Margin call freeze boosts Thornburg; AbitibiBowater continues to slide; Merisant up on refi news

By Stephanie N. Rotondo

Portland, Ore., March 18 - Yet another interest rate cut from the Federal Reserve on Tuesday, as well as better-than-expected earnings from both Goldman Sachs and Lehman Brothers, helped investors regain some of the confidence they lost in the previous session.

"Everything is higher," said one trader after the central bank cut its Federal Funds rate by three-quarters of a point.

"Things were pushing higher," said another source.

And while a more than 400-point rally in the Dow Jones Industrial Average did help the distressed bond market, traders noted there was still little activity in the junk sector.

"There were very few movements in the distressed world," said the first trader. The second conceded that there was "definitely" still some hesitancy in the marketplace.

But what investors did not seem hesitant about was Thornburg Mortgage Corp. Early on in the session, the company announced that it had reached an agreement with its banks to freeze margin calls until March 2009. The company had previously been thrust into default for failure to pay some of the millions of dollars in margin calls it had received since the beginning of the year. The ensuing liquidity crunch prompted the mortgage lender's debt to fall about 60 points in just one week. During Tuesday trading, the bonds moved up as much as 12 points and were once again trading with accrued interest.

Meanwhile, AbitibiBowater Inc.'s bonds continue to drift lower. After facing several rounds of ratings cuts earlier this month, the forest products company saw its credit downgraded yet again on concerns that a refinancing package will not get done.

However, a refinancing deal has proved to be somewhat positive for Merisant Inc.'s debt. The company's bonds moved up 2 points just one day after the new credit facility was launched.

Michaels Stores Inc. came out with numbers, prompting its bonds to weaken before regaining some ground. Still, the paper closed lower on the day. Duane Reed Inc., which also released quarterly figures recently, remained unchanged.

Margin call freeze boosts Thornburg

"Everyone loves Thornburg," one trader enthused after the company announced it had reached an agreement with its bank to freeze margin calls until March 2009.

The trader said the 8% notes due 2013 firmed 12 points to 51 bid, 53 offered, with accrued interest.

"Now it looks like the bonds could get paid," the trader said, explaining why the bonds, which had previously been trading flat, reversed their position.

At another desk, a trader pegged the bonds at 52 bid, 56 offered.

"Everything is changed," he said, citing the margin call freeze. "Sellers are disappearing and buyers are coming in."

The trader also cited news that the company had filed an open shelf registration, "indicating they will try to do another equity deal," he said.

Another source saw the debt at 52 bid, while another deemed the paper up 10 points into the low-50s.

Five of Thornburg's lenders have agreed to hold off on their repayment demands until 2009, the company said in a filing with the Securities and Exchange Commission. However, it was also noted that there was no assurance that the company could find enough funds to cover its debts and that its future remained in question.

Still, the company's filing of an open shelf registration seemed to indicate - at least to some - that the company is looking to issue new equity to help balance its finances.

As such, as trader said the stock was not up along with the bonds, as new equity would dilute the current shares' value.

According to Yahoo! Finance, trading in Thornburg's stock could only be categorized as volatile. The equity opened the session at $3.07, up from Monday's closing levels of $2.25. However, throughout the day the paper gyrated between $2.58 and $3.20. The stock closed up 73 cents, or 32.44%, to $2.98.

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

Elsewhere in the financial sector, Residential Capital LLC was called unchanged, its floating-rate notes coming due this November trading in a 56 to 58 range, a trader said. The trader also noted that longer dated paper, such as the 6 7/8% notes due 2015, remained in the low- to mid-40s, "kind of where it was."

AbitibiBowater continues to slide

AbitibiBowater paper continues to drift lower and was hit with yet another downgrade Tuesday.

A trader said the 6.95% notes that are maturing April 1, 2008 fell to around 68 from 71.5 bid, 72.5 offered previously.

Another trader saw the 6.95% notes ease 2 points to 67 bid, 69 offered, while its 5¼% notes due June 20, 2008 were down a point on the day at 65 bid, 67 offered. But he said the company's 8.85% bonds due 2030 were unchanged at 35 bid, 37 offered.

The forest products company's debt has consistently posted losses since a refinancing deal was announced earlier this month. After the announcement, a flurry of ratings cuts came, along with threats for additional cuts in the future.

Moody's Investors Service downgraded both Abitibi-Consolidated Inc. and Bowater Inc. on Tuesday, which could be just the first of more cuts to come. Both units saw their corporate family rating dropped to Caa1 from B2.

Moody's also said that the outlook is negative on the companies, based on weak liquidity and high debt levels. Moody's, as well as many in the marketplace, also foresee "challenges" to getting the $1.4 billion refinancing plan done.

Also, AbitibiBowater filed its twice-delayed 10-K Monday, which showed the company reported a $490 million loss for fiscal 2007, compared to a loss of just $138 million the previous year. While sales increased, due in part to the inclusion of Abitibi toward the end of the year, the company said in the filing that "average transaction prices" were mostly lower.

In the filing, Abitibi also noted that the current state of the credit market could greatly impair its move to refinance. Still, if the refinancing plan does fail, Gimme Credit analyst Kim Noland believes that only the Abitibi subsidiary would file for bankruptcy.

"The company said liquidity constraints are not affecting Bowater or the holding company, indicating that a failure of the refi and a subsequent Abitibi bankruptcy filing wouldn't necessarily drag Bowater down," Noland wrote in an afternoon report.

Still, Noland was not too keen on the upcoming maturities.

"We think there is slightly more than an even chance that the company will cobble together additional financing to meet the April maturity," she wrote. "We are not recommending those bonds however as the downside is too great in a filing (they could trade down 30 points)."

Meanwhile, Scotia Pacific Co. LLC saw its 7.71% notes due 2028 move up to 71 bid, 71.5 offered.

Merisant better on refi news

Merisant's 9½% notes due 2013 were "a bit higher," a trader said, on the back of refinancing news released Monday.

The trader said the bonds pushed up 2 points to 71 bid, 73 offered. Another trader, however, said he did not see the debt trade.

According to the first trader, there was a bank debt conference call held Monday to discuss the refinancing plan, which would push out the loan maturity.

"It's positive, but not hugely positive," he said.

In a press release issued Monday, Merisant said it had launched the marketing of its new senior secured credit facility. Proceeds from the new facility are expected to be used to "retire outstanding loans under the existing amended and restated credit agreement dated May 9, 2007."

Merisant, the manufacturer of Equal brand sweetener, is based in Chicago.

Consumer-driven names mixed

Michaels Stores reported its fourth-quarter figures for 2007, which showed a total sales decrease of 4.4%.

Still, the company's net income rose to $120 million, attributed to "the absence of merger-related expenses."

A trader said the craft stores' bonds "drifted, then came back a little," its 11 3/8% notes due 2016 down 1 point at 77 and its 10% notes due 2014 ending around 84.

Meanwhile, drugstore operator Duane Reade has seen its bonds maintain their levels despite an increase in its sales. Last week, the pharmacy chain reported total net sales of $431.6 million for the fourth quarter, a 4.1% gain.

A trader said the figures were "very good" but called the bonds "the same, not higher," its 9¾% notes due 2011 at 82 bid, 82.75 offered.

Among other consumer-driven names, Spectrum Brands' debt was deemed active, though it was unclear what sparked the increase in activity. A trader quoted the 11½% notes due 2013 at 81 bid, 81.5 offered.

The trader did note that there was news out that the company would add jobs at its Fennimore, Wis., battery making plant. However, "I think that [is] completely irrelevant," he said.

Another source called the 7 3/8% notes due 2015 off nearly a point to the 65 area.

Another trader saw "a lot of volume" Monday and Tuesday in Claire's Stores Inc.'s 10½% subordinated notes due 2017, which he said traded in size between 44 and 45. That was up from closing levels around 43 on Monday but little changed from Friday.

He said he was "surprised" at the amount of activity in the credit - especially because there is only around $335 million in notes around, "not $1 billion" like you would expect with such brisk activity.

"I don't know if there is a story there," he reiterated, "but I'm surprised."

Another trader, on the other hand, quoted the bonds in a 43 bid, 44 context and said from where he sat, "there was not much going on."

Delphi deadline looming

The deadline for Delphi Corp.'s revised exit financing credit facility is fast approaching as lender commitments are due on Wednesday, according to a market source.

"They are still working on it. I can't give a percentage on how much is in. But they are working on it," a buyside source added.

The facility consists of a $1.7 billion first-lien term loan (Ba2/BB-), a $2 billion first-lien term note (B2/B) to be issued to an affiliate of General Motors Corp. (junior to the $1.7 billion term loan), an $825 million second-lien term loan (B3/B-), of which any unsold portion would be issued to General Motors and/or its affiliates, and a $1.6 billion ABL revolver.

Price talk on the $1.7 billion first-lien term loan is 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.

Price talk on the second-lien term loan is Libor plus 875 bps, with a 3.25% Libor floor for life, an original issue discount of 92 and call protection of 103 in year one and 101½ in year two.

And, price talk on the ABL revolver is Libor plus 300 bps.

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.

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.

The credit facility is being done on a best efforts basis.

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

Sara Rosenberg and Paul Deckelman contributed to this article.

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