Doubts about Thornburg financing; More shorts for AbitibiBowater; Wider 4Q hurts Linens n'Things

By Stephanie N. Rotondo

Portland, Ore., March 20 - As has been typical over the last week, Thornburg Mortgage Corp. remained the name on the tip of distressed traders' tongues Thursday.

The mortgage lender's bonds, which had run up in the previous sessions on a $1 billion financing plan, took a turn, losing as much as 30 points on the day. The reversal came as investors started to think that the deal would likely not get done in the short time frame allotted by the company's lenders.

Also of note, the bonds were once again trading flat after trading with accrued interest for the last two days.

Meanwhile, the short squeeze in AbitibiBowater Inc.'s shorter-dated issues continued, pushing the debt up nearly 10 points on the day. A trader said the company's amended consent solicitation offer for its upcoming maturities could be a factor but attributed the gains mostly to short covering.

Linens n'Things Inc.' paper slipped after the company posted what one trader called "not very pretty" fourth-quarter numbers. Another trader said the bonds traded rather actively during the short holiday session.

The last trading day before the long Easter weekend was deemed "mixed" by one trader, a sentiment echoed by other sources.

"There was some stuff going on, but not a ton," a trader said.

"Other than [Thornburg Mortgage], it was pretty dead," said another.

"The day is a non-event, nobody cares," quipped yet another source.

Market: Thornburg financing in doubt

Investors initially reacted positively to a new $1 billion financing plan proposed by Thornburg Mortgage, a move that was aimed at insuring the lender's future.

But with only one week to raise the new capital - a deadline imposed by its bank lenders - the market began to feel that the deal was likely to fail.

As such, the previously gaining 8% notes due 2013 reversed their position, losing about 30 points on the day.

One trader deemed the debt down 25 points around 30, trading flat once again.

"I guess it sounds like people don't feel like the deal is going to get done," he said.

At another desk, a trader placed the bonds in the low-30s, adding, "They are not going to get that deal done."

Yet another source said there were "not a lot of trades, but they are all over the place." He said the notes, which had closed Wednesday's session at 55 bid, 57 offered, opened with a 49 bid, fell to 41 bid and then to 30 bid.

"They are 31 bid, 34 offered now," he said, shortly before the market closed.

Another trader quoted the bonds even lower at 25 bid, 30 offered, while another trader saw the notes swoon all the way down to 28 bid, 32 offered from prior levels at 57 bid, 59 offered, saying the company's bonds nosedived because "it's going back down the tubes - they diluted the shareholders by about 8,000%," he noted.

Another trader said "I guess they sure are" taking a nosedive - he saw the bonds ending at 31 bid, way down from Wednesday's levels in the 50s. Although the bonds gyrated around on Wednesday, he said, "I was shocked that they didn't get hit" then, "when the stock got cut in half, from around $3.00 to $1.50, I was shocked that there wasn't more weakness, actually, in the bonds."

He suggested that investors "were distracted" Wednesday, but now, "having overnight to evaluate the situation, they realized how dire a situation Thornburg is actually in.

"If they're not able to issue this convertible security, they're through - it's over. Based on what came out [Wednesday], it seems the equity holders [who chose to get out of the name] were a little more prudent in evaluating [the company], although they will be hurt the worst by the extreme dilution," he said.

Thornburg, another trader said, "was the big mover" at 30 bid, 34 offered, which he said was down 22 points. He agreed with the notion that the steep fall in the bonds could be taken as a sign that investors don't believe the company will get its financing deal done.

"It doesn't look that way," he said, "though you never know."

On Wednesday, five of Thornburg's lenders agreed to cease their repayment demands and margin calls until March 2009 on the condition that the flailing company come up with almost $1 billion in funds - in just seven days.

To do so, Thornburg said it was planning on issuing $1 billion in new convertible debt. The convertible security would carry a 12% interest rate and could be turned into stock at 75 cents per share. Upon conversion, it would increase Thornburg's outstanding equity by 500%. Bank lenders would receive warrants, allowing them to buy 47 million shares for just a penny.

However, the company has said that if the financing deal falls through, it could be forced to sell its remaining assets and would likely face a bankruptcy filing.

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

Elsewhere in the financial sector, traders reported that liquidity concerns at CIT Group Inc. were forcing its bonds down.

A trader, who called CIT the "casualty of the day," said shorter-dated paper fell into the low-80s while longer-dated issues slipped to the low-60s.

Another trader noted that the day's action "was all CIT," as its bonds moved "from investment-grade yields down to around 18% to 24%." He quoted the 4¾% notes due 2010 at 67 bid, 69 offered - and frankly allowed that "we weren't following it" up until now.

Another trader saw the company's 3 7/8% notes coming due on Nov. 3, 2008 at 75 in odd-lot trading and at 79 in round-lot trading, with a yield of 47%, "not bad for a A3/A- bond - which they won't continue to be, I'm sure they will be downgraded again" following this week's downgrades by the major ratings agencies.

Another junk bond trader said that CIT hasn't been trading at his shop - yet - "but we will be involved in CIT."

CIT faced several rating downgrades over the week, which could result in the commercial finance company losing access to short-term funding.

More shorts for AbitibiBowater

A short squeeze continued to boost AbitibiBowater's shorter paper, traders reported.

One trader said the upcoming maturities, such as the 6.95% notes coming due in April, moved from the low-70s to the low-80s during trading. Another said he saw "really wide markets," pegging the 6.95% notes at 80 bid, up from a high of 73 previously. The trader also quoted the 7 7/8% notes due 2009 at 65 bid, 68 offered.

Another trader saw the short-maturity bonds push strongly higher for a second straight session following the company's announcement of improved terms for its exchange offer for nearly half a billion dollars of 2008 and 2009 paper. He put the 6.95% notes at 85 bid, 88 offered, well up from 73 bid, 76 offered on Wednesday, while its 5¼% notes due June 20, 2008 moved up to 81 bid, 84 offered from around 72 bid, 75 offered. However, he saw longer debt, such as the 8.85% notes due 2033, unchanged from prior levels at 37 bid, 39 offered.

Thursday's run-up was the second-straight day of gains for the forest products company's short issues. On both occasions, traders attributed the movement to short covering.

Still, the move could also be due - at least in part - to an amended consent solicitation for the short paper, including the 5¼% notes due 2008. The revised proposal not only extended the deadline, but also increased the consideration offered in exchange for the notes. For example, holders of the 2008 issues will now receive $550 in new senior unsecured notes due 2015, along with $550 in cash for every $1,000 in principal received before the consent deadline.

AbitibitBowater, a consolidation of Abitibi-Consolidated Inc. and Bowater Inc., is a Montreal-based forest products company.

Wider 4Q loss hurts Linens n'Things

A wider fourth-quarter loss resulted in Linens n'Things bonds "getting crushed," a trader said.

The trader said the floating-rate notes due 2014 were actively traded, falling to 28 bid, 29 offered.

"I think the 28 bid might have disappeared," he added. "Now I just see 29 offered."

Another trader also placed the bonds at 28 bid, 29 offered, adding that the quarterly figures were "not very pretty."

At another desk, a trader pegged the notes at 26 bid, 28 offered, comparing the debt to a "dead cat bounce."

"Sometimes when you throw a cat out the window, it bounces," he quipped. "Other times they just kind of stick. This one is just sticking."

Another trader said the floating-rate notes were "under pressure," falling as low as 28 bid, 29 offered, down from 30 bid, 32 offered Wednesday, although he saw their final sale at 29.5, "so they did rebound. It seemed like there was a little bit of increased activity, increased pressure on them," in response to the latest barrage of news about the company's earnings and its plans to tighten its corporate belt.

The privately held retailer reported a $62 million loss for the quarter ended Dec. 29, compared to a loss of $22.5 million the previous year. Revenue increased slightly to $962.9 million versus $956.8 million for the fourth quarter of 2006.

Apollo Management acquired Linens n'Things in 2006 in a leveraged buyout that has left the company with significant levels of debt in a troubling retail cycle. That said, the company said it would look to cut costs as a way to balance its books, including reducing its staff.

In other news, Dyson Inc., the maker of the Dyson vacuums, is suing Linens for failure to pay almost $1.3 million for merchandise.

Dyson filed the breach of contract and deceptive business practices lawsuit in Cook County Circuit Court in Chicago. Linens has said it has not paid the invoices because it is money owed by Dyson to Linens.

Linens n'Things is a Clinton, N.J.-based home furnishings retailer.

Among other consumer-driven names, Buffets Inc.'s 12½% notes due 2015, a 14-month-old issue that was released at par, is now trading at two cents on the dollar, a trader said.

The trader said the usually quiet name was rather active in Thursday's session. When asked what might have spurred the action, the trader said, "Guys are just surrendering, giving in to a higher power."

Paul Deckelman contributed to this article.

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