid, 66.5 offered.

A trader saw Tembec Inc.'s recently weaker bonds pretty much unchanged on the day, with the Montreal-based forest products company's 8 5/8% notes due 2009 holding steady at 51 bid, 53 offered.

Sara Rosenberg and Paul Deckelman contributed to this article.

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