Thornburg bonds gain, give back; AbitibiBowater up; Consumer-driven sector sees weaker bank debt

By Stephanie N. Rotondo

Portland, Ore., March 19 - Thornburg Mortgage Corp. was once again the "name du jour" during mid-week trading, as the company announced its plan to protect its future.

In an effort to stay afloat - and keep its lenders at bay - Thornburg said it plans to issue $1 billion of convertible debt, as well as offer its lenders a 27% stake in the flailing company.

At first glance, investors reacted positively to the news, sending the bonds up into the mid-60s. However, once it became clearer that if the plan fails, a bankruptcy filing would be more likely, the bonds came off of their highs, though still ended up on the day.

Meanwhile, a short squeeze was given the credit for boosting AbitibitBowater Inc.'s shorter-dated paper. The forest products company extended the consent deadline for a debt swap on some of those issues, as well as increased the consideration in return for the notes. The news was seen as positive for holders of debt with upcoming maturities.

Among consumer-driven names, Herbst Gaming Inc., Claire's Stores Inc. and OSI Restaurant Partners Inc. all saw their bank debt slide on renewed recession concerns.

Overall, the distressed bond market was seen edging higher in early trading. But as the equity markets started to decline, so did the junk sector.

"In general, early on things were moving higher," a trader said. "But with the stock market action, everything seemed to get a little weaker."

"It's an ugly market out there," opined another source.

Thornburg gains, gives back on lender pact

The news that Thornburg Mortgage would issue $1 billion in new convertible notes prompted the mortgage lender's bonds to trade "all over the place," a trader said.

The trader said the 8% notes due 2013 traded up into the mid-60s after the news came out but then settled back in to end around 55.

"That was really what was commanding the market," the trader said.

At another desk, a trader called the action in Thornburg's debt "exciting," as the notes hit a 60 bid, "then the floor fell out," as investors realized the company had only a short time to make the deal happen. The trader said the bonds closed at 55 bid, 57 offered, noting that they traded up to around 66 "in one crazy trade."

Another trader, who deemed the company the "name du jour," quoted the bonds around 56, adding that they had moved up into the low-60s during the session.

"But they are still up a little bit on the day," he said.

In a filing with the Securities and Exchange Commission, Thornburg said it was looking to raise capital quickly as a way to appease its lenders, five of whom the company has entered into a 364-day moratorium on new margin calls.

Under the lender agreement, Thornburg has just one week to raise $948 million - thus the plan to issue new convertible debt.

The new subordinated issue will mature in 2015 and carry a 12% interest rate. The notes will be convertible into stock at 75 cents per share. The company also plans to issue warrants to the lenders, allowing them to buy 47 million new shares. Dividend payments will also be suspended for one year.

As a result of the significant influx of new equity, Thornburg's stock fell $1.48, or 49.66%, to $1.50.

Still, there is some concern in the marketplace over whether the company will be able to pull off its ambitious objectives in such a short period. If the company fails to raise the necessary capital, it will likely have to sell its remaining assets at a severe discount, which would likely end in a Chapter 11 filing.

"I don't know," said one trader when asked if he thought the deal would get done. "They've got to raise a lot of money, and I just don't know if people are going to buy it."

"I do not know if they can get that deal done," echoed another trader.

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

Elsewhere in the financial sector, GMAC LLC's bonds were called "up a good bit" in morning trading, though the debt followed the trend of the broader market and gave back some of its gains.

A trader said the 8% notes due 2031, which had been in the high-60s previously, moved up to a high of 71.5 before ending the day "closer to 70."

Short squeeze boosts AbitibiBowater

A trader said that a "big short squeeze" was the cause of a 6-point gain in AbitibiBowater's short-dated paper.

The trader said the 6.95% notes coming due this November hit a high of 74 on the day, from the previous closing level of 68, leaving the bonds at 74 bid, 75 offered.

However, "the longer paper didn't move too much," he said.

Another trader also placed the issue at 74, up from the high-60s. The trader also noted that the 7¾% note due 2011 edged up from the low-40s to the high-40s.

AbitibiBowater Inc.'s bonds were up as the company announced an improved formula for its exchange offer aimed at taking out nearly $500 million of notes coming due this year and next.

Another trader saw the 6.95% notes up 5 points at 74 bid, 76 offered, while another trader saw those bonds at 74 bid, 76 offered, up 7 points on the session. The second trader placed the 5¼% notes coming due June 20, 2008 likewise 7 points better at 72 bid, 75 offered. The 8.85% bonds due 2030 rose 2 points to 37 bid, 39 offered.

In the news, the forest products company announced that it would extend the consent solicitation on its 6.95% notes, as well as its 5¼% notes coming due in June and its 7 7/8% notes due 2009. With that the company also said it would increase the consideration offered in return for the notes.

Under the amended offer, for every $1,000 in principal, 2008 debtholders will receive $550 in new 15½% senior unsecured notes due 2010 and $550 in cash. Holders of the 2009 issue will receive $850 in new notes and $250 in cash. Those amounts are for those who agree to participate in the debt swap by the March 26 deadline. The values change for those who agree after the deadline passes.

"Obviously, it was good for short-term holders, at least," a trader said.

AbitibiBowater, the combined company of Abitibi-Consolidated Inc and Bowater Inc., is a forest products company based in Montreal.

Consumer-driven names see loans weaker

Consumer names came under pressure during Wednesday's market hours with names like Herbst Gaming, Claire's Stores and OSI Restaurant Partners trading lower as recession talk circulated, according to a trader.

Herbst, a Las Vegas-based casino and slot route operator, saw its term loan quoted at 68 bid, 69 offered, down about 2 points on the day, the trader said.

Claire's, a Pembroke Pines, Fla.-based specialty retailer of value-priced jewelry and accessories, saw its term loan B quoted at 75 bid, 76 offered, down from 76 bid, 77 offered, the trader continued.

And, OSI Restaurant Partners, a Tampa, Fla., casual dining restaurant company, saw its loan quoted at 75½ bid, 76½ offered, down about a point and a half on the day, the trader added.

Meanwhile, Michaels Stores Inc.'s term loan was stronger as the company revealed good cash flow generation in its recent earnings announcement, giving some hope of a partial paydown, according to a trader.

The term loan was quoted at 82½ bid, 83½ offered, up from 82 bid, 83 offered, the trader said. On Monday, the loan was quoted at 81½ bid, 82½ offered.

In its earnings release on Tuesday, the company said that net cash provided by operating activities in fiscal 2007 was up $111 million to $268 million versus $157 million for fiscal 2006.

The company's cash balance at the end of fiscal 2007 was $29 million, a decrease of $1 million from last year's ending balance of $30 million.

And, capital spending for fiscal 2007 was down $43 million, to $100 million versus $143 million in the prior year.

"It was weak numbers, but the company generated some cash flow. [Some are] hoping for cash flow sweep to pay down some of the bank debt. [It] gave initial comfort, but [I'm] not sure it'll be able to maintain it at these levels," the trader added.

For the fourth quarter, the company reported total sales of $1.30 billion, a 4.4% decrease from fiscal 2006 fourth-quarter sales of $1.36 billion, and net income was $53 million, up from a net loss of $67 million in fiscal 2006, primarily due to the absence of merger-related expenses.

Adjusted EBITDA for the quarter was $266 million, or 20.4% of sales.

For full year, total sales were $3.862 billion, an increase of 0.5% from $3.84 billion for the same period last year, and net loss was $32 million, down from net income of $41 million in fiscal 2006.

Adjusted EBITDA for the fiscal year was $587 million, or 15.2% of sales, compared to $620 million, or 16.1% of sales, for fiscal 2006.

For fiscal 2008, the company expects that net cash from operations and adjusted EBITDA will be consistent with fiscal 2007 levels.

Michaels is an Irving, Texas, specialty retailer for the hobbyist and do-it-yourself home decorator.

Broad market mostly better

Exide Technologies Inc.'s 10½% notes due 2013, which had been around 90, hit a high of 93 during the session on news that it had reached an agreement with automaker Toyota to supply the company with lead-acid starting batteries.

A trader quoted the bonds at 92 bid, 93 offered.

Meanwhile, Delphi Corp. is making some headway in its quest to secure its exit financing, according to a Reuters report. Still, the company declined to say how much has been committed, or by whom.

A trader said the Troy, Mich.-based company's typically quiet bonds moved higher, trading between 32 and 33. However, another trader placed the 6.55% notes that were to have come due in 2006 off 4 points to 29 bid, 31 offered.

Charter Communication Inc.'s paper "drifted in," a trader said. He pegged the 11% notes due 2015 at 68.5 bid, 69, down half a point.

Idearc Inc.'s 8% notes due 2016 ended firmer, closing the session at 63 bid, 64 offered from 62 bid, 63 offered previously.

Neff Corp.'s 10% notes due 2015 were also seen firming, ending 11 points better at 45.5 bid, 46.5 offered.

A trader said Sprint Nextel Corp.'s 6% notes due 2016 were likewise a point better at around 77. He said he did not know what prompted the move.

Sara Rosenberg and Paul Deckelman contributed to this article.

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