Beazer receives default notice, debt slips; Tousa dips; Thornburg weaker; Delphi down

By Stephanie N. Rotondo

Portland, Ore., Sept. 7 - Friday's distressed bond market lived up to its name Friday, as poor economic data helped push the junk sector lower.

One trader called the day "another round of Friday blood letting."

"The story of the day is job numbers," he said, citing a Labor Department report released Friday that showed payrolls dropped by 4,000 last month - the first decline since August 2003. The dip was completely opposite of what was expected, as many economists forecasted a payroll increase of 110,000 jobs.

"[It] makes a risk of a recession more of a risk," the trader said.

That seemed to be the sentiment of the day. Even former Federal Reserve chairman Alan Greenspan said the current market reminded him of the market crash of 1987.

Regardless of whether a recession is imminent or not, investor weariness spurred the market lower - although some names in distressed did not need the extra help.

For example, Beazer Homes USA Inc.'s bonds fell about 3 points during the session after it announced it had received default notices from the trustee of its senior indentures.

That news also prompted Technical Olympic USA Inc.'s bonds to drop. Considered by many market players to be the weakest of the homebuilders, Technical Olympic's debt has been declining over the last few sessions.

Still, bad news in the sector is not good for any of the homebuilders. Credit concerns, mortgage woes and an ongoing housing slump have combined to make investors leery of the entire industry.

Also moving on negative sector news was Thornburg Mortgage Corp. The Santa Fe, N.M.-based mortgage lender was hit as yet another financial institution announced it was feeling the burn. IndyMac Bancorp Inc. cut its third-quarter forecast, coming in well below analysts' expectations.

Of course, Thornburg released some news of its own late Thursday. Though it projected a somewhat cheerier third quarter, it said it was delaying funding of some its existing loans.

In another struggling sector, Delphi Corp.'s bonds also weakened on the day. A trader attributed the losses to the automotive parts supplier's recently filed reorganization plan, which he believed "provoked caution."

Beazer denies default; bonds slip

A default notice prompted losses of about 3 points in Beazer Homes' debt, traders reported.

One trader quoted the 8 5/8% notes due 2011 "down a few points" to 78.5 bid, 79.25 offered, while another placed the 8 3/8% notes due 2012 down 3 points to 77.5 bid, 78.25 offered.

The drop comes as the company announced it received default notices from US Bank. The financial institution serves as the trustee for the indenture covering the homebuilder's senior debt: the 8 5/8% notes, the 8 3/8% notes, the 6½% notes due 2013, the 6 7/8% notes due 2015 and the 8 1/8% notes due 2016.

The trustee claims that the notes are in default as Beazer has failed to file its 10-Q for the quarter ended June 30, which the company delayed releasing on Aug. 1. The company has 60 days to remedy the situation or else it will be an event of default. Beazer, however, denies that it is in default, because the indentures require only that a copy of the quarterly report be sent to the trustee within 15 days of the filing.

Accordingly, Beazer has filed an action against the trustee, seeking, among other things, a ruling from the court that it is not in default.

The company has been under investigation by the Securities and Exchange Commission for improprieties in securing mortgages. The company began its own internal investigation in June and subsequently fired its chief accounting officer.

Tousa notes continue to drop

Continuing its downward spiral, Technical Olympic's bonds were pushed down further in the last session of the week by negative news in the sector and poor economic data.

A trader said the Hollywood, Fla.-based homebuilder's subordinated debt "got murdered," pegging the 10 3/8% notes due 2012 around 30 and the 7½% notes due 2015 around 26. He also saw the 8¼% notes down 4 to 5 points at 64.5 bid, 66.5 offered.

"The weaker [names in homebuilders] are getting hit more than anything else," he said.

Another trader placed the 10 3/8% notes at 30 bid, 31 offered, down 7 points.

Elsewhere, a trader called the 8¼% notes down 3 points at 64.5 bid, 65.5 offered, while at another desk a trader said the 10 3/8% notes were "hit pretty hard," down 8 points at 29.5 bid, 30.5 offered.

The company's revolver also headed lower in trading on Friday with a number of reasons contributing to the drop, a trader said.

The homebuilder's revolver ended the day at 92 bid, 94 offered, down about a point from previous levels, the trader said.

"There's been a lot of movement in the bonds. [There are] rumors [that] there may be a draw on the revolver. It's a very volatile time," the trader explained.

The volatility came two-fold Friday: first came weaker-than-expected employment data, which showed fewer people on payrolls; second came the news that Beazer, a fellow distressed homebuilder, had been served with a default notice.

In other homebuilder names, WCI Communities Inc.'s 9 1/8% notes due 2012 fell 1 point to 80 bid, 82 offered.

Sector concern shakes Thornburg

Thornburg Mortgage's bonds slipped as much as 5 points during the session as the lender weakened under pressure in the sector as well as the overall market.

A trader said the 8% notes due 2013 fell 5 points to 85 bid, 87 offered, while another called the bonds "down a few" at 85 bid, 86 offered.

A third trader deemed the bonds 1.5 points lower at 85.5 bid, 87.5 offered. Another trader also saw them down 1.5 points at 85 bid, 87 offered.

The second trader said the bonds were hurting due to news in the sector - specifically, a third-quarter earnings forecast cut from IndyMac Bancorp Inc.

In a letter to stockholders, the bank said it could break even but could also post a loss of up to 50 cents per share. That forecast came in well below analysts' estimates of around 52 cents per share profit.

Late Thursday, Thornburg revised its own forecast for the third quarter. Previously, the mortgage lender said it expected to post a loss in the neighborhood of $930 million. Instead, the company said the loss will likely shrink to $863 million. However, the company said it is also delaying $231.6 million in funding for current loan customers until it can shore up its liquidity position.

The company has taken many steps to ensure that it will emerge virtually unscathed from the current turmoil enshrouding the industry. To that end, the company is holding a conference call on Wednesday at 10:30 a.m. ET to discuss the moves and its strategy.

Among other names in the sector, Residential Capital LLC's bonds were called "a little lower." A trader slated the 7 3/8% notes due 2010 at "79-ish," adding that the bonds were closer to 80.25 in the previous session.

Fremont General Corp.'s 7 7/8% notes due 2009 slid down 1 point to 87 bid, 89 offered.

Delphi dips on reorganization plan

A trader called Delphi's bonds down 6 to 7 points on the day, attributed to what he calls "differing opinions" on the company's recently filed reorganization plan.

The trader said the Troy, Mich.-based company's bonds were trading in the mid-90s, while another pegged the 6½% notes due 2009 at 94 bid, 94.5 offered.

Another trader said "Delphi is down," seeing the 6.55% notes due 2006 falling to 94 bid, 96 offered from previous levels of 100.5 bid, 102.5 offered. He said other bonds under the Delphi name were "down commensurately," with the 6½% notes at 94.5 bid, 95.5 offered, down from 101 bid, 103 offered, and the 6½% notes due 2013 at 92.5 bid, 94.5 offered, down from 98.5 bid, 100.5 offered.

Another source saw the 6.55% notes at 94 bid, 95 offered, down 5 points. He said the bonds had fallen a little in after-hours trading Thursday after release of the news on the reorganization plan, but most of the losses came Friday.

Under the plan, investors - including an affiliate of Appaloosa Management LP - will inject up to $2.55 billion into the company.

When asked why the bonds dropped, the first trader said there were "differing opinions," but in the end, it was largely related to the company's reorganization plan.

According to the trader, the plan, filed late Thursday, underwent a few changes. But some of the changes, he said, provoked caution.

For example, he said senior noteholders are now slated to receive more equity and less cash than previously planned. As the automotive parts maker's stock has not been performing well, "that's not necessarily a good thing."

The trader said there were other issues at hand as well, including the exit financing. Currently, the company's is in discussions to obtain $7 billion in exit financing. Still, the trader said he believes it will get done.

The trader also noted that the overall weakness in the market was not helping the bonds either. In fact, he said most names in the autosphere, including Dura Automotive Systems Inc., were softer. He quoted Dura's 8 5/8% notes due 2012 at 50 bid, 51 offered.

Retailers moving back down

Distressed retailers, which have been seen moving higher recently, came in weaker during Friday's trading.

A trader said Bon-Ton Stores Inc.'s 10¼% notes due 2014, which "had been up dramatically," were down 3 points to 92.5.

"There was a lot of activity in them," he added.

But another trader called the bonds just 2 points lower at 93 bid, 94 offered.

Another trader also saw the bonds down 3 points around 93. He said Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2014 were also down to near 93. The second trader also called Burlington's bonds at 93 bid, 94 offered.

Sara Rosenberg and Paul Deckelman contributed to this article.

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