Earnings boost Bon-Ton; Residential Capital, Thornburg up on news; Dura, Delphi firm

By Stephanie N. Rotondo

Portland, Ore., Aug. 23 - The distressed bond market saw an overall firmness Thursday, with earnings and positive news boosting most names.

Bon-Ton Stores Inc. reported its second-quarter results, which showed a narrower loss for the period ended Aug. 4. Despite the better term, the company cut its yearly forecast - again. The bonds, however, were unaffected by the lower forecast, gaining as much as 3 points on the day.

Meanwhile, a $2 billion bailout in the mortgage sector helped push most mortgage names up, traders said. On the news that Bank of America would invest in struggling Countrywide Financial Corp., names like Residential Capital LLC and Thornburg Mortgage Corp. regained some of their earlier losses.

After dipping lower in the previous session, Dura Automotive Systems Inc.'s debt firmed after the company filed its reorganization plan. But one trader did not believe the filing had anything to do with the increase, at least in the subordinated notes.

Delphi Corp.'s bonds are also continuing to edge higher, though it is not clear exactly why. There was positive news released on the company, however. It was reported that the company has reached a settlement with plaintiffs in its class-action lawsuit, though the terms of the agreement are unknown.

Traders gave mixed reports on activity in Fedders Corp.'s bonds. Still, the bonds stabilized a bit from the wild quotes that occurred in the previous session, after the company announced it had filed for Chapter 11 protections.

It seems that investors are inquiring more and more about distressed homebuilders, Technical Olympic USA Inc. specifically. A trader said the market sees the capital structure as "interesting," and a weak third quarter could bring forward some opportunities for the Hollywood, Fla.-based company.

Toward the end of the trading day, a trader said things were winding down for the week.

"Trading for the week should be over now," the trader said. "Most people are heading out."

The trader explained that many market players are taking a long weekend to enjoy what is left of summer before the school year begins.

Bon-Ton up on earnings

Bon-Ton's bonds were up 3 points as the company reported a narrower loss for the second quarter of 2007 and cut its full-year forecast.

A trader quoted Bon-Ton's 10¼% notes due 2014, which traded fairly actively, at 88.75 bid, 89.25 offered.

The retailer posted a $15 million loss for the second quarter ended Aug. 4. That compared to a loss of $19.8 million for the same quarter a year earlier.

The company also lowered its forecast for the year for the second time this year. In July, the company said it expected its earnings to fall 20 to 30 cents lower than its previous forecast of $3.40 to $3.50 a share. The second cut dropped the share value to $2.75 to $2.90. The company said the lowered forecast was a result of lower summer sales and disappointing first-quarter results.

Countrywide news helps mortgage lenders

News that fellow mortgage lender Countrywide Financial had received a $2 billion bailout from Bank of America got investors interested in Residential Capital, also known as ResCap, and Thornburg Mortgage.

The news triggered gains in both lenders' bonds, with ResCap jumping up by at least 10 points, only to come in 5 points by the market close. Thornburg was deemed at least 2 to 3 points better on the day.

A trader pegged the ResCap floating-rate notes due 2009 at 86 bid, 87 offered, while another trader saw Thornburg's 8% notes due 2013 at 83 bid, 83.5 offered. A market source said Thornburg's bonds were "definitely stronger" at 83 bid, 84 offered.

"Every mortgage name is up on the Countrywide follow through," the source said.

At another desk, a trader said ResCap's 6 1/8% notes due 2008 were up by 4 points at 87, though off its earlier highs. A source also saw the 6 3/8% notes due 2010 up 3.5 points to 82.

Elsewhere, a trader saw considerable activity in bonds of mortgage providers, notably ResCap.'s 6 3/8% notes. He saw them open "up 5 or 10 first thing this morning" to 85 bid, 86 offered and then settle back down to around 79. "Very volatile, but [it] doesn't look much different than yesterday," he said.

He said the 6 1/8% notes did the "same thing - a lot of volume, definitely on a wild ride." He saw them get as high as 92 bid but then end the day at 84 bid, 85 offered, up 2 points on the day. The trade at 92 was "very small," with most of the activity around 85 to 88.5 before ending around 85.

Another market source pegged the 6½% notes due 2012 at 78, up 4 points.

A trader saw "a lot" of GMAC LLC - ResCap's parent - trading, with the bonds "a little better." He saw the 8% notes due 2031 up 1 point at 91 bid, 92 offered.

And, he saw Thornburg's 8% notes "up a couple" at 83 bid, 84 offered, adding, "a decent size traded, in good volume."

Another trader also saw the bonds at 83 bid, 84 offered, calling them up 4 points on the day.

Countrywide announced late Wednesday that Bank of America bought $2 billion in nonvoting, convertible preferred stock, with an annual yield of 7.25%. The shares can be converted to common stock at $18 per share. If the bank chose to convert its shares, it would have a 17% stake in Countrywide, making it the mortgage lenders largest shareholder.

The equity infusion comes after a mortgage meltdown threatened to force Countrywide - among many other mortgage lenders - into further distress. Other lenders, including ResCap and Thornburg, have faced liquidity crunches amid a tightening credit market spurred by increases in delinquencies and defaults.

Dura, Delphi firmer

Dura Automotive Systems' bonds moved "up a little," a trader said, though he felt it had little to do with the company's filing of its reorganization plan.

A trader said the 8 5/8% senior notes due 2013 were at 54 bid, 55 offered, while the 9% junior notes due 2009 were at 3.5 bid, 4.5 offered.

At another desk, a trader saw the senior notes at 54 bid, 56 offered, "not much different from where they had been." Another source saw its 9% notes up 1 point at 4 bid.

Dura announced late Wednesday that it had filed its reorganization plan, which allows for qualified holders of the senior issue to convert their shares to new common stock in the reorganized company.

However, the plan does not address the subordinated holders, leading many to believe that a fight between the two groups will ensue. It has been rumored that there is "nuisance value" in the junior notes and it has been confirmed that the subordinated group is trying to organize, though it is unclear how successful they have been.

Meanwhile, Delphi's bonds continue to move higher, as the company reached a settlement with plaintiffs in a class-action suit against the parts supplier.

A trader quoted the 6½% notes due 2009 up 2 to 3 points at 102 bid, 103 offered. Another trader saw the 6.55% notes due 2006 "up a bit" at par bid, 101 offered.

A Dow Jones Newswire report quoted the plaintiffs' attorney as saying a settlement between the parties has been agreed on, though terms of the deal were not disclosed.

Fedders more active

Just one day after it filed bankruptcy, a trader said activity has picked up in Fedders' bonds, which are currently trading flat.

"Fedders' [bonds] were actively trading around 17.5 on short-covering and sellers glad to finally exit," a trader said.

Another trader, however, said it was quiet in that name and pegged the 9 7/8% notes due 2014 at 16.5 bid, 17.5 offered - "not much changed from yesterday," he said.

The second trader said there were not a lot of big trades during the session and thought activity seemed "more like retail trading than short covering."

Investors interested in Tousa

A trader said more and more market players are taking a look at Technical Olympic's bonds, which were unchanged to lower on the day.

The trader saw the 9% senior notes due 2010 unchanged at 72 bid, 74 offered, while the "subs continue to trade down." He quoted the 10 3/8% notes due 2012 at 43 bid, 45 offered and the 7½% notes due 2015 "pretty wide" at 33.5 bid, 36.5 offered.

Still, the trader said that investors think that "parts of the capital structure are interesting," and, while third-quarter results are expected to be weak, "it could provide for opportunities down the road."

"Everyone is looking at homebuilders right now," he said, in an attempt to figure out what the next move should be.

Building Materials loan better

Building Materials Corp. of America's first-lien term loan was quoted better on Thursday as the paper was helped by a recent investor conference call to continue to rebound from its post-earnings plummet, according to a trader.

The first-lien term loan was quoted around 89 bid, 92 offered, compared to Wednesday's quote of around 87 bid, 90 offered, the trader said.

"They put out numbers last week. It was quoted in the mid-80's, but it didn't really trade there. There were only buyers at those levels and that's why it's bounced back up," the trader remarked.

"They had a call yesterday and now it's pretty much moved back up to where it was before," the trader continued.

When asked whether the call was to discuss the recently announced earnings results, the trader responded "most likely."

On Aug. 15, the company released second-quarter numbers that included a net loss of $44.48 million, compared to a net gain of $20.23 million last year.

Net sales for the quarter were up to $663.27 million from $535.89 million in the second quarter of 2006.

For the six months ended July 1, the company reported a net loss of $59.77 million, compared to a net gain of $30.58 million for the comparable period last year.

Net sales for the six months were up to around $1.19 billion from around $1.04 billion for the same timeframe in 2006.

Also, this past Wednesday, the company revealed in an 8-K filing that it now estimates the total cost savings from synergies related to its acquisition of ElkCorp and from plant rationalizations previously disclosed to be at a run-rate of about $150 million per year by the end of its first fiscal quarter of 2008.

As of the end of the quarter ended July 1, the company estimates that it has realized in excess of 30% of these annual cost savings.

Building Materials is a Wayne, N.J.-based building products company.

Broad market mostly higher

In Movie Gallery Inc.'s 11% notes due 2012, a trader "saw more quoting than trading, not a lot of activity there." He pegged the bonds at 24 bid, 25 offered.

A trader said a lot of Linens n'Things paper traded, with its floating-rate notes quoted at 66.5 bid, 67.5 offered, up 1 point on the day and "very active."

Another source saw Tembec Inc.'s 8½% notes due 2011 at 45, up 1 point.

Sara Rosenberg and Paul Deckelman contributed to this article.

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