Thornburg sees more problems; Tropicana bonds boosted on noteholder win; Spectrum notes firm

By Stephanie N. Rotondo

Portland, Ore., March 3 - It was not quite a typical Monday in the distressed bond sector as a news-filled day helped to move several names.

Still, comparatively speaking, it was just Monday.

"There were a couple names here and there that were trading," a trader said. "But it was still a Monday."

Considered the most active issue of the day was Thornburg Mortgage Corp. That name was on the tip of everyone's tongue as news of more margin calls prompted the mortgage lender's debt to dive nearly 15 points.

However, the company managed to regain some ground late in the day as it was announced that it had secured additional funds to help pay the new calls.

In the gaming sector, Tropicana Entertainment LLC, also known as Wymar Operating, suffered a loss to its noteholders. A court partially ruled in favor of the bondholders, meaning the casino operator could default on its bonds. The bondholder win resulted in a 6- to 7-point increase in the notes, but the company's bank debt did not fare as well.

Spectrum Brands' bonds gained ground as interest from Harbinger Capital Partners piqued investor interest. The potential acquisition by the private equity firm firmed the notes up 2 to 3 points.

More problems for Thornburg

A trader called Thornburg Mortgage the "name of the day", as the mortgage lender's debt fell almost 15 points.

The drop came as news of more margin calls surfaced, following the announcement last week that the company had already paid out more than $300 million in margin calls last month.

But late in the day, the company announced that it had raised some cash to pay the new calls, which prompted the bonds to rally some.

One trader said the 8% notes due 2013 fell 14 to 15 points to around 62 before coming back to end around 72.

Another trader, who deemed the name "the most active by a long shot," saw the bonds starting the day at around 80 before falling as low as 66. He said the notes closed around 74.

"That was a great name today," he said.

At another desk, a trader called the "name of the day" 72 bid, 74 offered.

"They got killed," he said. He added that the lender's debt began moving down again after the market closed.

Another trader saw the notes due 2013 fall to as low as 64 bid, 65 offered versus prior levels at 79 bid, 81 offered before the bonds came off their lows to end at 71 bid, 73 offered. He said that "a lot of guys were pumping them around, when they're down by 15 and then back up [from the lows] by 6 [points]."

Another trader called the bonds down 8 points on the day at 70 bid, 74 offered. He added that the bonds "did trade as low as 65 bid, 67 offered for odd lots but then pretty much bounced back with equity" which he said had gone from being down around 60% on the day to down around 40% around the end of the day, getting a little of the lost ground back.

Thornburg said it had received another $270 million in margin calls. With liquidity already an issue, a Citigroup analyst said that bankruptcy could be in the New Mexico-based company's future if it could not raise additional funds.

But late in the trading day, it came out that Thornburg was able to secure more cash through a nearly $1 billion transaction involving prime hybrid adjustable-rate mortgage loans.

Still, a trader called that "a temporary band-aid."

Overall, it was a bad day for mortgage names, rating wise. Not only did Standard & Poor's downgrade Thornburg due to its troubled situation, but it also cut Fremont General Corp., as well. Fitch Ratings chimed in with some rating updates of its own, cutting both Residential Capital LLC and its parent GMAC LLC.

A trader said ResCap paper was 1 to 1.5 points lower on the day, its 12% notes due 2013 at 52.5. Another trader called the 6½% notes due 2013 down 2 points at 51 bid, 53 offered, while parent company GMAC LLC's 8% bonds due 2031 were down a point at 74 bid, 76 offered.

Another trader said ResCap's 6½% issue was down 4 points at 50 bid, 53 offered, while GMAC's benchmark 8% notes lost 2 points to 75 bid, 76 offered. At another desk, a market source characterized ResCap's 8 7/8% notes due 2015 down a point at 52.5 bid, while GMAC's 6 7/8% notes due 2012 were down more than a point at 79 bid. ResCap's 7% notes due 2011 declined 1.5 points to 52.5 bid.

Meanwhile, a trader said that Countrywide Financial Corp.'s bonds "moved a little more," with the 3¼% notes coming due this May off a point at 96 bid, 97 offered, while its 6¼% notes due 2016 were 2 points lower at 82 bid, 84 offered. He noted that the bonds were easier despite favorable mention of Countrywide's shorter-dated bonds in a Barron's article, suggesting that it might be because investors realize that "Countrywide's [mortgage-loan] portfolio is really going down hill," with the percentage of its subprime borrowers who are a month or more behind on their loans having increased to about 27% at last count from 19% previously.

Thornburg Mortgage is a Santa Fe, N.M.-based mortgage lender.

Tropicana bonds boosted

Tropicana Entertainment's noteholders celebrated a partial victory over the weekend after a court trustee sided with the group.

While the company was decided to have not been in default at the present time, a default could likely be in the company's future. That news pushed the bonds higher.

A trader called the senior subordinated notes "fairly active," gaining about 6 points to end at 54. Another trader quoted the bonds at 55 bid, 56 offered, up from 48 bid, 49 offered previously.

"[The ruling] is viewed as a positive for the bondholders," he said.

Another trader called the bonds up just 1 point at 54 bid, 56 offered.

However, Tropicana's operating company term loan was weaker on the news, traders said.

One trader quoted the term loan at 96¾ bid, 97½ offered, while another pegged the bank debt at 96½ bid, 98 offered. By comparison, the term loan was previously quoted at 97½ bid, 98½ offered.

"It traded in that context (96¾ to 971/2) this a.m. and then went quiet," the first trader added.

Last month, the company received a notice of default and acceleration on its bonds as a result of the New Jersey Casino Control Commission's refusal to renew Tropicana's license to operate the Tropicana Casino and Resort in Atlantic City.

A complaint by bondholders was filed in the Court of Chancery of the State of Delaware against the company, Tropicana Finance Corp., Aztar Corp. and some Tropicana officers alleging that an event of default has occurred as a result of the license refusal and "gross mismanagement."

Tropicana, believing that no default had occurred and the acceleration was therefore invalid, then countersued, accusing the bondholders of interfering with the attempt to sell the property.

According to the company, the court rejected all but one of the contentions of the bondholders, therefore invalidating the acceleration of the notes and establishing that there is no current event of default.

The one item that was ruled in favor of bondholders relates to the transfer of title to the assets of Adamar, which the court found to have occurred on Dec. 19, 2007. This point of contention would only be an event of default if it continues for 60 days after receipt of written notice from bondholders. The first notice from bondholders is dated Jan. 28 and the second notice is dated Feb. 20 - meaning the 60-day cure period for any technical non-compliance has not expired, therefore no event of default presently exists, the company explained in an 8-K filed with the Securities and Exchange Commission.

A forbearance agreement from senior credit facility lenders regarding the Atlantic City license issue was obtained in December.

The Atlantic City property is for sale. Proceeds from the sale are expected to be used to repay bank debt.

Tropicana Entertainment is a Fort Mitchell, Ky.-based gaming entertainment provider.

Harbinger interest helps Spectrum

Interest from a private equity firm sparked investor interest in Spectrum Brands' bonds, traders reported, propelling the notes up about 2 to 3 points.

A trader deemed the household goods manufacturer's bonds better on the news that Harbinger Capital Partners was looking into acquiring the Rayovac battery maker. He pegged the 7 3/8% notes due 2015 at around 68 and the 11½% notes due 2013 at around 84.

Another trader quoted the 7 3/8% notes at 66.5 bid, 68.5 offered. Elsewhere, a trader saw the 7 3/8% notes at 67 bid, 68.5 offered and the 11½% notes at 83 bid, 84 offered.

Yet another source called the 7 3/8% notes up 2 points to 67 bid, 69 offered, while its 11½% notes were likewise up a deuce at 83 bid, 85 offered. At another desk, the 7 3/8% were seen up 2 points at 68 bid.

Another trader also called the 7 3/8% 2 points better at 66 bid, 68 offered.

Harbinger and Spectrum have entered into a confidentiality letter and standstill agreement on Feb. 26. The agreement allows the firm to take a look at the Spectrum's books in order to assess its interest.

In early February, Spectrum posted a wider first-quarter loss of $43.4 million. Net sales also declined to $560.5 million, well below analysts' expectations of $596.2 million.

Late last year, the company said it was looking into "strategic asset sales" as a way to shore up its financials.

Spectrum Brands is a supplier of batteries and portable lighting, lawn and garden care products, specialty pet supplies, shaving and grooming and personal care products and household insecticide.

Broad market mostly firmer

In the autosphere, news that Metaldyne Corp. had received a €15 million credit line prompted its bonds to gain about 5 points, a trader said,

The trader placed the 10% notes due 2013 at 69 and said the 11% notes due 2012 were trading between 43 and 46.

According to the company's web site, Metaldyne GmbH, a subsidiary of Metaldyne, entered into the loan agreement with RHJI Services SA on Feb. 26. Metaldyne GmbH then entered into a loan agreement for the same amount with Metaldyne Co. LLC, another Metaldyne subsidiary.

A Barron's article over the weekend was given credit for boosting Idearc Inc.'s 8% notes due 2016. A trader deemed the bonds "a couple points" better at 62.

Another trader quoted the bonds at 61 bid, 63 offered, up from Friday's levels around 58 bid, 60 offered, while another market source saw the bonds at 62 bid, up 2 points.

Sector peer R.H. Donnelley's wholly owned Dex Media 8% notes due 2013 closed at 70 bid, 72 offered.

The Barron's article cited Idearc as one of the riskier equity plays with high debt that could pay off if the current credit market improved.

Finlay Fine Jewelry's 8 3/8% notes due 2012 were seen down as much as 5 points during the session to 40 bid on the impending loss of Finlay's lucrative business with the upscale Lord & Taylor store chain.

AbitibiBowater Inc.'s 6½% notes due 2013 (originally issued as Bowater bonds) gained more than a point to end at around the 61 level.

Sara Rosenberg and Paul Deckelman contributed to this article.

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