Thornburg up on $500 million preferred sale; WCI Communities boosted by Icahn addition

By Stephanie N. Rotondo

Portland, Ore., Aug. 30 - Activity in the distressed market was virtually nonexistent Thursday as many traders focused their attention instead on the smorgasbord of sporting events taking place that day.

First of all, the New York Yankees ball club took on the Boston Red Sox. Not to mention the New York Mets-Philadelphia Phillies game. With most market players working or residing in the New York-metro area, those games took priority. In the end, the Yankees won over the Red Sox, 5-0, sweeping the three-game series. The Phillies shocked the Mets in the ninth inning, scoring twice to come out in front, 11-10.

Second, the U.S. Open attracted viewers as well. In the second round of the tennis tournament, Martina Hingis, Svetlana Kuznetsova and Donald Young - among others - moved to the next stage.

Still others were waiting, somewhat impatiently, for the first pre-season game of college football, Rutgers vs. Buffalo. Elsewhere, some were looking forward to the weekend races at Saratoga.

"It is a great week for sports," one trader said.

Other sources in the market claimed they spent most of their day watching one or more of the various events.

But the focus on "the game" was only a symptom, not a cause, of the excruciatingly quiet week.

"I should have took a vacation this week," a trader said. That apparently was the thought of many others, as many market participants are out enjoying the last week of summer before the school year begins.

"I'm not sure why anyone is at work," another trader said.

Still, at least one name in the distressed arena got the attention of some: Thornburg Mortgage Corp. announced earlier in the day that it would sell $500 million in shares of convertible preferred stock. That news sent the bonds up at least 4 points.

"[The bonds] were popping big on the news," a trader said. He pegged the bonds up "a good 5 to 6 points."

WCI Communities Inc. saw its bonds creeping upward with the formal addition of billionaire investor Carl Icahn to its board of directors. A trader said the bonds were up about 2 points, though he did not see why the Icahn news was significant.

Thornburg up on stock sale

Jumbo-mortgage specialist Thornburg said it would put up $500 million in convertible preferred stock for sale Thursday, a move aimed at relieving a cash crunch.

On the news, the bonds jumped as much as 6 points and were fairly active in an otherwise slow session. A trader pegged the 8% notes due 2013 at 87.5, after opening around 84.5 and moving as high as 90.

"I urged folks before [the stock] was priced this morning to buy the bond," the trader said. "The preferred just made this bond look a whole lot better."

According to the trader, the convertible issue is essentially another class of stock, complete with voting rights. He also said the issue has a minimum 10% dividend yield.

At another desk, a trader saw the bonds close at 88 bid, 89 offered, which he called up 4 points.

Another trader claimed the bonds were up 5 to 6 points during the session, opening at 81 bid, 81.5 offered and closing at 87 bid, 88 offered. And, yet another trader another saw them at 87.75 bid, 88.75 offered, which he called up 4 points on the day.

Recently hurt in the subprime mortgage woe overflow, Thornburg has made several attempts to weather the current credit crunch. Earlier this month, the company sold a large chunk of its asset-backed mortgage securities and was forced to stop accepting new loans.

"Thornburg Mortgage believes it is positioned to capitalize on what it expects will be a more profitable mortgage market," the Santa Fe, N.M.-based company said in a statement.

Among other struggling mortgage lenders, Residential Capital LLC's bonds "opened lower then crept back up," a trader said.

The trader quoted the 6.8% notes due 2008 around 82, adding that the bonds hit a low of 81 during the day. He also saw the 7 3/8% notes due 2010 move as low as 75 before closing with a "76 handle."

WCI boosted by Icahn add

The expected addition of Icahn to its board prompted some investors to look closer at Homebuilder WCI.

A trader said the 9 1/8% notes due 2012 "shot up" to 82 bid, 83 offered, while the 7 7/8% notes due 2013 were up at 79 bid, 81 offered. He called both issues up about 2 points.

Still, the trader said he did not see why Icahn joining the board was significant.

However, the significance may be subtle. Earlier this year, Icahn proposed a buyout bid for the homebuilder, which was summarily rejected. The company said it felt the bid was inadequate and would continue looking for another buyer.

It was right around that time that the subprime fallout really took hold and investors were backing away from major investments - especially in a distressed homebuilder with a strong presence in Florida.

Since then, the company has said it failed to find another buyer. With Icahn coming on board, some analysts have said the company is looking to ready the company for a sale.

But other analysts, such as those at Gimme Credit LLC, do not see a sale in the future.

In fact, as the company has also amended its anti-takeover triggers, it is possible that Icahn will simply use his new role to direct the company to a more profitable path. Still, with the housing market continuing to slump, the worst may be yet to come.

Broad market mixed

A market source placed Fedders Corp.'s 9 7/8% notes due 2014 at 16 bid, 16.75 offered. Another trader called the bonds off a point at 15 bid, 17 offered.

The source also saw Charter Communications Holdings LLC's 11¾% notes due 2010 with an 89 bid as well as Blockbuster Inc.'s 9% notes due 2012 at 85.25.

Elsewhere, a trader said Calpine Corp.'s bonds were more active than in the previous session and "up a little." He slated the 8½% notes due 2008 and 2011 at 107.5 bid, 108 offered.

Solutia Inc.'s 7 3/8% notes due 2027 rose to 78.5 bid, 79.5 offered, up 1.5 points.

Meanwhile, Movie Gallery Inc.'s 11% notes due 2012 were unchanged, or down slightly, at 25 bid, 28 offered.

Paul Deckelman contributed to this article.

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