Thornburg, Abitibi vie for 'disaster du jour' honors; Idearc rally fizzles; Delphi off, Reddy Ice loan melts

By Paul Deckelman

New York, March 7 - Thornburg Mortgage Inc.'s bonds, and AbitibiBowater Inc.'s short-dated paper each nosedived about a dozen points during the session Friday in heavy large-block trading, as the companies seemed to be competing for the unwanted honor of the day's biggest disaster.

Thornburg - which has been getting absolutely killed over the past week on escalating margin calls on its mortgage-backed reverse repurchase agreements - warned Friday that it doesn't have the money to meet the latest round of margin calls, adding that its ability to carry on as a going concern is in doubt.

Abitibi meanwhile shocked holders of its bonds slated to mature this year by suggesting holders may have to accept new debt as part of their compensation instead of just being paid in cash.

Elsewhere, traders saw Idearc Inc. - which had firmed smartly over several sessions earlier in the week on the strength of a boost from Barron's - now having given back some of those gains, its rally apparently over.

Delphi Corp. debt was seen a little lower, even in the wake of the good news which the bankrupt Troy, Mich.-based automotive parts supplier received this week, with former corporate parent General Motors Corp. agreeing to increase the amount of support it will give to its problem child, while would-be savior Appaloosa Management LP agreed to give the parties more time beyond the previously established March 31 deadline to get everything nailed down, although expressing concerns about GM's involvement.

In the bank-debt market, Reddy Ice Holdings Inc.'s term loan was seen having plunged 5 or 6 points on the day amid market dismay over a raid on its Dallas headquarters by federal agents investigating possible antitrust violations in the packaged ice industry. The company's bonds and shares were also lower. Moody's Investors Service was meanwhile eyeing Reddy for a possible ratings downgrade.

Thornburg slides toward oblivion

Of the two bondholder disasters dominating Friday's headlines, Thornburg's situation probably outranked Abitibi's since the company's very existence might hang in the balance, according to what its own executives said, and because the bonds' ultimate loss when trading finally wound down was larger.

Thornburg "was the name du jour as far as getting whacked goes," a trader said.

The bonds - which had fallen some 20 points Thursday to end at around 40 bid on news the company had received a notice of default from JP Morgan Chase which in turn triggered cross-defaults on its other obligations - "were busy again today. They started off a little stronger, and traded up to the low 40s. Then it got pounded, and looks like it's going out in the high 20s."

He said that the company's latest bad news - that it can't meet the latest batch of more than $600 million of new margin calls, a development which could affect its very survival - "just crushed them. They were holding in, hanging around the high 30's level, bid here and there and then, BOOM. Just a big crack at the end."

At another desk, a trader - who called Thornburg the most active bond of the day - saw them first blip up to around 43 bid, from Thursday's closing level around 40, but then slide as low as 27 bid, 29 offered before improving oh so slightly at the end to finish at 28 bid, 30 offered.

A market source at another desk who also saw the bonds pretty active, though not necessarily the busiest, pegged the bonds' high point of the day at 44 - but then saw them slide precipitously, bottoming below 26 before coming up from that trough to finish at 29.5 bid, still down more than 10 points on the session.

Thornburg's New York Stock Exchange-traded shares at one point had plunged 34% on the day to a low of $1.08 before actually ending up 14 cents, or 8.48%, at $1.79, pushed back into the black by some last-minute large-block trades, market sources said. Volume of 54 million shares was not quite seven times the average daily handle.

Thornburg's shares, and its bonds, have been on the slide ever since Feb. 28, when the company disclosed that it had received $300 million of margin calls on its reverse repurchase agreements, a form of collateralized short-term borrowing it engaged in with various counterparties. Although it was able to meet those initial margin calls, it disclosed this past Monday that it had received another $270 million of calls and had been unable to meet "a substantial majority" of them. The company announced plans later that session to raise almost $1 billion by the sale of loans in a securitization, but that failed to calm the markets much and the hits just kept on coming - ratings downgrades from the major agencies, and the revelation late Wednesday that it had gotten the JP Morgan default notice, triggering the cross-defaults on its other obligations. Several analysts, including Citigroup's Donald Fandetti, suggested the company might find itself forced to file for bankruptcy.

On Friday, yet another shoe dropped, as Thornburg revealed that it had gotten $610 million of margin calls, on top of the $570 million it had already received. The company said it did not have the money available for those margin calls and was trying to raise it.

Thornburg continues to insist that its mortgage assets are solid; on Friday, the company's chief executive officer, Larry Goldstone, declared that "quite simply, the panic that has gripped the mortgage financing market is irrational and has no basis in investment reality."

However, the company acknowledged in its statement Friday that falling prices for those assets and the company's shrinking liquidity "have raised substantial doubt" about its ability to keep operating "as a going concern."

It said that its bankers agreed to freeze their demands for payment for a few hours, till midnight Friday, to give Thornburg the chance to raise enough cash to meet its obligations. There was no immediate word at press time whether the company would be able to raise the capital required to satisfy all of those margin call demands.

Thornburg at the same time announced that its auditor, KPMG LLP, has concluded that its 2006 and 2007 audit reports should no longer be relied on. The company will accordingly restate last year's results and take a $427.8 million charge for its adjustable-rate mortgage holdings.

Abitibi retreats on refi plan for '08 bonds

Compared to the situation facing Thornburg, AbitibiBowater's troubles don't seem that bad at all - but its bondholders, particularly investors holding its 6.95% notes slated to come due on April 1 and its 5¼% notes coming due on June 20, were still peeved at the Montreal-based forest products company's proposed $1.4 billion refinancing plan - which would pay those bonds off with a combination of cash and newly issued debt, rather than just giving them cash.

That caused the 6.95s, the nearest issue, to fall as much as 12 points during the day, although the bonds came off their lows to end down about 8 points.

A trader said the two 2008 issues "got clobbered," quoting the 6.95s down 10 points around 79 bid, 80 offered, while the 51/4s were down about 8 or 9 points at 77 bid. "They were down pretty big," he observed.

Another trader saw the 6.95s fall 10 points to 78 bid, 80 offered, with the 51/4s were 8 points lower at 76 bid, 78 offered.

"They're not gonna get away with it," he opined. "They don't have the cash [about $350 million total] to pay them, and when the noteholders say 'no,' [company officials] have a choice - file [for reorganization] or pay."

He also saw the 8.85% bonds due 2030 lower, dipping to 45 bid, 47 offered from 48 bid, 49 offered on Thursday.

Another trader saw the bonds bounce off their earlier lows, quoting the 6.95s at 81 bid, 83 offered, down 6 points on the day, the 51/4s at 78 bid, 80 offered, and the 7¾% notes due 2011 down 2 points at 51 bid, 52.5 offered.

Abitibi, in announcing its $1.4 billion refinancing plan, said that its Abitibi-Consolidated unit intends to "promptly commence" an exchange offer targeting some $500 million of its near term maturities - the two 2008 issues as well as its $150 million of 7 7/8 notes due 2009, offering the holders of those bonds a combination of cash and new senior Abitibi-Consolidated senior unsecured notes due 2010.

Analyst Kim Noland of the Gimme Credit investment research service noted that "it is not clear yet that noteholders will agree to the exchange offer or that the company will find a market for the new senior secured loans [that are a part of the refinancing plan], although we doubt the company would have floated the plan without garnering significant support from current holders."

But, Noland added, "we think the company could face additional refinancing problems if its business doesn't improve."

Additionally, the analyst said, "the plan seems dependent on asset sales which have not yet been accomplished. Therefore . . . we are not ruling out a bankruptcy filing should the plan fail to gel." Noland said that should Abitibi wind up in the bankruptcy courts, its filing might be limited to just the Abitibi-Consolidated subsidiary, since the former Bowater Inc., which merged with Abitibi-Consolidated last year to form AbitibiBowater, is held as a separate subsidiary.

Noland said the plan is "not good news" for the 2008 and 2009 bonds, since they will not be paid in full at maturity but instead get new notes in addition to being partly repaid in cash.

Idearc rally over

Elsewhere, traders saw Idearc's 8% notes due 2016 a few points down from the highs it hit earlier in the week, when the Dallas-based telephone directory publisher's paper firmed smartly after a weekend Barron's article said that the debt-laden company's shares could yield handsome profits to investors not afraid to take on some risk.

But after a couple of days of upside, followed by some drift at mid-week - one trader said the credit "took the day off" Thursday in holding steady around a 65-66 context, well up from the upper 50s a few days before - by Friday, "the rally is over," said a trader who saw the bonds at 64.5 bid, 65.5 offered.

"It obviously had a big run-up earlier in the week," said another trader, "but there was really nothing going on Friday. It was very quiet."

Another trader saw the bonds off a point at 64 bid, 66 offered, and observed sector peer R.H. Donnelley Corp.'s 8% notes due 2013 at 70 bid, 72 offered, down about a point or so from their recent highs.

Delphi off despite favorable ruling

A trader said that Delphi Corp. "was down a little, even though they won their fight with the investors over GM's exit loan," with a bankruptcy judge ruling that it could get help from former corporate parent GM as part of its exit financing, so long as the assistance came through a subsidiary and not from GM directly.

Delphi had argued that it needed the nearly $2.8 billion that GM was willing to put up; equity investors like Appaloosa Management and Harbinger Capital had argued against an enhanced role for GM, saying it might violate the terms of their lending agreement with Delphi. The latter pronounced itself satisfied with the ruling by judge Robert Drain of the U.S. Bankruptcy Court for the Southern District of New York.

Despite that seemingly good news, the trader said, " it looked like Delphi was down 1½ to 1¾ points, which is a good percentage move."

He saw the 6.55% notes that were to have come due in 2006 around 37 bid, but said there had been "not a lot of trading" in the credit.

Reddy not ready for raid

In the bank loan market, traders said that news of a Wednesday raid by the U.S. Justice Department's Antitrust Division on the office of Dallas-based Reddy Ice Holdings had a chilling effect on the company's term loan.

One trader said that the loan was trading in the context of 85 bid, 90 offered in the morning, and by mid-afternoon it was 84 bid, 89 offered, altogether down 6 points on an otherwise quiet day in the secondary market.

The company's 10½% discount notes due 2012 were seen having slid to 85 bid from prior levels in the lower 90s, although it should be noted that the bonds - which are seldom traded - saw just one large-block trade late in the day to bring them down to that sharply lower level, after a couple of large trades earlier only slightly below the lower 90s levels they have recently held.

Reddy's NYSE-traded shares fell $7.73, or 33.45%, to end at $15.38, and at one point in the session had plunged 48% on the day to a low of $12. Volume of 2.8 million shares was 12 times the usual turnover.

In a press release, Reddy Ice stated that the feds' search warrant was executed in connection with an ongoing DOJ investigation of the packaged ice industry.

The news release added that the company's board of directors has formed a special committee to conduct its own internal probe.

Moody's Investors Service - which was already looking into a possible downgrade of Reddy's B1 corporate family rating and the B3 senior unsecured rating on its bonds, citing the uncertainty surrounding the company's business and the abandonment in January of its planned merger with GSO Capital Partners LP - said Friday that the ratings agency will consider the potential impact of the federal investigation on Reddy's business as another factor when it makes its decision.

A market wag said of the investigation that even if it does produce any indictments, the ice company "should be used to the cooler, right?"

Paul A. Harris contributed to this report.

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