Thornburg rebound, Abitibi slide continue; Solo Cup up on numbers; Macrovision deal expected

By Paul Deckelman and Paul A. Harris

New York, March 12 - Thornburg Mortgage Inc.'s bonds rebounded strongly for a third straight session on Wednesday, helped by gains in its shares after an analyst's upgrade - although there was more bad news on the horizon for the recently hard-hit Santa Fe, N.M.-based jumbo mortgage lender in the form of another notice of default on its short-term mortgage-backed borrowing.

While Thornburg continued to head north, AbitibiBowater Inc.'s bonds kept moving in the opposite direction, as investor dismay over the company's plan to pay off maturing bonds only partially in cash deepened.

On the earnings front, Solo Cup Co.'s bonds rose after the Highland Park, Ill.-based maker of disposable cups, plates and utensils reported what it called "significant" performance improvements.

But Park-Ohio Holdings Corp.'s bonds slid along with the logistics company's fourth-quarter profits.

After a formidable Tuesday rally in the CDX High Yield 9 index, coupled with a marginal rally in cash bonds, the market was flat on Wednesday, according to a high yield syndicate official.

There was no primary market news.

Market indicators remain softer

A trader saw the widely followed CDX index of junk market performance up 1/8 point Wednesday to 87½ bid, 87¾ offered. The KDP High Yield Daily Index lost 0.28 to end at 72.12, while its yield pushed out by 7 basis points to 9.93%.

In the broader market, declining issues led advancers by a five-to-four margin for a second straight session. Overall activity, reflected in dollar volumes, fell 11% from Tuesday's levels.

"Not a lot was going on," a trader said, noting that things at his shop were certainly slower.

Among the factors he cited as competing for market players' attention was "of course, the Spitzer stuff," as Wall Street's old nemesis, Eliot Spitzer resigned his governorship of New York in disgrace over this week's shocking revelations of a sex scandal - a televised announcement greeted with no small measure of mirth, satisfaction, or even vindication by many members of the financial community who resented the one-time self-styled "Sheriff of Wall Street's" aggressive prosecutorial tactics against financial firms and against notables like Dick Grasso, Maurice Greenberg and John Whitehead when he was state attorney general.

He also mentioned interest in the Big East basketball tourney by sports-loving market players as another excuse for people on the trading floors to do less real work. Yet another reason for the reduced activity level was the start of the three-day Lehman Brothers High-Yield and Leveraged Loan Conference in Orlando, Fla. The get-together will run through Friday.

Thornburg comeback keeps rolling along

Thornburg Mortgage Inc.'s bonds pushed solidly higher for a third straight day, its 8% notes due 2013 up another 6 points to 50 bid, 52 offered. A trader while acknowledging that they were again better, added: "Until it turns around again."

Another trader saw those bonds up 5 points to end at 50 bid, 52 offered, citing the positive impact of an upgrade in the company's stock by Bear Stearns & Co. That sent those New York Stock Exchange-traded shares up $1.29, or 82.69%, to $2.85, on volume of 89.7 million, almost nine times the daily average. Bear raised the stock to "peer perform" from "underperform" previously.

The stock and the bonds "did well," a junk trader said. "Maybe they're a going concern after all."

He was referring to Thornburg's warning, delivered this past Friday, that it might not be able to continue as a going concern in the face of hundreds of millions of dollars of margin calls on its reverse repurchase agreements which it used for short-term borrowing from a variety of lenders. Last week, Thornburg - which had initially disclosed $300 million of such margin calls on Feb. 28 - revealed in a regulatory filing that there had first been $270 million more of such calls and then another $620 million, and said it did not have the available funds to meet all of those calls. It also revealed that JP Morgan Chase had issued a notice of default on about $28 million of unpaid margin calls, triggering cross-defaults on other obligations.

But this week, both the bonds and the shares have been pushing steadily upward, helped by a perception that panic selling had been overdone, the positive impact from the Federal Reserve move to make some $200 billion of additional liquidity available to the capital markets, and Thornburg's own announcement that it was in talks with its lenders on working out a solution that would allow it to meet all of its margin calls in a "timely" fashion.

The 8% bonds had cratered on Friday at around 28 bid, having slid all the way down from levels just below 90 before the first margin call revelations on Feb. 28. Since then, they have moved steadily back upward - about 6 points on Monday, another 10 on Tuesday, and 6 more on Wednesday. The shares meantime have improved from a low print Monday at 69 cents.

But the upside party could be over. Thornburg late Wednesday revealed in yet another Securities and Exchange Commission filing that it had received another notice of default - this time from Morgan Stanley & Co. - on the company's alleged failure to meet its obligations on a $9 million margin call.

Morgan Stanley - which loaned Thornburg about $49 million in the reverse repurchase transactions, backed by mortgage-related assets - said in the notice that it will exercise its rights under its master repurchase agreement with Thornburg.

Other mortgage names lower

Among other mortgage providers, Countrywide Financial Corp.'s 6¼% notes due 2016 were at 63 bid, 65 offered, versus levels in the 67 area on Tuesday, while its 3¼% notes coming due in May were off a point at 94 bid, 95 offered. Another trader saw the latter bonds down ½ point at 94 bid, 95 offered while the 61/4s were unchanged at 64 bid, 65 offered.

A trader saw Residential Capital LLC's 6½% notes due 2013 lower by 2 points at 47 bid, 46 offered, while ResCap parent GMAC LLC's 8% bonds due 2031 lost 3 points to 67 bid, 69 offered.

Further slide for Abitibi bonds

While Thornburg's bonds continued to head back up from their recent lows, AbitibiBowater's bonds continued to slide in the wake of the Montreal-based forest-products concern's announced plans to pay off three maturing issues of bonds coming due this year and next with a combination of cash and newly issued debt, versus straight cash, the usual method under which bondholders are repaid at maturity. Its Abitibi-Consolidated Inc. unit began an exchange offer for the $496 million of outstanding 2008 and 2009 bonds.

A trader saw the company's 6.95% notes coming due April 1 at 67 bid, 69 offered, down from 74 bid, 76 offered on Tuesday, and its 5¼% notes maturing on June 20 dropping 9 points on the day to 63 bid, 65 offered. He saw the 8.85% bonds due 2030 lower by 3 points at 36 bid, 38 offered.

Another trader said the bonds "continued to go down," with the 6.95s down 5 points to 67 bid, 69 offered and the 7 7/8% notes due 2009 swooning 15 points to 48 bid, 50 offered.

Some Abitibi noteholders were getting together to form a noteholders' group to analyze and discuss the exchange offer and advocate on the noteholders' behalf (see related story elsewhere in this issue).

Solo cup up

Elsewhere, a trader said that Solo Cup's 8½% notes due 2014 were up 3 points to 81 bid, 83 offered, while a market source at another desk called the bonds nearly 6 point winners at 82.25.

Solo late Tuesday said that it had fourth-quarter 2007 net income of $99 million, including a gain on the sale of discontinued operations of $77 million. That's a stark turnaround from a net loss of $34 million in the comparable period in 2006.

Most of the other financial data Solo released was positive. Net sales from continuing operations eased to $522 million versus $534 million - but gross profit from continuing operations for the quarter increased from the year ago period by $40 million to $74 million, reflecting a gross margin of 14.3% for the current quarter versus 6.4% for the comparable period in 2006. Operating income from continuing operations for the fourth quarter 2007 was $23 million, which represents a $40 million improvement over the prior year.

"Our solid results in the fourth quarter reflect the significant progress made throughout 2007 in focusing the company on its core business and improving profitability," said Robert M. Korzenski, president and chief executive officer, in a news release. "We have integrated the Performance Improvement Program into our company culture, successfully transitioning it from a formal, stand-alone project into an ongoing and sustainable process."

Park-Ohio off on earnings

On the other hand, a trader saw Park-Ohio's 8 3/8% notes due 2014 down as much as 5 points on the day to 76 bid, 78 offered, noting "they had weak numbers - the profits were way down."

The Cleveland-based company said that its fourth-quarter earnings shrank 64% from year-earlier levels, after the logistics company adopted a new method of accounting that delayed profit from certain kinds of contracts. It earned $3.9 million, or 34 cents per share, in the fourth quarter, well down from $10.8 million, or 94 cents per share, in the fourth quarter of 2006.

Two in the market

FairPoint Communications Inc. is presently roadshowing a $540 million offering of 10-year senior unsecured notes (B3/B+), a merger deal via Banc of America Securities, Lehman Brothers and Morgan Stanley.

Pricing is set for next week.

Also in the market Ainsworth Lumber Co. Ltd. with a $50 million to $75 million offering of six-year senior secured first-lien notes, via Barclays.

The deal is running, without a roadshow, concurrent with an exchange offer that expires on Friday.

Charter timing no miracle

On Wednesday Prospect News invited a source close to the deal to comment on what others around the market characterized as "miracle timing," in bringing Charter Communications Operating, LLC's $520 million issue of 10 7/8% second-lien notes due 2014 (B3/B-) and its upsized $500 million Libor plus 500 basis points term loan on the same day that the Federal Reserve unveiled a Wall Street rescue package involving up to $200 billion of liquidity intended to help shore up banks and financial institutions.

However the source, a syndicate official, maintained that the supernatural had not come into play in the Charter bond and bank deals.

The decision to announce the deal was made on Monday night, the source maintained - before the Fed rescue package had been announced.

Charter trades up

Asked to quantify the order books for Charter, the source declined, but specified that the extent to which the deals were "well oversubscribed" can be inferred from Wednesday's closing levels: the bonds, which priced at 96.106 to yield 11¾%, went out at 97¼ bid, 97½ offered, while the bank loan, which priced at 96.00, went out at 96¾ bid, 97¼ offered.

"We were able to upsize the bank deal and keep the bond deal at the same size," the source said, adding that the bonds were priced in line with the pre-launch expectations, coming on top of the price talk for a 10 7/8% coupon to yield 11¾%.

JP Morgan, Credit Suisse and Deutsche Bank Securities were the bookrunners for the deal, which the company brought in order to pay down revolver debt.

New Charter bonds little moved

But another source saw the new 10 1/8% notes at 96 bid, 97 offered, little changed from their issue price.

For the right deal

The syndicate official said that Tuesday's Charter transaction demonstrates that the market is open for credits that are appropriately leveraged, appropriately structured and appropriately priced.

In fact, the official asserted, the debt markets really weren't all that spectacular on Tuesday.

"Equities rallied, no question," the official conceded.

"And the more liquid indexes - the investment grade CDX, the high yield CDX, the LCDX, the ABX and the triple-A tranches of the RMBS - all rallied.

"But the underlying cash bonds in all those different markets were only up marginally.

"Even without the Fed on Tuesday we would have priced Charter - either at the same level, in which case it may not have traded as well, or maybe we would have had to price it at 12%.

"We still would have gotten it done."

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