Tousa continues to climb; Delphi, Calpine gaining ground; Tropicana receives default notice

By Stephanie N. Rotondo

Portland, Ore., Jan. 31 - As is typical of the last day of the month, many investors took a timeout Thursday and activity in the distressed bond sector was hit or miss.

"It was very quiet, with people watching the equity markets," a trader said. "Plus it is the last day of the month."

"The market started weak, but then it got stronger in the afternoon," another trader said, adding that it was "not crazy strong."

For the third straight session since it announced it had filed for bankruptcy, Tousa Inc.'s bonds posted gains. One trader speculated that a fraudulent transfer claim might have piqued the interest of some people, causing them to "jump on board."

In names looking to exit bankruptcy, both Delphi Corp. and Calpine Corp. were firmer on the day. Still, Delphi continues its search for exit financing, while Calpine is all ready to go.

Tropicana Entertainment LLC, also known as Wymar Operating, received a notice of default and acceleration from its indenture trustee. But the company is denying a default even exists. The news did little to propel movement in the company's debt, however, with traders calling the bonds unchanged.

Tousa bonds continue to climb

Tousa's bonds continued to head higher in trading, causing one trader to speculate that a fraudulent conveyance lawsuit prompted investors "to jump on board."

The trader quoted the senior bonds - the 9% notes due 2010 and the 8¼% notes due 2011 - at 56 bid, 57 offered.

"Nice little rally," he said.

The trader also saw the 10 3/8% subordinated notes due 2013 better at 10.5 bid, 11.5 offered.

"Somebody is buying up Tousa paper," he added. "Maybe they like the merits of the lawsuit."

Another trader deemed the corporate debt up 3 to 4 points, the 9% seniors at 55 bid, 56 offered, and the subordinated issues - including the 7½% notes due 2011 and 2015 - around 10.

Another trader called the 9% notes up 6 points at 55 bid, 57 offered. The same trader saw its subordinated notes up 4 points at 10 bid, 12 offered.

A group of bondholders objected to the Tousa reorganization plan Wednesday, stating that debt from a settlement related to its Transeastern JV was forced upon certain subsidiaries. Market players have expressed opinions that the group could be looking to increase its recovery value through a litigation claim.

Under the settlement, bank lenders won higher priority than subordinated debt holders. A trader said he heard one bank debt holder comment, "I guess they are coming after us."

Speaking of bank debt, the second-lien term loan was quoted at 78 bid, 82 offered, while the first-lien term loan closed at 92.5 bid, 94.5 offered, both softer on the session.

In other Tousa news, the Hollywood, Fla.-based homebuilder won approval of $135 million of interim debtor-in-possession funding, despite objections from bondholders. The bondholders claimed that the company was not in need of the "emergency" financing.

Delphi, Calpine gaining ground

Without exit financing in sight, Delphi's paper drove ahead yet again this week.

A trader said the automotive parts supplier's debt was "active," trading at 39 bid, 40 offered, generically.

Another trader called the bonds "a little better" around 40.

At another desk, a trader quoted the debt at 39 bid, 40 offered, noting that the issues were "trading on top of each other."

A bankruptcy judge approved Delphi's reorganization plan earlier this week, provided it slashed its executive bonus program. The company complied, leaving it ready to leave Chapter 11 protection - except that it has no exit financing.

Calpine, on the other hand, not only has an approved plan, but also has financing. The San Jose, Calif.-based power producer was aiming for a Thursday exit from bankruptcy, though as of press time, there was no word on whether that had occurred.

A trader called Calpine's bonds up about half a point, with the 8½% notes due 2011 ending the day at 111.75. Another trader pegged the 2011 paper at 111 bid, 112 offered, the 8½% notes due 2008 at 116 bid, 117 offered and the 7¾% notes due 2009 at 92 offered.

Tropicana receives default notice

Tropicana Entertainment received a notice of default and acceleration on its 9 5/8% notes due 2014, but the news prompted little movement in the casino operator's bonds.

"Doesn't seem like it's moving much," a trader said, deeming the bonds unchanged at 60.5 bid, 61.5 offered.

Another trader also called the bonds unchanged to "maybe up half a point" at 60.5 bid, 61.5 offered. Another source said the notes were "kind of unchanged" at 60.5 bid, 61.

"They were pretty uneventful," he said. "They were a little higher yesterday, but not much."

According to documents filed with the Securities and Exchange Commission, the indenture trustee, Wilmington Trust, filed a complaint alleging the default. The trustee is claiming that principal and interest are payable immediately.

The allegation of default comes a few weeks after the casino was denied a license renewal from the New Jersey Casino Control Commission. However, the company is denying that a default has occurred and said it will fight the claim.

Broad market mixed

Quebecor World Inc. continues to lose steam, with one trader placing the 6 1/8% notes due 2013 "down some more" at 42.5 bid, 43.5 offered from 46 bid, 48 offered previously. Another trader quoted the bonds around 44.

Swift Transportation Co. Inc.'s 12½% notes were "quoted a little bit," a trader said, closing unchanged at 39 bid, 40 offered.

A trader said Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2014 were a few points lower at 76.5 bid, 78 offered.

Bon-Ton Stores Inc.'s 10¼% notes due 2014 were up almost 2 points to around the 68.5 level.

A trader saw "not much activity" in Mrs. Fields' paper, even though the cookie company said Wednesday it may not be able to make the March 2009 interest payments on its two series of bonds. He saw its 11½% notes due 2011 "right around" the same 84.5 bid, 85.5 offered market at which it was trading lightly on Wednesday, and no dealings Thursday.

Vertis Corp.'s 10 7/8% notes due 2009 were down nearly 2 points at 45.5.

Paul Deckelman contributed to this article.

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