Thornburg bonds regain some losses; AbitibiBowater continues to slide; Level 3 paper slips

By Stephanie N. Rotondo

Portland, Ore., March 10 - Thornburg Mortgage Corp.'s bonds attempted Monday to regain some of the 60-plus points they have lost in the previous week, traders reported.

The mortgage lender's debt continued to be actively traded, gaining anywhere from 5 to 7 points on the day. Traders were not sure what prompted the upward movement, as some pointed to short covering while others said a news story that came out over the weekend was the catalyst.

Meanwhile, AbitbiBowater Inc.'s plans to refinance apparently have bond investors none too excited. The forest products company's debt continued to lose weight after Friday's announcement of the $1.4 billion proposal.

As a top executive made his exit, Level 3 Communications' paper fell as much as 2 points. Some market sources saw the departure as an ominous sign, especially given the company's recent financial performance.

Still, it was a Monday after all, traders said.

One trader said the morning was relatively active, but by the afternoon a lull had set in.

"I think some guys forgot to set their clocks back," one trader quipped.

Thornburg bonds regain some losses

After losing around three-quarters of its value in the last week, Thornburg Mortgage's bonds attempted to rally during Monday's session.

A trader said the 8% notes due 2013 were active in morning trading and moved up 5 to 7 points by the close of business. He pegged the bonds at 35.25 bid, 35.5 offered.

Another trader said the bonds "hopped up" to 34 bid, 35 offered on Monday from Friday's level of 28 bid, 29 offered. He said there was a trade at 35.5, but after that the notes "stalled out."

Another trader quoted the debt at 32 bid, 36 offered, trading flat. However, he did not believe that the bonds' rally was anything to get excited about.

"It sounds like a lot, but think about how much they fell," he said. He opined that the bonds would continue to go lower and are "probably worthless."

That trader attributed the increase to less pressure on the debt, noting that there was a big seller on Friday.

"There was 15% of the whole issue up for sale Friday," he said.

Elsewhere, a trader called the bonds "actually up" by 6 points at 34 bid, 36 offered, while another trader likewise saw the bonds had "bounced a bit" to 34 bid, 35 offered, up from 28 bid, 30 offered on Friday. A market source at another desk saw the bonds get as good as the 35.5 level, up more than 7 points on the day.

One trader said the gain could be due to news released over the weekend that the mortgage lender had sold some of its portfolio to bond giant Pimco. In a CNBC interview, Pimco's founder and chief executive officer, William Gross, said they had purchased "a few hundreds of millions" of Thornburg's paper, though he did not consider that a huge buy.

Thornburg Mortgage is a Santa Fe, N.M.-based mortgage lender specializing in jumbo home mortgages.

Elsewhere in the financial sector, Countrywide Financial Corp. "continued to have a bad hair day," a trader quipped. He saw the 6¼% notes due 2009 trade as low as 82 before coming back to close at around 86. That compared to Friday's closing level of 87 bid, 89 offered.

Another trader said Countrywide's bonds "were all down across the board, "pegging its 3¼% notes slated to come due this May at 94.5 bid, 96 offered, down 1.5 points on the day, and its 6¼% notes due 2016 off 3 points at 65 bid, 67 offered. The bonds were hurt by weekend news reports that the lender was the subject of an investigation by the FBI.

Another trader saw the 3¼% paper at 95.5 bid, 97 offered, which he said was off only a little from previous levels around 96. But he said the company's 6¼% notes due 2009 were down 3 points at 84 bid, 86.5 offered.

Residential Capital LLC paper also hit the skids, falling about 3 to 4 points across the board. A trader pegged the floating-rate notes due 2008 at 78.5, down 3.25 points, while another said the 8 7/8% notes due 2015 lost 2 points to 49 bid.

Abitibi refi bad for bonds?

A refinancing plan aimed at boosting its balance sheet is doing just the opposite for AbitibiBowater bonds.

A trader quoted the 6.95% notes due 2008 down 4 points to around 76, while another saw that issue at 75.5 bid, 77.5 offered. He also placed the 8.85% notes due 2030 at 41.75 bid, 43.75 offered.

At another desk, a trader said the bonds were not much moved following last week's slide. He quoted the 6.95% notes coming due April 1, 2008 at 78 bid, 79 offered, "right where they were trading [Friday]" and also noticed "no activity" on the 8.85%, although he said the latter "could be down 1 or 2 points."

On Friday, the forest products company announced a $1.4 billion refinancing plan that included a $500 million exchange offer for paper maturing though 2009, as well as $200 million to $300 million in new equity. The plan is aimed at keeping the bankruptcy wolves at bay.

As is evidenced by a drop in its bonds, some market players are not all that comfortable with the proposal. However, with hundreds of millions of dollars of debt maturing this year and next, the somewhat recently merged company is facing a daunting task - especially as its quarterly numbers continue to drop, attributed to a decrease in demand for some paper products.

Come Monday, Standard & Poor's downgraded the Canadian company, citing concerns over whether Abitibi will be able to complete its refinancing objectives.

"Given the current challenging credit markets, it is uncertain whether the company will be able to put the proposed financial solutions in place in time for the upcoming debt maturities," S&P said in a statement.

The rating agency cut its rating on the company to "B-" from "B." S&P also said that further downgrades are a possibility.

AbitibiBowater is a Montreal-based forest products company.

Level 3 exec leaves, bonds fall

A management shakeup propelled Level 3 bonds lower, a trader said.

News that the president and chief operating officer was resigning sent the communications company's debt down 1.5 to 2 points across the board, the trader said. He quoted the 9¼% notes due 2014 at around 80 and the 8¾% notes due 2017 at 74 bid, 75 offered, both down 2 points.

Still, the trader conceded that the bonds could be following the overall market trend.

"I could probably pick a lot of things that were down 2 points," he said.

Another trader deemed the debt unchanged, the 9¼% notes at 81 bid, 82 offered and the 8¾% notes at 74 bid, 75 offered.

Level 3 announced that Kevin O'Hara was stepping down from his post, effective immediately. Jim Crowe, chief executive officer, will assume the role of president and, with the help of Neil Hobbs, the new executive vice president of operations, will take over the duties of the COO.

"Kevin O'Hara has worked closely with me for more than 20 years and this was obviously a difficult decision for both of us," Crowe said in a statement. "Kevin is one of the founders of our company and has made enormous contributions to its success. I want to personally thank him for his professionalism and commitment to our company over the many years we've been together. At this time, however, Kevin and I have agreed that a different perspective will be of benefit to our company."

In an afternoon report, Gimme Credit analyst Kim Noland speculated that the executive's departure meant more bad things to come.

"The executive had been with the company for over nine years, and we think the action signals that operating problems may be persisting," Noland wrote.

Level 3 is a Broomfield, Colo.-based communications company.

Delphi price talk revamped

Delphi Corp. released updated price talk on its exit financing credit facility in connection with the scheduling of a conference call for Tuesday that will be used to relaunch the deal to potential investors, according to market sources.

As was previously reported, the revised credit facility structure includes a $1.7 billion first-lien term loan, a $2 billion first-lien term note to be issued to an affiliate of General Motors Corp. (junior to the $1.7 billion term loan), an $825 million second-lien term loan, of which any unsold portion would be issued to General Motors and/or its affiliates, and a $1.6 billion ABL revolver.

Price talk on the $1.7 billion first-lien term loan is Libor plus 575 basis points, with a 3.25% Libor floor for life, sources said. Lenders will be offered an original issue discount on the loan in the low 90's area, likely around 92. The debt carries call protection of 102 in year one and 101 in year two.

Price talk on the second-lien term loan is Libor plus 875 bps, with a 3.25% Libor floor for life, sources continued. This loan carries call protection of 103 in year one, and 101½ in year two.

And, price talk on the ABL revolver is Libor plus 300 bps, sources added.

When the company first launched its exit facility in early January, the deal was comprised of a $3.7 billion first-lien term loan (Ba3/B+), an $825 million second-lien term loan (B3/B-), of which $750 million was expected to be issued to General Motors in connection with plan of reorganization distributions, and a $1.6 billion ABL revolver.

The first-lien term loan had been launched at Libor plus 450 bps, with an original issue discount of 96 and call protection of 102 in year one and 101 in year two.

The ABL revolver had been launched with talk of Libor plus 250 bps.

During the original syndication process, market sources had been saying that revisions to the deal were being contemplated and would be necessary in order for syndication to be successful, and some even speculated that General Motors would have to step in to help things along.

Initially, the second-lien loan was going to be sized at $1.5 billion, but it was downsized prior to launch as a result of a permanent improvement in liquidity as the company generated cash flow during the second half of 2007 in excess of the amount projected in its revised business plan.

General Motors increased involvement in the exit facility has raised some compliance questions by investors.

On Friday, the bankruptcy court said that while General Motors could not directly provide incremental exit financing to Delphi without the consent of the plan investors, the prohibition against additional agreements with General Motors did not extend to incremental financing provided through its subsidiaries or pursuant to certain other structures.

In its ruling, the court also observed that the company had been given sufficient guidance to proceed to seek exit financing on terms that are potentially achievable.

Although some investors continue to object to the proposed exit financing, Delphi believes its proposed exit financing is consistent with the court's guidance and previously issued confirmation order.

JPMorgan and Citigroup are the lead banks on the deal that will be used to repay the company's debtor-in-possession financing facility, to fund other payments required upon emergence from Chapter 11 and to conduct post-reorganization operations.

The credit facility is being done on a best-efforts basis.

Delphi's second-lien DIP term loan was unchanged in trading on the news that the exit facility is attempting to find new life, a trader told Prospect News. The DIP loan was quoted at 98½ bid, 99½ offered.

Delphi is a Troy, Mich.-based automotive electronics manufacturer.

Broad market mostly lower

Linens 'n Things Inc.'s floating-rate notes due 2014 were down 3 points at 28.5 bid, 30.5 offered. Another trader estimated the bonds were trading at around 30 bid, 32 offered, although he said it "seems a little lower - but I don't know how much activity was in it."

A trader saw Six Flags Inc.'s 9¾% notes due 2013 down a point at 59.5 bid, 61.5 offered, while at another desk, its 8 7/8% notes due 2010 were down a point at 68.5 bid.

The trader noted that the company was out with its quarterly report, which showed a narrower loss in the fourth quarter. He said that the release "was fair - not bad, not good, just fair."

Idearc Inc.'s 8% notes due 2016 lost half a point to close at around the 64 level.

Among automotive names, a trader saw Delphi Corp.'s bonds not much moved, with the 6.55% notes that were to have matured in 2006 in the high-30s.

Sara Rosenberg and Paul Deckelman contributed to this article.

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