Thornburg Mortgage bonds boosted; Swift Transportation dips on numbers; Tembec up

By Stephanie N. Rotondo

Portland, Ore., Aug. 15 - The distressed bond market was "sick again" on Wednesday, at least according to one trader, who said pressure in the equity market had pushed the bond market lower as well.

"Whatever is trading is down," he said of the overall state of the junk sector. "It was a pathetic day. The market is just ugly and sick."

"The market was frozen," another trader said. At another desk, a trader noted that many things were weaker toward the end of the day, though there was not a lot of volume.

One name that did not follow that trend, however, was Thornburg Mortgage Corp. Comments from company management in an interview with CNBC helped spur gains in the company's structure, as investors were assured that a dividend payment - though delayed - would be paid.

The bonds had been hit in the previous session after several analysts downgraded the company, citing liquidity concerns.

Meanwhile, traders said Phoenix-based Swift Transportation Co., Inc.'s second-quarter results - which were released only to bondholders and bank lenders - could not have been good, given the reaction of the bonds.

The truckload carrier's debt dipped and then attempted to rally during the session, though the bonds were still lower on the day.

"It is hard to see what the hell is going on there when you can't see the numbers," a trader said.

Farther north, Montreal-based Tembec Inc. saw its bonds edge higher, though it was unclear why. One trader expressed doubt at the company's ability to stay afloat, given the strength of the U.S. dollar.

Thornburg Mortgage: Outlook positive

Thornburg Mortgage's bonds were beat down in Tuesday's session, but come Wednesday, the debt rallied as the company's management said it would weather the storm.

A trader said the 8% notes due 2013 "bounced" throughout the trading day, starting with a 53 bid, then a 60 bid. He saw the bonds close with a 70 bid.

Another trader said the bonds went on a "real roller coaster," opening the session at 53 and moving up to close at 70 bid, 72 offered.

At another desk, a trader quoted the bonds at 69 bid, 71 offered.

The real estate investment trust's president, Larry Goldstone, said he was "confident we're going to be able to make [a dividend payment]" in an interview with CNBC Wednesday morning. The company had previously announced that the payment, scheduled to be released Wednesday, would be put off until Sept. 17.

Still, Goldstone's optimism boosted investor confidence.

"It gave some comfort to the bondholders and the equity holders as well," a trader said.

"They had a nice press conference," said another trader. "At least they told people they would make it another couple of days."

The positive feelings toward Thornburg came despite rumors circulating that Countrywide Financial Corp. - the largest mortgage company in the United States - might be forced to file bankruptcy due to liquidity concerns.

A trader said the company will have to file "if liquidity sources run out - and it is likely that they will."

"The Countrywide news has spooked some people," said another trader, citing that as a catalyst for the stock market's almost 170-point drop.

In other related news, Realogy Corp.'s bonds were seen lower again, with one trader noting that the bonds were down 5 points on the week.

The trader quoted the 12 3/8% notes at 72 bid, 75 offered, the 10½% notes at 84.5 bid, 85.5 offered and the 11% notes at 80 bid, 81 offered.

Numbers drive down Swift

Trucking company Swift Transportation released its second-quarter results to its bank lenders late Tuesday, which prompted the company's bonds to gyrate.

A trader said the 12½% notes were "down 5 points, and then up 5 points" during the session, moving as low 60.5 bid, 61.5 offered before closing at 65 bid, 67 offered.

"That's almost unchanged," he said.

Another trader said the bonds took "a little bit of a ride," opening at 68, moving down to 61 and then closing at 64 bid, 65 offered.

Yet another trader said the bonds fell to 63 before rebounding slightly to 65 bid, 67 offered.

While traders all agreed that the volatility had to do with the earnings release, none had seen the figures, as they were only released to bondholders and bank lenders.

"You don't know why [the bonds moved] because they don't make their numbers public," a trader said.

Traders also attributed a dip in the company's term loan B to the apparently none-too-positive results.

The term loan B was quoted at 86 bid, 88 offered, down from previous levels of 91 bid, 92 offered, traders said, and had even reached a low of around 83 bid, 86 offered earlier in the session.

Term loan B lenders were able to access the financial results through the Swift IntraLinks site hosted by Morgan Stanley.

At the end of July, the company announced that as of June 30, its cash balance was $171 million, of which $148 million was unrestricted, and credit available on its revolving line of credit exceeded $250 million.

Tembec climbs higher

Forest products company Tembec saw its bonds edging higher, though on no real news.

A trader said the 8½% notes due 2011 were "up a couple at 43 bid, 44 offered. He also saw the 7¾% notes due 2012 at 42 bid, 43 offered.

Another trader saw the 8½% notes - called the "most active" issue - at 42 bid, 23.5 offered at mid-afternoon.

But however the bonds fared, traders are not hopeful for the overall health of the company.

"They can have great quarter after great quarter," a trader said. "Until the U.S. dollar gets stronger, there is nothing they can do."

Earlier this month, Tembec posted a wider second-quarter loss due to an impairment charge at one of its paper mills.

Broad market weaker

In a day that was deemed weaker overall, traders said many names under the distressed umbrella were pushed lower by pressure in the marketplace.

A trader saw Solutia Inc.'s 7 3/8% notes due 2023 down 1.5 points to 71 bid, 72 offered. He also said Maax Inc.'s 9¾% notes due 2012 were 2 points lower on the day - and 6 points lower on the week - at around 45.5.

Merisant Co.'s 9½% notes due 2013 were called 2 points weaker at around 78.5, while InSight Health Services Corp.'s floating-rate notes slipped 3 points on the day to 87 bid, 90 offered. A trader said those bonds had fallen 7 to 8 points on the week.

However, another trader said the bonds were only down 5 points at around 85.

"People got panicky, and [the bonds] got picked off," he said of the losses.

Elsewhere, a trader said Northwest Airlines Corp.'s stubs were trading at 10 to 11 cents on the dollar.

Bankruptcy watch

As the distressed market has taken a turn over the last few weeks, traders have begun speculating on what companies will be next to file for Chapter 11 protection.

One name on the list is Salton Inc., the maker of the George Foreman grill. That company was recently suspended from the New York Stock Exchange for falling under the minimum threshold of average global market capitalization over a consecutive 30-trading-day period.

Salton also recently announced that it had obtained an amendment to its senior credit facility. The amendment gave the company additional borrowing capacity, extended the termination date of the facility to Dec. 31, 2008, and extended the outstanding over-advances repayment date to Nov. 10.

"It's likely they will file," a trader said, adding, "they have put off the inevitable" with the amendment - but it did not stop it completely.

Also making the list of potential filers is Fedders Corp. The company has been obviously quiet of late, considering where the 9 7/8% notes due 2014 are trading.

One trader said the bonds have a 19 bid, 24 offered market, though, according to NASD's Trace system, the bonds have been trading around 24.5.

"Someone is buying at the wrong price," the trader said.

Another trader said he saw the debt at 21 bid, 24 offered, though he noted that "nothing traded, it was just quoted."

Still, rumors have been circulating that bondholders are attempting to enter into discussions with the company, but it is unclear what those talks might entail. However, it is widely believed that the company will not make its next coupon payment.

Rounding out the list is Movie Gallery Inc., which recently posted poor numbers attributed to difficult market conditions.

A trader saw the 11% notes due 2012 at 18.5 bid, 19.5 offered.

"Why they are still trading with interest? I have no idea," he said.

A forbearance agreement with its first-lien loan holders expired Tuesday. The company was reportedly in talks with the lenders to come up with a solution to the movie rental chain's financial woes. However, there has been no word on the outcome of those discussions.

"That's usually not good," the trader said, noting that it was likely the lenders will support a bankruptcy filing, as the company is now defaulted on its bank and corporate debt.

Generac loan firms

Generac Power Systems Inc.'s first-lien term loan found its footing, and even saw a rise on the bid side, after experiencing a lot of volatility during the previous session, according to a trader.

The first-lien term loan was quoted at 85 bid, 87 offered, the trader said. By comparison, on Tuesday, the loan had dropped to 83 bid, 85 offered from 89 bid, 91 offered and then really late in the day had recovered slightly to 84 bid, 87 offered.

Tuesday's rollercoaster ride was a result of the company disclosing to lenders in a private call quarterly results that came in at weaker-than-expected levels.

Generac is a Waukesha, Wis., manufacturer of standby power products.

Sara Rosenberg contributed to this article.

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