Thornburg up on short squeeze; AbitibiBowater boosted by investment deal; Delphi revises credit facility

By Stephanie N. Rotondo

Portland, Ore., March 24 - Thornburg Mortgage Corp. remained on the distressed bond market's top movers list Monday as the marketplace waited for pricing on the company's proposed $1 billion in new convertible debt securities.

"Everyone is still focused on the Thornburg's and CIT's of the world," a trader said.

As the market closed, there was still no word regarding pricing. Still, the company's corporate debt climbed, though it was still trading flat. Several sources attributed the day's gains to short covering as well as some investor optimism that the financing deal would get done.

Meanwhile, AbitibiBowater Inc.'s notes continued to rally. The bonds were propelled further upward Monday on news of a $350 million investment deal with Fairfax Financial Holdings Ltd. The deal, part of the company's recently proposed refinancing plan, is making some believe that the company will in fact be able to handle its upcoming maturities.

In the autosphere, Delphi Corp. once again revised its credit facility. Under the newly amended structure, the automotive parts supplier will, among other things, eliminate a $2 billion junior first-lien term loan and upsize its second-lien term loan by the same amount.

Overall, traders reported that the junk arena was mostly better following the more than 200-point gain in the Dow Jones Industrial Average.

"A lot of stuff was up," a trader stated. He added that sectors such as retailers were generally better, though volume and price movement was by and large slight.

Thornburg bonds up on short covering

Late Thursday, Thornburg Mortgage delayed pricing its new convertible securities to Monday. In a Forbes article entitled "Thornburg Delays Its Hail Mary," company spokesperson Suzanne O'Leary Lopez said Thornburg was "talking to large investors" about the deal and planned to work through the holiday weekend to shore up the proposal.

However, as trading came to a close Monday, there was still no word on the $1 billion financing deal. Syndicate sources said it was unlikely the terms would be finalized by the close of business.

Nevertheless, Thornburg's bonds jumped to the low-40s from the low-30s. The bonds were still trading flat.

One trader quoted the 8% notes due 2013 at 44 bid, 47 offered.

"It's probably a short squeeze," he said.

Another trader attributed the gains to "short covering, I guess," pegging the notes at 42 bid, up from 28 bid, 32 offered last week.

"Maybe with the market doing better people might be thinking that they might get the financing deal done after all," he opined.

"People are just waiting for news on that deal," another source said.

Last week, the mortgage lender announced it would issue $1 billion in convertible debt, a move aimed at raising $948 million to appease its lenders. The kicker: They had only a week to get it done.

The news initially sparked excitement in the market and the company's bonds ran up. But after investors took in the news, some market players began to doubt that the deal could be completed in the short time frame.

Thornburg said last week that if the deal did fail, it would have to sell some or all of its remaining assets at a discount, which they noted could lead to a bankruptcy filing.

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

Elsewhere in the financial sector, CIT Group Inc.'s debt "rebounded some," a trader said. The trader said the 5% notes due 2015 - which he called "one of the more active issues of CIT" - traded into the high-60s "right out of the chute." The bonds moved as high as 74.

"They really traded within a 5-point band," the trader said, between 69 and 74. He said the final market was around 73 bid, 74 offered.

A Wall Street Journal report indicated that the company is looking overseas to find funds for its lending business. Last week, rating downgrades left the New York-based company unable to raise cash with commercial paper, requiring it to draw down $7.3 billion in emergency credit lines.

Investment sparks movement in AbitibiBowater

A $350 million private placement investment deal sent AbitibiBowater bonds hopping, traders reported.

"There was definitely activity in AbitibiBowater," a trader said. "It was all rallying pretty good today."

The trader added that shorter-dated paper fared the best in the wake of the deal with Fairfax Financial Holdings, but longer-dated paper "rallied a good bit," as well.

The trader quoted the 8.55% notes due 2010 at around 57, up from last week's lows in the low-50s. Other longer issues, such as the 7½% notes due 2028, closed at 42 bid, 44 offered.

Among the shorter maturities, the trader pegged the 5¼% notes due 2008 at 88.5 bid, 89 offered, up from around 73 last week.

At another desk, a trader placed the8.55% notes at 57 bid, 59 offered and the 5¼% notes at 88 bid, 90 offered. He also saw the floating-rate notes due 2010 at 46 bid, 48 offered, the 7¾% notes due 2011 at 52 bid, 54 offered and the 7 7/8% notes due 20009 at 72 bid, 77 offered.

The trader also noted that he saw an offer of 95 on the 6.95% notes due 2008, though he thought that was "a little high," as the market was 85 bid, 95 offered. That compared to 86 bid, 89 offered Friday.

In a move aimed at avoiding defaults on upcoming maturities, AbitibiBowater agreed to sell $350 million in convertible bonds to Fairfax. The sale is part of the company's recently announced $1.4 billion refinancing plan.

Despite initial concerns that the deal would not get done, the Fairfax deal, along with a sweetened consent solicitation offer, have made inroads with investors. Last week, the company amended its consent offer and later said that two-thirds of investors holding a combined $496 million in debt had agreed to the terms.

AbitibiBowater, the combined effort of Abitibi-Consolidated Inc. and Bowater Inc., is a Montreal-based forest products manufacturer specializing in newsprint.

Meanwhile, Scotia Pacific Co. LLC's 7.71% notes due 2028 were deemed unchanged at 72 bid, 72.5 offered.

Delphi reworks exit facility

Delphi revised its credit facility structure as it removed the $2 billion junior first-lien term note that was going to be issued to an affiliate of General Motors Corp., upsized the second-lien term loan by $2 billion, lowered pricing on the second lien, and increased the unused fee on the ABL revolver, according to market sources.

The eight-year second-lien term loan is now sized at $2.825 billion, up from $825 million, and pricing was reduced to Libor plus 695 basis points from Libor plus 875 bps, sources said.

As was the case before these changes, the second-lien term loan has a 3.25% Libor floor for life and call protection of 103 in year one and 101½ in year two.

General Motors will be taking the entire second-lien term loan; so, the 92 original issue discount that was previously being offered on the tranche is no longer part of the deal, sources remarked.

Previously, it was known that any unsold portion of the second-lien loan would be issued to General Motors and/or its affiliates.

In addition, Delphi modified the unused fee on its $1.6 billion six-year ABL revolver, raising it to 150 bps from 50 bps, sources continued. Pricing on the ABL was left unchanged at Libor plus 300 bps.

Delphi's $6.125 billion exit facility also includes a $1.7 billion seven-year first-lien term loan priced at Libor plus 575 bps, with a 3.25% Libor floor for life, an original issue discount of 92 and call protection of 102 in year one and 101 in year two.

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.

Then, on March 11, the deal was relaunched, structured as a $1.7 billion first-lien term loan (Ba2/BB-), a $2 billion junior first-lien term note (B2/B), an $825 million second-lien term loan (B3/B-), and a $1.6 billion ABL revolver.

Also, initially, the second-lien loan was going to be sized at $1.5 billion, but it was downsized prior to the first 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.

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.

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

Broad market tidbits

Warner Music Group Inc.'s 7 3/8% notes due 2014 ended the day at 76 bid, 78 offered.

A trader quoted Dole Foods Co. Inc.'s 8 5/8% notes due 2009 at 86.5 bid, 88.5 offered, its 8¾% notes due 2013 at 78.5 and its 7¼% notes due 2010 at 81. Dole was downgraded Monday by Standard & Poor's, attributed to the company's third-quarter operating results and failure to meet S&P's expectations.

The trader said there was little to no action in Tropicana Entertainment LLC's 9 5/8% notes due 2014. He said the bonds were last quoted on Friday at 52.75 bid, 53.5 offered.

Meanwhile, Metaldyne Corp.'s bonds weakened.

"They continue to sink," the trader said of Metaldyne's 11% notes due 2012. He pegged the bonds at 36 bid, 38 offered. Another trader, however, said he did not see any volume in the name.

Sara Rosenberg contributed to this article.

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