Tousa subs, seniors better despite missed coupon; Tembec slips; Calpine continues to gain

By Stephanie N. Rotondo

Portland, Ore., Jan. 2 - The New Year might have started with all the pomp and circumstance of year's past, but trading in the distressed bond market continues to be lackluster.

"It's pretty quiet," said one trader, who added that many market players are still busy with year-end pricing.

Another trader said that, given the holiday schedule, some market participants are still out for the week.

But the big name Wednesday was Technical Olympic USA Inc. Traders reported that the homebuilder's debt saw modest gains, though at the market's close, they still did not know if a Jan. 1 interest payment had been made. Later, the company confirmed many players' suspicions, announcing the company did not in fact make the payment.

Tembec Inc.'s bonds, which had been steadily rising after the company announced a recapitalization plan, fell slightly. It was unclear what prompted the losses, but a trader noted that the debt was trading "with language" now.

Just weeks away from exiting bankruptcy, Calpine Corp.'s bonds are continuing to gain. With many believing that the company is poised to emerge stronger than ever, even a shareholder's attempt to stay the reorganization plan could not stop the bonds from moving.

As the market remains relatively quiet, it is widely believed that things will not pick up until next week.

Tousa better despite missed coupon

Technical Olympic's bonds edged up slightly, despite market belief that a due coupon payment was not made.

A trader said the 10 3/8% subordinated notes due 2012 had "a little mojo going," closing at 8 bid, 8.5 offered, up from 4 bid, 6 offered previously.

"I'm not sure why. We still don't like that story," he said.

Another trader said that the Hollywood, Fla.-based homebuilder was expected to default, "but we have heard nothing." Still, he said the 9% notes due 2010 were trading flat at 45.5 bid, 47 offered in expectation that the company would not pay its coupon.

At another desk, a trader called the 10 3/8% notes and the 9% senior notes better at 6 bid, 8 offered and 46 bid, 50 offered, respectively.

The trader added that Tousa is expected to file for Chapter 11 protection in the next few weeks.

Yet another trader pegged the 10 3/8% notes at 8 bid, 8.5 offered, which he placed up from 5 bid, 6 offered.

"Given where they are trading, that's not saying much," he said of the gain.

Another trader said the 8¼% notes due 2011 were trading at 45.5 bid, 47.5 offered, which he said was "up a couple of points" from the bonds' previous levels in the lower 40s, but said that the bonds were trading flat.

Meanwhile, the 9% notes, he said "used to be 2 points behind [the 8¼% notes] but were now even with them, trading at the same 45.5 bid, 47.5 offered level.

Over in the bank debt, the company's second-lien term loan was higher in trading, although market players were not quite sure what sparked the positive momentum.

The second-lien term loan went out at 92 bid, 93 offered, up around 1 to 2 points on the day, traders said. At the open, the paper was being bid at the 91 level.

"They were supposed to make a PIK payment on the second-lien loan on Dec. 31. I'm not sure if they made it," one trader said.

"The cash payment that was due on the 10 3/8% and 9% bonds was not made. I don't think the bond payment was a surprise to anybody," the trader continued.

"[But], if they made the PIK payment and missed two bond payments, the [second-lien term loan] should be down. I have no idea why it's up," the trader added.

After the market close, Tousa filed an 8-K with the Securities and Exchange Commission confirming that it did not make the Jan. 1 payment.

Last week, Standard & Poor's said it could lower Tousa's corporate rating if the company failed to make the Jan. 1 payment on its 10 3/8% and 9% notes. Last month, Tousa said an amendment to its first-lien term loan and revolving credit facility could inhibit its ability to pay the interest payment, as the change requires the company to operate under tighter cash flows.

The homebuilder will now enter into a 30-day grace period. Should the payment not be made within that period, the notes would become immediately due and payable and would further result in an acceleration of its other debt.

Tembec slips

Canadian company Tembec saw its bonds fall a couple points, even after the Monday announcement that it had received additional support on its refinancing plan.

A trader said the 8½% notes due 2011 were offered at 48, while the 7¾% notes due 2012 ended the session at 46 bid, 48 offered.

"They are coming with language now," he noted.

Another trader placed the 7¾% notes at 46.5 bid, 47.5 offered, down from the year-end levels around 49. The trader said the 8 5/8% notes due 2009 were also down from its year-end price of 52 bid, 53 offered, around 51.5.

Another source said the 8½% notes due 2011 were seen down 2 points at 47 bid.

At another desk, a trader saw the 8 5/8% notes due 2009 a point lower at 50 bid, 52 offered.

On Monday, the forest products company announced that it had received support from bondholders holding about $774 million in debt on its recapitalization plan, as well as additional backstop agreements.

The company's debt had been steadily climbing after the company announced the plan to convert more than $1 billion in debt to equity.

Elsewhere in the sector, Ainsworth Lumber's 6¾% notes due 2014 were better at 61 bid, 63 offered, versus recent levels in the upper 50s. Those bonds, a trader said, "don't trade that often."

He also saw Ainsworth's 7¼% notes due 2012 firmer at 62 bid, 64 offered.

Calpine continues to gain

Calpine's bonds continued to move higher as the company prepares to emerge from bankruptcy in the next few weeks.

One trader called the 8½% notes due 2011 up 3 points to around 116, while another deemed the bonds 2.5 points better at 115.25 bid, 116.5 offered. Another trader said the debt had gained 2 points in light volume.

Another trader called the 8½% notes up 3 points at 117 bid, 119 offered. Another market source saw Calpine's 8¾% notes that were to have matured last year at 114 bid, also up 3 points on the day.

Its 8½% notes due 2011 were 2.5 points better at 115.5 bid.

Once the company exits Chapter 11 protection, it will be one of the largest independent power producer's in the country. Many market players have expressed their belief that the company's new stock will jump once it begins trading.

Still, not everyone is pleased with the company and its confirmed reorganization plan.

Shareholder Elias Fellus has asked the court overseeing Calpine's case to reconsider its confirmation of the plan, stating that, "The deep dissatisfaction lies in the manner in which the debtor management, debtor board of directors, the shareholders' own counsel and in some ways, this court has treated shareholders...The petitioner's only hope is this motion will serve as a record with regard to those dissatisfactions. The petitioner comes before this court in the belief he has standing on the ground that the confirmation order is flawed, and the shareholders' status and standing should not be destroyed because of the pre-existence of a shareholder committee."

Transmeridian to be bought

Earlier this week, Transmeridian Oil Exploration Inc. announced it had entered into a management buyout agreement, which prompted the company's equity to jump.

The deal, valued at $350 million, is with the company's chief executive officer, Lorrie Oliver. Under the terms of the deal, Oliver will begin a tender offer through his Trans Meridian International business at $3 per share. However, the company still has the ability to solicit other offers until Oliver cam obtain the necessary financing.

But the distressed bond market was not as excited as the equity was on the news: the bonds did not move. One trader said the bonds have held in at 95 bid, 95.5 offered.

"We don't know if we really believe it will happen," the trader said.

Broad market mixed

Linens n'Things floating-rate notes bounced from their previous levels around 50 to 52.

Buffets Inc.'s 12½% notes due 2014 closed at 37 bid, 39 offered.

A trader saw James River Coal Co.'s 9 3/8% notes due 2012 trade at 90.25.

The trader also saw Wimar Operating, also known as Tropicana, with a 60 bid on its 9 5/8% notes due 2014, though he noted the debt did not trade.

Another trader called Trump Entertainment Resorts Inc.'s 8½% notes due 2015 unchanged at 76 bid, 77 offered.

Sara Rosenberg contributed to this article.

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