Mortgage names mixed during session; Delphi continues exit quest; AbitbiBowater bonds better

By Stephanie N. Rotondo

Portland, Ore., March 14 - As the trading week came to a close the distressed bond sector was waiting, watching and reacting - or perhaps more aptly put, not reacting.

"Today was the day for watching," said one market source.

The marketplace was decidedly weaker overall as the news of dire straits at Bear Stearns was confirmed. Despite a plan from JP Morgan and the Federal Reserve to bail out the investment house, investors seemed to believe that no one was safe in the current economic climate.

"Every item that said Bear Stearns on it was for sale except their put options," one trader said.

As a result, activity in the junk sector was far from overwhelming. Combine the Bear Stearns debacle with the Lehman Brothers High Yield Conference underway in Florida, a plethora of basketball conference tournaments and the fact that it was, after all, Friday, and the day could only be categorized as lackluster.

Mortgage lenders continued to take their share of the limelight during the session. Both Residential Capital LLC and parent GMAC LLC edged slightly higher in trading, though Thornburg Mortgage Corp. continued its downward descent.

In the autosphere, volume remained light in Delphi Corp. as the company continued its struggle to exit Chapter 11 protection. Market sources pegged the automotive parts supplier's debt down anywhere from 1 to 5 points on the day, as some players wonder if an Appaloosa-led investment group will pull out of the exit financing deal.

AbitibiBowater Inc.'s bonds moved up, though it was not clear why. The forest products company's debt had previously been on the decline on concerns over whether a refinancing plan would get done.

Mortgage names mixed

It is no secret that the financial sector has been hit with hard times. What began with a subprime mortgage meltdown resulted in many financial institutions - including big name banks such as Bear Stearns - reporting large amounts of write-downs and losses.

Mortgage lenders with significant exposure to the subprime arena have also faced mounting troubles and, for some, their future remains murky. As such, it can be said that names such as Residential Capital and GMAC have seen their bonds take a ride.

Friday trading was no different. After seeing its debt slide in the previous session, ResCap and GMAC attempted to regain some ground. One trader placed ResCap's 8 7/8% notes due 2015 at 46, up a point, and GMAC's 6 7/8% notes due 2012 up ½ to 70. Another source called that issue almost 3 points better to around 74.

Another trader said ResCap's 6½% notes due 2013 held steady at 45 bid, 47 offered, while GMAC's 8% bonds due 2031 were similarly unchanged at 67 bid, 69 offered.

Meanwhile, Thornburg Mortgage's early week rally faltered around mid-week, when the company received another default notice, this time on its master repurchase agreement with Morgan Stanley. The Santa Fe, N.M.-based lender's 8% notes due 2013 continued to lose weight Friday, as one trader quoted the bonds in the 44 area, while another saw the bonds decline 5 points to around 45. Yet another called the bonds unchanged at 44 bid, 46 offered.

The Morgan Stanley default was the second of two notices Thornburg has received from its banks. The first came from JP Morgan. Due to a failure to pay some of its margin calls, Thornburg thus fell into default under its loan. That default triggered several cross-defaults as well.

Though some market players have stated that the fallout from the subprime crisis has an end in sight, others are more pessimistic, indicating that the damage is far from over. More than likely, the Bear Stearns situation only fueled that belief.

Elsewhere in the sector, a trader saw Countrywide Financial Corp.'s 3¼% notes coming due in May unchanged at 94 bid, 95 offered, while its 6¼% notes due 2016 remained "right in" the 62-64 area.

Delphi notes slide

Delphi continues its quest to exit bankruptcy, but just as the company jumps over one obstacle, another appears.

After former parent General Motors Corp. said it would put up even more cash to help its offspring enter the realm of post-bankruptcy, an Appaloosa Management-led investor group objected to the increased participation. The group feared that, among other things, increased GM involvement could interfere with potential asset sales.

Though the group has yet to pull out of its investment deal with Delphi, if the Troy, Mich.-based company does not emerge from Chapter 11 protections by April 5, the deal could fall through.

Though the name does not trade as much as it has in the past, the bonds did decline Friday. The 6½% notes due 2013 slipped 3 points to 33.5, while the 6½% notes due 2009 were likewise down about 3 at 36 bid, 37 offered. The 6.55% notes that were to have matured in 2006 fell just 1½ points to 35 bid, 35.5 offered.

Earlier in the week, Delphi relaunched its financing package. The company had previously had a difficult time securing the loans it needed to exit bankruptcy due to a tight credit market and overall investor hesitation regarding the auto arena.

But Delphi is not the only bankrupt automotive parts manufacturer that had had trouble finding cash. Dura Automotive Systems Inc. has also struggled in its quest to find financing. As a result, the company filed a revised reorganization plan that significantly reduced the amount of funds for its exit facility.

Under the new plan, Dura said it will seek a $150 million first-lien term loan, along with an $80 million second-lien loan - much less than the originally planned for $450 million in loans.

Dura's debt has been virtually radio silent for some time. According to Trace, however, the company's 8 5/8% notes due 2012 did trade during the week around 12.75. The 9% subordinated notes are trading at pennies on the dollar.

Senior noteholders are slated to receive new common stock in the reorganized company, while subordinated debtholders - along with stockholders - will recover nothing.

AbitibiBowater bonds gain

AbitibiBowater bonds gained during the last day of the trading week, after previously posting losses for several straight sessions.

A market source called the 8 3/8% notes due 2015 up 2 to 3 points at 40 bid, 42 offered. Another placed the 5¼% notes due 2008 at 68 bid, 70 offered.

Another source saw the 6.95% notes coming due April 1 jump to 70 bid, 72 offered from prior levels at 63 bid, 65 offered and its 5¼% notes coming due on June 20 at 67 bid, 69 offered, up from 60 bid, 62 offered on Thursday. However, the source deemed the 8.85% bonds due 2030 unchanged at 36 bid, 38 offered.

"It didn't move," he said. "Just the shorter ones moved."

At another desk, a market source saw the June bonds trading as high as 70 bid, up some 9 points on the session, while yet another source had the 6.95% notes at just over 71 and the 5¼% notes brushing 70, both up around 7 or 8 points on the day.

Abitibi's shares were also solidly higher.

The rise follows by a day the scheduled lender meeting at which the company's Abitibi-Consolidated subsidiary presented the details of its proposed $1.5 billion refinancing plan, which would, among other things take out the 2008 bonds via an exchange offer to the noteholders.

The forest products company's debt hit a rough patch after the refinancing proposal was announced.

Under the plan, Abitibi said it would offer new debt to debtholders with about $500 million in bonds and sell $300 million in equity-linked securities.

The bonds continued to deteriorate on concerns that the exchange offer would not be well received by holders of debt that mature through 2009.

Paul Deckelman contributed to this article.

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