Technical Olympic seniors up, juniors dip; Blockbuster steady; Spectrum Brands firms

By Stephanie N. Rotondo

Portland, Ore., Aug. 9 - Technical Olympic USA Inc.'s earnings call Thursday reportedly went well, which helped push the company's senior notes up during the session.

The junior notes, however, were seen weakening. A trader said the varied reactions were likely due to market players believing there was "decent value" left for the seniors in the event of liquidation.

But, even as the market seemed pleased with what the company said during the call, at least one trader said he expected the company to file for bankruptcy before the end of the year.

Meanwhile, Blockbuster Inc. announced it had added yet another weapon to its arsenal against competitor Netflix. The company said it would purchase movie download firm MovieLink for an undisclosed sum. With that acquisition, Blockbuster can now compete with a similar service offered at Netflix.

The news, however, left the movie-rental chain's bonds untouched - or slightly lower, depending on whom you ask - and one trader doubted that the purchase would add any value to the company.

Despite a wider third-quarter loss - posted earlier this week - Spectrum Brands' bonds were seen at least 2 points better on the day. A trader said he had not heard anything on the company, but a pending asset sale could be a factor in the debt's gains.

Thursday was another one of those days when most are focusing their attentions on a volatile stock market, which lost almost 350 points during trading. The active equity market led to a rather quiet bond market, traders said.

"The whole market was down," a trader said. "Everyone was chasing bids all day."

"Lots of panic," one trader said, characterizing the day's activity. "Guys are coming out of the woodwork. The sky is falling."

Still, others were more positive about the day.

"The high-yield market held in pretty good today," said another trader, "considering what we were faced with this morning."

Tousa: To file or not to file

Traders gave varied reports on Technical Olympic's bonds, as the company posted its second-quarter results.

A trader saw the homebuilder's 9% senior notes move as high as 80 during the conference call held Thursday and then close the day at 79.5 bid, 80.5 offered.

But while the seniors moved up, the trader said the juniors were "down a little." He pegged the 7½% notes due 2011 at 43.5 bid, 45.5 offered and the 7½% notes due 2015 at 40.5 bid, 41.5 offered. He added that those issues traded sporadically throughout the day.

The trader also saw the 10 3/8% notes due 2012 at 51 bid, 53 offered, which he also called slightly lower. He said the seniors likely traded higher as investors see a better chance of recovery than in the juniors.

At another desk, however, a trader said the bonds went down 3 to 4 points during the call, only to come back up to close unchanged. He quoted the 10 3/8% notes at 52 bid, 54 offered at market close, noting that the debt had moved as low as 47 bid, 50 offered.

The Hollywood, Fla.-based homebuilder reported a loss of $132 million on revenues of $565.7 million. That compared to an income of $67.6 million on revenues of $621.4 million for the same quarter the previous year.

Traders also gave varied expectations as to the company's future. One trader, citing its Arizona exposure, said he believed the company would file for Chapter 11 protection before Christmas.

"[There is] tremendous inventory [and] nothing is selling," he said. Plus, "the write-downs will be significant."

Still, another trader did not see a bankruptcy in Technical Olympic's future.

"The numbers were not all that bad," he said, noting, "The call went pretty well."

An analyst said he was looking mainly at the company's land position to figure out where the company is going. As it turns out, the company said during the call that two-thirds of its land inventory was purchased prior to 2005 - that is, before the market hit is peak. With that in mind, the analyst said, the write-downs may not be as bad as previously thought.

The analyst also said that the company acknowledged the extra debt it had incurred with its Transeastern JV but maintained that it would work its way out of the highly levered position.

In fact, Stephen Wagman, chief financial officer, said he believed the company would pay down, or possibly pay off, its $200 million first-lien term loan by the end of 2008 by using cash generated through planned asset initiatives. That loan, part of Technical Olympic's $500 million senior secured credit facility, was used to fund the global consensual settlement related to its joint venture.

Impressed by the company's candor during the call, the analyst said it seemed the company had eased many investors' initial concerns.

And, with the company's exposure to Florida and the West - both regions hit hard in the recent housing slump - "As a bondholder, I am trying to look through all that and see what are the assets worth at the end of the day."

"It is a matter of, can I get comfortable with this. Can I feel like, whether they file or not, I'm in decent shape?" he said.

In other distressed housing names, Beazer Homes USA Inc.'s 8 5/8% notes due 2011 were deemed up at 82 bid, 84 offered, though there was no specific reason for the move.

Blockbuster adds to its arsenal

One trader saw Blockbuster's bonds unchanged after the company announced it had purchased movie download firm MovieLink for an undisclosed amount.

The trader said the 9% notes due 2012 started the day higher but closed at around 85, which he deemed unchanged.

"It's not a big deal," he said of the purchase, which he said was going for around $20 million.

Another trader pegged the bonds at 84.25 bid, 85.25 offered, "maybe down a point."

The Dallas-based movie rental chain was in talks with owners of MovieLink earlier in the year but walked away before a deal was carved out. Talks were renewed in July.

The addition of MovieLink gives Blockbuster yet another tool to compete for market share against its rival Netflix, which has offered subscribers a download service since earlier this year.

Still, the first trader is skeptical of the value the acquisition adds to Blockbuster.

"I can't imagine what it adds for that small amount of money," he said.

Meanwhile, the second trader said Movie Gallery Inc.'s bonds were down, though he was not sure why.

"It is probably somewhat related to Blockbuster," he said. "But these kind of trade on their own now."

He placed the 11% notes due 2012 lower by 2 points at 22 bid, 24 offered.

Spectrum up

Spectrum Brands' bonds edged higher, despite a wider third-quarter loss posted earlier this week.

A trader called the bonds "up a couple," with the 7 3/8% notes due February 2015 - which trade under the Rayovac Corp. moniker - at 77 bid, 78 offered, and the 11¼% notes due 2013 at 87.5 bid, 88.5 offered.

On Tuesday, the Atlanta-based consumer products company reported a net loss of $7.4 million on $442 million in sales for the third quarter of 2007. For the same quarter of 2006, the company showed a net loss of just $2.5 million on $427.5 million in sales.

Still, Kent Hussey, chief executive officer, remained hopeful, saying in a statement that the company is looking into an asset sale to help restore stability in the company's financial structure.

Calpine steady

After a volatile day Wednesday, Calpine Corp.'s structure steadied a bit, with one trader calling the convertibles and bonds unchanged.

The trader saw the 6% convertibles at par bid, 101.5 offered and the 8½% notes due 2008 at 114.5 bid, 115.5 offered. He also saw the 8½% notes due 2011 at 117.5 bid, 119 offered.

The trader said markets were "tightening up" during the session, noting that perhaps the bid-side was slightly higher. Still, he maintained the structure was essentially unchanged.

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