Fed plan boosts Thornburg; Bon-Ton optimistic about 2008; New issue weighs on Charter paper

By Stephanie N. Rotondo

Portland, Ore., March 11 - A $200 billion rescue investment plan proposed by the Federal Reserve sent the equity markets through the roof Tuesday, but the distressed bond market did not react in kind.

One trader said the news did not spark as much excitement in the distressed and high-yield sectors as in the equities markets - the Dow Jones Industrial Average posted its biggest gain in five years - and, at best, the junk arena was mixed on the day.

The Fed's plan did, however, help Thornburg Mortgage Corp.'s previously declining bonds. The mortgage lender's debt began to climb in the previous session, moving up about 5 points. The gains continued in Tuesday's session, leaving the notes 10 points better on the day. Still, the bonds are down nearly 50 points from a week and a half ago.

Despite a drop in sales and earnings, Bon-Ton Stores Inc.'s bonds headed to higher ground as the company expressed optimism for the remainder of 2008. Of the high points of its quarterly conference call, the company's chief financial officer indicated that the department store was on track to meet or exceed its cost savings target.

Meanwhile, Charter Communications Inc. announced plans to issue new debt, which resulted in its senior paper falling under some pressure. One trader said the senior notes slipped 1 to 2 points across the board, while another saw the debt close unchanged to just half a point weaker.

Fed plan boosts Thornburg bonds

A $200 billion investment plan from the U.S. central bank was good news for Thornburg Mortgage bonds, which gained about 10 points during trading.

One trader said the 8% notes due 2013 were "up a lot" at 45.5 bid, 46.5 offered, compared to 35.5 in the previous session. Another trader pegged the bonds at 43 bid, 46 offered.

"It seems like good news, I guess," the first trader said. He added that the company did respond to the Fed's proposal, calling it "encouraging, but not the magic ticket."

Another trader said Thornburg's notes shot up 10 points to 44 bid, 46 offered. At another desk, a market source saw the bonds bounce all the way back to around the 47 bid area, a gain of about 13 points, in busy size trading. Yet another source called the bonds 11-point gainers to 45.5.

In response to a sagging financial market, the Fed plans to infuse $200 billion into banks and investment houses, allowing them to use some of their riskier home mortgages as collateral.

"The Fed is giving away money to anyone that has a 'AAA' piece of paper they can pledge," a trader said. That is an umbrella Thornburg can seek cover under.

Still, the future remains uncertain for Thornburg, which still is looking to raise cash to pay its remaining margin calls. The company's banks agreed to freeze their payment demands through Monday, as Thornburg continues to search for the needed funds.

Given its troubling situation, Thornburg restated its 2007 financials. For the fourth quarter of 2007, the company showed a $4.74-a-share loss, compared to the previously stated net income of 33 cents per share.

In a filing with the Securities and Exchange Commission, Thornburg once again broached the subject of its potential doom.

"Directors decided that we should restate these financial statements after concluding that there was substantial doubt as to our ability to continue as a going concern," the company said in the filing.

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

Elsewhere in the sector, Countrywide Financial Corp.'s 3¼% notes coming due on May 21, 2008 were unchanged at 95 bid, 96 offered. A trader said that he did not see anything going on with the longer-dated issues.

"It looks like all they were quoting were the short-term bonds," he said.

However, another market source saw its 6¼% notes due 2016 up 1.5 points at 67.

Residential Capital LLC's 6½% notes due 2013 dropped 3 points on the day to 47 bid, 49 offered, while its 8 7/8% notes due 2015 were also at 47, down 2 points on the day.

ResCap parent GMAC LLC's 8% bonds due 2031 retreated to 70.5 bid, 71.5 offered from 73 bid, 74 offered on Monday. Its 6 7/8% notes due 2012 were down 1.5 points at 74 bid, while its 7% notes due 2011 were off almost 2 points at just above 46.

Bon-Ton optimistic about 2008

A weakening retail environment resulted in a drop in sales and earnings for Bon-Ton during the fourth quarter - but it is not giving up yet.

Cost savings initiatives, which began in 2006, have helped the company pare down its overall debt, and there are plans to cut debt even more.

The optimism expressed by company management about its efforts in 2008 prompted investors to get involved with the name, and the department stores' bonds ended the day at least 2 points better.

One trader deemed the 10¼% notes due 2014 up 2 points at 65 bid, 66.5 offered, compared to around 64 previously. However, he said that the usually actively traded name died down once afternoon came.

Another trader also saw the bonds higher at 66 bid, 67 offered, while another said the bonds gained more than 2 points to end at 66.5.

For the fourth quarter, sales at Bon-Ton's stores decreased 3.6% compared to the same quarter of 2006. Full-year sales fell 6.5%.

But on the bright side, the company's total debt balance fell by $42 million to $1.155 billion, with cash and cash equivalents of $21.24 million. Chief financial officer Keith Plowman said during a conference call that there are plans to generate at least $50 million more in cash, which will be used to pay down debt.

"We have a strong balance sheet and we believe we will generate strong cash flow in 2008 to invest in our business and continue to pay down debt," Plowman said.

Though it is expected that the retail environment will not improve throughout 2008, Plowman also indicated that the company is on track to meet or exceed cost savings of $33 million during the year.

Bon-Ton is a York, Pa.-based operator of 280 U.S. department stores.

Elsewhere in the retail sector, Linens n'Things Inc.'s floating-rate notes due 2014 started to "catch up," a trader said. The trader quoted the company's bonds at 32 bid, 32.75 offered, compared to 29 bid, 29.5 offered on Monday.

Last week. Moody's Investors Service cut its rating on the Clifton, N.J.-based private company to Caa1. The rating agency attributed the downgrade to Linens' higher borrowing levels and lower credit availability.

Charter paper slips

Charter Communications' senior paper fell 1 to 2 points "across the board," a trader said, as the cable provider announced plans for a new issue.

The trader said something like the 8 3/8% notes due 2014 slipped to 89.75 bid from 91 bid, 92 offered previously. Another trader said the "old" 11% notes traded "a boat load," ending at 69.5 bid, 70.5 offered, down just half a point.

Another source called the 8 3/8% notes due 2014 lower by 2 points at 88 bid, 90 offered. The 8% Charter Operating notes due 2012 lost 1.5 points to end at 92, while the CCH I Holdings 9.92% notes due 2014 were up 1.5 points at 49.

Charter Communications Operating LLC, a subsidiary, is planning to issue $500 million in second-lien notes due 2014. It is expected it will be a 10 7/8% coupon with 11¾% yield. Proceeds from the sale are expected to be used to pay down debt under the existing revolving credit facility.

In other Charter news, Paul Allen, the largest shareholder of the company, has received what the company is calling "numerous" offers from parties interested in investing - or perhaps buying - the company. Some, however, do not see that happening.

"Although nothing is a sure bet in this market, with the low debt-to-subscriber levels at Charter Operating and the recent improvement in its operating results, this deal will probably get done," Gimme Credit analyst Shelley Lombard wrote in an afternoon report. "The announcement that various parties have approached Paul Allen about buying the company is much more of a long shot. We can't imagine anyone wanting to buy Charter or put in equity, with $19 billion of debt ahead of it trading at discounted prices."

Charter Communications is a St. Louis-based cable television provider.

Broad market tidbits

Abitibi-Consolidated Inc. once again saw its rating cut, this time by Fitch Ratings. The agency lowered the issuer default rating to CC from CCC and the senior unsecured debt to CC/RR4 from CCC/RR4, attributing the downgrade to the likelihood of a default on one of the company's upcoming maturities.

The forest products company's debt has fallen recently due to a refinancing plan that has not impressed some investors. A trader quoted the 6½% notes due 2013 at 60 bid, 62 offered, noting that the "bid was getting hit."

Another trader quoted the 6.95% notes coming due on April 1, 2008 at 74 bid, 76 offered, down 4 points, while the 5¼% notes maturing June 20, 2008 were likewise down 4 at 72 bid, 74 offered. The 8.85% notes due 2030 dropped 6 points to 39 bid, 42 offered.

Masonite International Inc. released its fourth-quarter results, but the report did little to move the debt, a trader said.

The trader said the 11% notes due 2015 had not traded since the numbers came out, last moving at around 68.

Six Flags Inc.'s 9 5/8% notes due 2014 lost 1.5 points to close at 58.5, while its 8 7/8% notes due 2010 were seen down slightly at around the 68 level.

Paul Deckelman contributed to this article.

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