Buffets misses coupon payment; Tousa better, flat; Centro in distressed arena; retailers down

By Stephanie N. Rotondo

Portland, Ore., Jan. 3 - While volume continued to be light Thursday, traders reported there were "some things going on" in the distressed arena.

Missed coupon payments are the talk of the town, as yet another company failed to pay interest on its debt. Buffets Inc.'s bonds fell nearly 10 points after the company missed its coupon. The restaurant operator joins Technical Olympic USA Inc. on the list of those who have failed to make payments at this early point in 2008.

Tousa confirmed late Wednesday that it missed its payment, and its bonds, which are trading flat, have edged higher over the last two sessions.

Centro Properties Group is quickly entering the distressed radar as the company is looking to asset sales to help fund its massive debt payments this year. The Australian company's bonds have so far been quiet, though activity is expected to increase as more market players begin looking at the name.

Things continue to look dismal for retailers. Bon-Ton Stores Inc. and Burlington Coat Factory Warehouse Corp.'s bonds declined on the day, as the market is awaiting poor results from the recent holiday shopping season.

Buffets misses coupon payment

Restaurant operator Buffets missed its coupon payment that was due Wednesday, prompting its 12½% notes due 2014 to fall nearly 10 points during Thursday's session.

One trader said the bonds "got crushed" on the missed payment, falling 9.5 points to 30 bid, 30.5 offered from around 40 the previous day. Another trader called the debt down 10 points to around 30.

At another desk, a trader said the bonds "got hammered," also placing the notes in the 30 area.

A trader - noting that the missed coupon failed to give the bonds' nominal price a small boost as often happens when an issue begins trading flat, or without its accrued interest - said that he had read a report in which an analyst flatly declared that "if they have to file [for bankruptcy], the bonds are worth zero."

Traders usually expect a slight rise in the bonds, essentially reflecting bondholders' expectations that the recovery of their claim against the company in a bankruptcy or other restructuring, indicated in the bonds' market price, will now be increased by the amount of accrued interest from the missed payment that they are owed.

Another trader quoted the bonds down 8 points at 28 bid, 31 offered. He said that during Wednesday's session, "there was some slight confusion about whether or not they were going to make the coupon payment. There were rumors going around that they had, in fact, transferred the money to the [indenture] trustee. It started out [earlier Wednesday] that they had not made the transfer. Then there was a rumor at the end of [Wednesday] that maybe they had made the transfer, and then it was confirmed [Thursday] that they did not. People did not give the rumor [that they had made the transfer] much attention - but it was floating around - one of those situations where someone talked to a guy who had talked to a guy.

The trader commented on the fact that while both Buffets and Technical Olympic had missed coupons, the former "got killed," while the latter bonds were still trading as though people expected to recover that interest somewhere down the line.

Yet another trader saw the Buffets bonds 10 points lower at 28 bid, 30 offered. He said that there was little or no contagion to other restaurant names and that the slide was very company-specific.

Buffets has had a tough year. In November, the company posted a wider quarterly loss of $5.3 million from $1.1 million a year before. A tighter leverage requirement on its bank loans resulted in Standard & Poor's cutting the company's credit rating to CCC, given the potential - and likelihood - that the company would default on its loan covenants.

Now, according to one trader, the company will enter the reorganization process.

Calls to Buffets were not returned.

Tousa bonds better, flat

Among other missed interest payments, Technical Olympic confirmed late Wednesday that it had missed its payment on its 10 3/8% subordinated notes due 2012 and its 9% senior notes due 2010.

The debt, now trading flat, gained momentum in Wednesday trading, which continued into Thursday's session. A trader said the 10 3/8% notes were up 4 points at around 9.25. However, he added that now that the bonds are flat, the change was relatively miniscule.

Another trader said the subordinated notes were "up, up and away," closing at 8 bid, 10 offered from 6 bid, 8 offered.

At another desk, a trader called Tousa's bonds about unchanged from their levels on Wednesday, when the bonds gained several points in their nominal value as they began trading flat. He quoted the 8¼% notes due 2011 at 44.5 bid, 45.5 offered and said the company's other bonds were at "about the same" levels as Wednesday.

Another trader deemed the 9% notes due 2010 unchanged at 45.5 bid, 46.5 offered, while the 10 3/8% notes were down perhaps half a point to 7.5 bid, 9.5 offered. [The bondholders] "still think they're going to recover the interest" on the bonds - although he allowed that maybe that belief was stronger among the holders of the more senior bonds than the subordinates, trading as they are in single-digits. He said that one of the other traders at his shop believes that eventually the bonds will see a decrease in price - but right now, "it's kind of priced in."

The company's second-lien term loan was once again trading higher, with some saying that the missed bond payments were a positive for the bank debt.

The second-lien term loan ended the day at 92.5 bid, 93.5 offered, up from 92 bid, 93 offered, traders said.

"If they're not making payments on the notes, there's less cash going out the door. [That] leaves more for the second lien, and ongoing it will be less money going out. They can stay current on the second lien because it's only a PIK and they can continue to make the PIK payment," one trader explained.

Given the weakness of the housing industry at large, and the large exposure Tousa has to some of the hardest hit real estate markets, it is widely believed that the missed payment will eventually force the company into bankruptcy. Under the terms of its debt, if the company fails to pay the coupon within the 30-day grace period, the bonds will accelerate and become due and payable. Should that happen, its other debt would follow.

Therefore, it is a "good bet," a trader said, that the company will soon file for Chapter 11 protection.

"I think that's a reasonable assumption," he said.

Centro enters distressed radar

It was a quick trip into distressed territory for Centro Properties, an Australian company specializing in the ownership, management and development of retail shopping centers.

The company announced on Wednesday that it was looking for interested buyers for some or all of its assets - a move aimed at raising the necessary cash to fund upcoming payments on A$3.9 billion in maturing debt.

The real estate investment trust has until February to make the payments, but given the company's current market value - a mere A$878.9 million - some market players are deeming it unlikely they will be paid.

"They have A$3.9 billion in debt and the company's not worth near that," a trader said.

S&P seemed to agree and dropped Centro NP LLC, a subsidiary of the company, to junk. The ratings agency said the downgrades were due to the selling of assets in a softening marketplace, as well as amendments to its revolving credit facility and the debt rollover due Feb. 15.

Still, the name is just beginning to hit the radar for many distressed players. A trader said that the company's 4½% notes due 2011, a more widely traded issue, ended the day at 80 bid, 81 offered.

"It's going to be on the forefront pretty quickly," he said of the company.

Among some of the Melbourne-based company's other issues are 5 1/8% notes due 2012, 5½% notes due 2013, 7½% notes due 2029, 6.9% notes due 2028 and 7.4% notes due 2009.

Retailers 'take it on the chin'

With the holiday shopping season over, retailers are "taking it on the chin," a trader said.

Bon-Ton's 10¼% notes due 2014 "traded a lot," the trader said, around 73. Burlington Coat Factory's 11 1/8% notes due 2014, which were recently in the low-80s, fell to around 79.

Another trader also saw Bon-Ton's debt lower near the 73 mark.

Linens 'n Things' floating-rate notes due 2014 slipped 3 points to 46.5 bid, 48.5 offered, with one trader blaming the drop on "bad" sales numbers reported by the company's larger competitor, Bed Bath & Beyond, which he said did not bode well for the entire home soft goods retailing sector. Even so, he said "apparently no one is looking outside at how cold it is - people are going to have to buy blankets somewhere."

Rite-Aid Corp. posted a 0.5% decrease in same-store sales for December, which resulted in its bonds dipping 2 to 3 points. A trader pegged the 9½% notes due 2011 at 77 bid, 78 offered.

While other figures for the recent shopping season have yet to be officially announced, it is likely that sales will fall short of many retailers' expectations. In New York, for example, retailers gave the season a "C+" grade, the worst in five years, according to the Retail Council of New York State.

Broad market mixed

Calpine Corp.'s debt continued to climb as the company prepares to exit bankruptcy. A trader said the 8½% notes due 2011 gained 1 to 1.5 points on the day to end at 115.5 bid, 116 offered.

Tropicana Entertainment LLC, also known as Wymar Operating, saw its debt once again become active, its 9 5/8% notes due 2014 closing at 62.5 bid, 62.75 offered.

Quebecor World Inc.'s 6 1/8% notes due 2013 fell a couple more points to 73.5 bid, 74 offered after news earlier this week that stated the company might have to sell itself as it struggles to refinance about $1 billion in debt over the next six months.

Sara Rosenberg and Paul Deckelman contributed to this article.

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