Homebuilders boosted by rate cut; autos better; Calpine active; Fedders edges higher

By Stephanie N. Rotondo

Portland, Ore., Sept. 18 - The distressed bond market was pushed higher Tuesday by an unexpectedly large rate cut from the Federal Reserve.

Many market players were expecting - or hoping, as the case may be - that the central bank would cut its key interest rate by 25 basis points. They were therefore surprised when the Fed announced a 50 bps decrease.

"The market went nuts," a trader said.

Another trader said he saw "real buyers" returning to the market.

"It felt like there were guys who felt like they needed to put money to work," he said.

The trader said most names in the junk sector were better by 3 to 4 points. Other traders agreed there was firmness, though some said things were generally better by just 1 to 2 points.

Perhaps the most improved sector after the Fed's announcement was homebuilders, which can benefit from lowered lending rates. Names such as Beazer Homes USA Inc., Hovnanian Enterprises Inc. and Technical Olympic USA Inc. were all seen better on the day. Traders also noted that positive comments from the Credit Suisse 2007 Homebuilding Conference - at which all of the aforementioned names presented - also helped the sector.

Automotive names were also boosted after the rate cut. Traders specifically noted gains in Federal-Mogul Corp.'s bonds, which were deemed active on the day. Delphi Corp.'s debt was also better, further helped by news of an asset sale.

Meanwhile, Calpine Corp.'s corporate debt gyrated throughout the day. The company continues to face obstacles as it attempts to get its disclosure statement approved, thus clearing the way for it to exit bankruptcy.

Fedders Corp.'s bonds have been quiet of late. However, just two days before the company is scheduled to go to court for its debtor-in-possession hearing, the bonds were seen edging higher. The gain prompted speculation that "good news" was on its way.

Despite the bullish day, traders were hesitant to get their hopes up.

"We'll see how much follow through there is tomorrow," a trader said.

Homebuilders helped by rate cut

Homebuilders were boosted by the Federal Reserve's rate cut and were further pushed higher by comments industry executives made at Credit Suisse's homebuilders conference.

A trader called Beazer Homes' 8 3/8% notes due 2012 up "close to 2 points" at 77 bid, 78.5 offered. At another desk, a trader said Hovnanian's 8 5/8% notes due 2017 were trading with an 81 handle, up 3 points, while its 6¼% notes due 2016 were "up a couple" to 77.

The trader also saw Technical Olympic's 10 3/8% subordinated notes due 2012 gain a couple points later in the day, closing at around 37. He added that the "seniors didn't move that much."

The rate cut increased speculation that buyers will return to a slumping housing market. After the Fed cut the interest rate to 4.75%, major banks reciprocated by cutting their prime lending rate to 7.75%.

According to a Bloomberg report, homebuilding executives said incentives and discounts are starting to lure back buyers who were previously scared off during the mortgage meltdown. Still, they acknowledged that a recovery is at least a year out.

Said one trader: "They must be spinning a good story."

Auto names boosted

Like most other sectors, the distressed automotive realm was firmer on the Fed's rate cut.

Specifically, traders were talking about Federal-Mogul. One trader, who pegged the company's bonds up 3 to 4 points at 79 bid, 81 offered, said he was "trying to refocus on that credit."

Another trader said the bonds - which tend to trade on top of one another - were "fairly active" and "up a good bit" at 79 bid, 80 offered.

Meanwhile, Delphi's bonds were "quoted again," a trader said, as the company announced an asset sale.

The trader quoted the 6½% notes due 2013 at 82.5 bid, 84 offered and the 7 1/8% notes due 2029 at 85 bid, 87 offered. Another trader saw the 6½% notes at 83.5 bid, 84.5 offered.

Delphi announced Tuesday that it would sell its brake machining and assembly equipment to TRW Automotive Holdings Corp., a move aimed at divesting itself of non-core assets.

The terms of the transaction were not released, but a TRW source claimed the costs "are not expected to be material."

Elsewhere in the autosphere, Dura Automotive Systems Inc.'s bonds were deemed better, along with the rest of the sector. A trader placed the 8 5/8% senior notes due 2012 "up 1 point on the bid side" at 45 bid, 47 offered and the 9% subordinated notes due 2009 "a tad stronger" at 2.5 bid, 3 offered.

Calpine active, better

Calpine's bonds were "all over the place" during the session, a trader said.

"They started stronger," he said, "and then went back to the opening levels. Now they are about a point higher after the rate cut."

The trader said the 8½% notes due 2011 were up 1 to 1.5 points at 102.5 bid, 103.5 offered. He also saw the 7¾% notes due 2009 up a couple points at 84 bid, 85 offered.

Another trader pegged the 8½% notes at 103 bid, 103.5 offered, calling the bonds active.

The San Jose, Calif.-based company faced yet another hurdle in its quest to exit bankruptcy: The company's equity committee objected to its disclosure statement, alleging that the valuations were inaccurate.

Last week, a group of bondholders holding $640 million in second-lien notes issued by Calpine Generating Co. and CalGen Finance Corp. asked the bankruptcy judge overseeing Calpine's case to appoint an administrator to oversee the units. The group claims the company has made "demonstrably untrue" statements regarding the units' finances.

Fedders moves higher

After the market closed, a trader said Fedders' bonds moved up from their earlier levels. He speculated that "maybe there is some good news heading into the [DIP] hearing on [Thursday]."

The trader said the 9 7/8% notes due 2014 moved at 16 bid, 17 offered, up from 15.25 bid, 16.25 offered. Another trader called the bonds "even better" with a 16.5 bid.

Earlier in the week, the first trader had pondered whether the Liberty Corner, N.J.-based company would come out with a better DIP proposal, calling the current deal led by Goldman Sachs "ridiculous."

"I think they can get a better DIP," he said.

The second trader, however, disagreed.

"There is zero hope of a better deal," he said.

Publisher steps down, loan steps up

The Star Tribune Co.'s first-lien term loan was stronger on Tuesday after head publisher Par Ridder was forced to step down for one year, ending a nearly three-month court battle, according to a trader.

The first-lien term loan ended the day at 84 bid, 86 offered, up from 82.5 bid, 85.5 offered, the trader said.

"People are just happy to have this resolved and disposed of, and now the sponsor can just bring someone else in and move on," the trader remarked.

The lawsuit against Ridder had been brought by his former employer, the St. Paul Pioneer Press, which claimed that he took ad rate and budget information and broke a non-compete agreement.

Star Tribune is a Minneapolis-based information provider and includes the Star Tribune newspaper, StarTribune.com and other print and digital products and services.

Broad market mixed

A trader said Primus Telecommunications Group Inc.'s 12¾% notes due 2009 were unchanged at 98, despite the hope that the bonds would get called.

"There is not many outstanding," he said.

James River Coal Co.'s bonds - the 9 3/8% notes due 2012 - have been at the 74 bid, 76 offered level for the past four days, the trader said. But, as very few have traded, he said he saw a market earlier in the trading day at 73 bid, 73.75 offered.

Move Gallery Inc.'s 11% notes due 2012 came in a little after the company's announcement late Monday that its chief development officer, Keith A. Cousins, had resigned at the movie rental chain's request. A trader quoted the bonds at 35.5 bid, 37 offered.

The trader also saw Blockbuster Inc.'s 9% notes due 2012 at 89 bid, 90 offered. He attributed the recent increases in the bonds to "more buyers than sellers."

Sara Rosenberg contributed to this article.

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