Spectrum paper softer on earnings; Thornburg better, ResCap lower; Dana loan opens for trading

By Stephanie N. Rotondo

Portland, Ore., Feb. 7 - Thursday trading was comparatively more active in the distressed arena, with earnings news providing a catalyst for several names.

Lackluster figures from Spectrum Brands drove the consumer products company's bonds at least 3 points lower, traders reported. The company attributed its wider loss in part to discontinued operations from the sale of its home and garden business.

But better numbers have given Thornburg Mortgage Inc. a boost over the last couple of sessions. The mortgage lender managed to post a profit for the fourth quarter compared to a significant loss - brought on mainly by the subprime mortgage crisis - in the third quarter.

However, growing concerns over whether GMAC LLC will pull the plug on Residential Capital LLC resulted in the lender's debt losing ground.

Dana Corp.'s term loan B, part of its exit facility, broke for trading Thursday. The automotive parts supplier firmed up the discount, issuing the loan at 90.

In all other things exit financing related, Delphi Corp. is continuing to see its debt post losses, as a lack of financing has investors worried.

Spectrum paper softer on earnings

Spectrum Brands' bonds "got crunched," a trader said, on "terrible earnings." The Rayovac battery maker posted a wider loss for the first quarter, coming in below analysts' expectations.

The trader said the 7 3/8% notes due 2015 fell 3 points to close around 68, while another called the bonds "a little lower and fairly active." The second trader quoted the 7 3/8% notes at 68 bid, 69 offered and the 11½% notes due 2013 around 84.

At another desk, the debt was deemed a couple points softer as well, the 11½% notes at 83 bid, 84 offered and the 7 3/8% notes at 68 bid, 69 offered.

Spectrum posted a loss of $43.4 million for the first quarter, compared to a loss of $18.8 million the previous year. The company attributed the decline to discontinued operations related to the sale of its home and garden business, as well as customer requests for early shipments.

Excluding those items, earnings came in at 6 cents per share, 2 cents below analysts' forecasts of 8 cents per share.

Net sales also fell below expectations, decreasing 1% to $560.5 million.

"The good news is Spectrum remains in compliance with its bank covenants," wrote Kim Noland, analyst with Gimme Credit LLC, in an afternoon report. "The bad news is that a near term strategic asset sale is unlikely because of difficult credit markets and multiples that have decreased since management's previous announcement that it would wait until the climate improves."

Thornburg boosted, ResCap drifts lower

On the other side of the spectrum, positive earnings have helped Thornburg Mortgage's bonds gain momentum over the last few sessions.

A trader said the 8% notes due 2013 "continue to push up," gaining 2 points to end at 89.5 during Thursday trading. Another source echoed that figure, calling the debt up 1.5 points.

Earlier in the week, the Santa Fe, N.M.-based mortgage lender reported fourth-quarter net income of $64.8 million, a significant improvement over its third-quarter loss of $1.1 billion.

Thornburg was one of the first lenders hit amid the subprime mortgage crisis. In August 2007, it was forced to sell assets and halt lending. Lending resumed a month later, and the company also issued $500 million in preferred stock to boost its books.

Among other struggling mortgage lenders, Residential Capital slipped a little bit more, just one day after Moody's Investors Service downgraded the company on concerns that the parent, GMAC LLC, would grow tired of holding up the floundering enterprise.

A trader quoted the 6 3/8% notes due 2010 at 62 bid, 63 offered.

Dana loan tightens, Delphi bonds dip

Dana firmed up the original issue discount on its $1.35 billion seven-year term loan B (Ba3/BB), allocated the loan and then broke it for trading, according to a market source.

The term loan B was sold to investors at a discount of 90, the source said. Late last week, the discount on the term loan B was increased to 92 from the initially proposed 97 area, but since then orders had been coming in at the 90 to 92 range. It was then said that the discount would end up at the level needed to fill the deal out.

On the break Thursday morning, the term loan B was quoted at 90 bid, 91½ offered, but levels quickly tightened up a bit to 90 bid, 91 offered, where it closed out the day, a trader said.

The term loan B is priced at Libor plus 375 basis points, with a 3% Libor floor for two years, and carries hard call protection of 102 in year one and 101 in year two. The only time the call premiums don't apply is when it relates to cash flow sweep.

Last week, when the discount was first changed, pricing on the term loan B was flexed up from original talk at launch of Libor plus 350 bps, and the Libor floor and call premiums were added.

Dana's $2 billion exit financing credit facility also includes a $650 million five-year asset-based revolver (Ba3/BB+) that is priced at Libor plus 200 bps, with a commitment fee of 37.5 bps.

Upfront fees on the asset-based revolver were 25 bps for $25 million, 50 bps for $50 million and 75 bps for $75 million.

Citigroup, Lehman Brothers and Barclays acted as the lead banks on the deal.

The credit facility funded last week when the company emerged from Chapter 11. Proceeds are being used to repay the company's debtor-in-possession credit facility, to make other payments required upon its exit from bankruptcy and to provide liquidity to fund working capital and other general corporate purposes.

Elsewhere in the autosphere, Delphi paper continued to weaken amid growing concerns about the company's search for exit financing.

A trader pegged the bonds - which have been trading generically of late - down 2.5 to 3 points at 33 bid, 35 offered. Another trader placed the notes around 34, while another quoted the 6½% notes due 2009 weaker by 4 points, also at 34. The trader added that the bonds had lost 6 points over the last two days, and "a dicey equity market doesn't help."

Broad market mixed

Charter Communications Inc.'s debt "opened weaker, then rebounded a little throughout the day," a trader said. The trader quoted the 9.92% notes due 2011 around 50, adding that the issue got as low as 49 before "reversing some losses." Still, he noted, the bonds were still weaker on the day.

The trader also saw the 13½% notes due 2011 down half a point at 69.

The trader said there has been no news out on the cable provider but speculated that there was "a lot of jockeying going on" in highly levered credits, such as Charter.

Ames True Temper Inc.'s bonds were quoted down 2 points, though they did not trade, a source said. He pegged the 10% notes due 2012 at 45 bid, 47 offered.

The source said quarterly results are expected Monday. He added that a rumor has been circulating that the company is planning on hiring - or perhaps already hired - financial advisers.

Mixed same-store sales in the retail sector helped some struggling retailers rally. A trader said Bon-Ton Stores Inc.'s 10¼% notes due 2014 opened at 64.5 bid, 65.5 offered but inched back to close at 67 bid, 68 offered. He noted that there was not much activity in the name.

Blockbuster Inc.'s 9% notes due 2012 were also better at 81.5.

Sara Rosenberg contributed to this article.

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