Thornburg bonds better on asset sale; WCI debt higher; Technical Olympic notes weaker

By Stephanie N. Rotondo

Portland, Ore., Aug. 20 - As trading in the equity markets remained somewhat shaky on Monday, market players continued to steer clear of the distressed bond markets, resulting in a very quiet session.

"It never ceases to amaze me how quiet it can get," a trader said.

The junk sector began to pare down activity on Friday after a week of increased volatility.

"It's the Monday hangover, I think," said another trader, accounting for the lack of movement.

But as the market enters the last two weeks of August, traders are expecting activity to remain rather lackluster.

"The last two weeks of August are always the slowest," a trader said, noting that many market participants are taking vacations before the school year starts again.

"It's a big vacation week," another trader said.

While most names in the distressed market showed little to no activity, Thornburg Mortgage Corp.'s bonds remained active after the company broke out of its silent period and announced an asset sale.

Meanwhile, WCI Communities Inc.'s bonds were the day's big mover, gaining as much as 6 points after the company said it had reached a deal with investor Carl Icahn regarding nominees for the board of directors.

But gains in the sector did not help struggling Technical Olympic USA Inc.'s bonds. A trader reported that the homebuilder's subordinated debt fell at least 2 points while its senior notes were a half point lower.

Thornburg slightly better

Thornburg Mortgage's bonds edged up after the company announced it had sold $20.5 billion in mortgage-backed securities at a discount.

A trader said the 8% notes due 2013 opened at 78 bid, 80 offered and closed at 78.5 bid, 79.5 offered.

Another trader called the bonds up 2 points at 78.5 bid, 79.5 offered.

"That leaves them with cash in the bank," the trader said of asset sale.

At another desk, a trader said the bonds were at 78 bid, 80 offered, up from 75 bid, 78 offered.

The Santa Fe, N.M.-based company said it sold the assets due to "unprecedented conditions in the mortgage financing market." The sale, which will leave the company with a $930 million loss in the third quarter, will help pay down debt the company was not able to refinance.

Still, the company expects that it will pay its second-quarter dividend payment, albeit late. The company said last week it would delay releasing the funds until Sept. 17.

And, Larry Goldstone, president of Thornburg, said he now expects the company to return to normal operations within the next two weeks.

Fitch Ratings downgraded Thornburg on Monday, lowering the company's issuer default rating to CCC from BB. The new rating was based on concern that the company would have trouble maintaining liquidity in the current market conditions.

WCI notes boosted

Homebuilder WCI Communities saw its bonds move up as much as 6 points during a session where most other names were seen weakening.

A trader said the 9 1/8% notes due 2012 moved up 5 to 6 points to 80 bid, 82 offered, while the 7 7/8% notes due 2012 were 4 points better at 76 bid, 77 offered.

The trader said he was not sure why the bonds moved up. He noted that the news of the Icahn agreement could have a played a role, but "I don't see why that makes them a better credit."

Elsewhere, a trader saw the 9 1/8% notes rise to 81 bid, 83 offered from 74 bid, 77 offered earlier, while its 7 7/8% notes were pushed up to 76 bid, 78 offered from 72 bid, 75 offered. He saw its 6 5/8% notes due 2015 at 72 bid, 74 offered, up 3 points on the day.

Another trader saw the 9 1/8% bonds at 80 bid, 82 offered, up 5 points, noting that "they settled their board dispute, so they made sure their board was set up so that after the merger, everything was good there, and they also settled some of their credit covenant [matters], which sent the bonds up."

The company announced Monday that it had reached an agreement with shareholder Icahn regarding nominees for its board of directors. Under the agreement, Icahn, as well as two of his original 10 nominees, will gain a seat on the board.

Earlier this year, Icahn offered to buy the struggling homebuilder. WCI rejected the bid, believing it could find a superior offer. As of yet, no such offer has come.

WCI also said it agreed to relax the antitakover trigger, allowing shareholders to acquire 25% of the company, versus the previous 15%.

Lenders for the homebuilder have also agreed to amend its revolving credit facility, term loan and tower facility, which include a default waiver. The borrowing capacity under the credit facility was reduced to $700 million, and there are plans for reductions in the future.

Earnings are expected to be posted Wednesday.

Technical Olympic weaker

Elsewhere in the homebuilding realm, Technical Olympic's subordinated bonds were deemed weaker, but there was no explanation for the move.

"There was not much of a reason for anything today," a trader said.

A trader pegged the 10 3/8% notes due 2012 down 2 points at 43.5 offered, looking for a bid - "of which there were none," the trader said.

The trader said the 9% notes due 2010 were just half a point lower, trading at 72.5.

"There is still a lot of paper for sale across the board," the trader said. A "tainted" name like Technical Olympic, he added, was likely to trade even lower in the current weak credit market.

Fedders' bonds wide

Fedders Corp.'s 9 7/8% notes due 2014 were trading wide at 18 bid, 23 offered. Explaining the spread, a trader said, "It's because nobody wants to play [in that name]."

Another trader saw the bonds at 19 bid, 21 offered, down from 22 bid, 24 offered, on Friday.

It has been confirmed that the air conditioning manufacturer's bondholders have formed an ad hoc committee. However, it is unclear what the group's aims are at this time.

Broad market mixed

Dana Corp.'s bonds continued to fall, a trader said, with the 6½% notes due 2008 dropping to 78 bid, 80 offered from 80.5 bid, 82.5 offered.

Bally Total Fitness Holding Corp.'s 9 7/8% notes due this fall eased to 87 bid, 89 offered from 88 bid, 90 offered, while the 10½% notes due 2011 were a half point lower at 103 bid, 105 offered.

Movie Gallery Inc. saw its 11% notes due 2012 edge higher to 19 bid, 21 offered, up from 17 bid, 19 offered.

Spectrum Brands Inc.'s 7 3/5% notes due 2015 were down 2 points to 71 bid, 73 offered, and its 11¼% notes were also lower by 2 points at 82 bid, 84 offered.

A trader saw no activity in Beazer Homes USA Inc., Tembec Inc., Remy International Inc. or Delphi Corp.

Paul Deckelman contributed to this article.

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