Thornburg rally marches on; Linens better, Pep Boys down; AbitibiBowater bonds still gaining

By Stephanie N. Rotondo

Portland, Ore., March 26 - Thornburg Mortgage Corp.'s bonds pushed higher Wednesday even as little news emerged concerning the company's financing.

The lender's bonds have pushed up considerably over the week as the market speculated that a plan to quickly raise $1 billion had some teeth. The debt continued its rally Tuesday as the company announced it would issue new notes, instead of its original plan to sell convertible debt securities.

Traders said they had not heard any word on where the plan now stood, but the bonds jumped to the mid-60s by the end of the trading day.

Among consumer-driven names, Linens n'Things Inc. bonds were deemed better and fairly active, though it was unclear why. On the opposite side, the paper of Pep Boys-Manny, Moe & Jack fell after the automotive parts retailer posted a wider fourth-quarter loss.

AbitibiBowater Inc.'s consent deadline for its tender offer came and went. The shorter maturities - part of the offer - continued to trade over par, while longer-dated issues edged higher.

With the equity markets pulling back, distressed bond traders said there was a "general malaise" in the marketplace.

"If it gets any better, I might kill myself," one trader quipped.

"There were not too many notables," said another trader, who added that things were "still on the quiet side."

"There is some trading here and there," he said.

Yet another trader likened the day to a literary work - Stephen King's "The Dead Zone."

Thornburg rally marches on

Thornburg Mortgage's rally continued during Wednesday's session, with the company's corporate debt gaining about another 5 points on the day.

One trader said the 8% notes due 2013 traded into the low- to mid-60s, adding the bonds "were all over the place" in that range.

"There is still no chatter," he noted, on whether the company's plan to issue more than $1 billion in new debt would get finalized. "But it seems like people think the deal will get done."

Another source called the lender's bonds "much better," quoting them at 64 bid, 65 offered.

Another trader saw the bonds up 5 points at 60 bid, 65 offered. Another said that the bonds had traded as high as 64 on an odd-lot basis.

A market source pegged the bonds at 61 bid, up 4 points on the day, while yet another saw them at 60 bid, 65 offered, up from 55 bid, 57 offered on Tuesday.

Last week, Thornburg said it would sell $1 billion in convertible debt, a move aimed at appeasing its lenders, which were requiring the company to raise almost that much - in just one week.

Pricing on the new debt was expected to be released Thursday. However, late that day, the company said it was delaying pricing until Monday.

As Monday came and went, there was still no news. Come Tuesday morning, however, the market found out why. Instead of issuing the convertible debt, Thornburg said it decided to issue $1.4 billion of seven-year senior subordinated debt with an interest rate of 18%. That rate could decrease to 12%, if shareholders agree to issue more equity and the company can buy back a majority if its preferred shares at a discount.

The company also said that it had a buyer lined up for $450 million of the new securities: MattlinPatterson. However, in order for that transaction to go through, Thornburg must first find buyers for at least $700 million of the remaining debt.

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

Elsewhere in the financial sector, a trader said Residential Capital LLC's longer-dated issues, such as the 6½% notes due 2013, were unchanged at around 51. The trader also said that Countrywide Financial Corp.'s bonds were "pretty quiet after the big run up yesterday." The bonds had edged higher on speculation that Bank of America would sweeten its offer for the lender.

Another trader saw ResCap's 6½% notes unchanged at 52 bid, 54 offered, while Countrywide Financial's 3¼% notes coming due May 21, 2008 were unchanged at 98 bid, par offered. Its 6¼% notes due 2016 were also unchanged at 79 bid, 81 offered.

Linens notes improve, Pep Boys downshift

Linens n'Things saw its debt continue to firm during active trading, but traders were not sure what was prompting the movement.

One trader said the floating-rate notes due 2014 were "creeping back up," trading as high as 32. Another trader pegged the bonds at 32 bid, 32.5 offered.

The Clifton, N.J.-based home retailer's bonds began to move up in the previous session. Traders attributed the slight gains to overall wellness in the market.

But as the debt continued to edge higher during a day where the market was not doing as well, it became unclear as to why.

Meanwhile, Pep Boys' 7½% notes due 2014 slipped 4 points, a trader said, on "disappointing numbers." The trader quoted the bonds at 78 bid, 80 offered.

The Philadelphia-based automotive retailer posted a net loss of $18.5 million for the fourth quarter of 2007, compared to a net income of $7.9 million the previous year. The company attributed its wider loss in part to costs associated with a restructuring endeavor that began in November 2007.

AbitibiBowater bonds still gaining

As the consent deadline on its tender offer was set to expire, AbitibiBowater priced $413 million of new high-yield notes due 2010, which will yield 13¾%.

The new issue is part of the company's refinancing plan to deal with upcoming maturities, including the 6.95% notes due April 1.

Holders of the shorter maturities - including the 5¼% notes also due this year - got a chance to participate in a tender offer, and in exchange received both new notes and cash.

Over the last few sessions, the short paper gained serious ground, which traders attributed to short covering as the deadline approached.

One trader said the "shorter stuff" was still "trading at various price points north of par."

"Some people might still have been short them, but I would have thought it would be cleaned up by now," he added.

The trader said longer issues were still edging higher. He pegged the 8.55% notes due 2010 a point better at 50.5.

Another trader quoted the new 13¾% notes at 102.75 bid, 103.75 offered, up from their par issue price.

Among the existing bonds, he saw the 6.95% notes at par bid, 102 offered, with quotes of 104 bid, 105 offered for guaranteed delivery, which, he said, "means nothing."

He also saw the 5¼% notes due June 20, 2008 at 97 bid, par offered.

Another trader saw the 6.95% notes at 99 bid, 101 offered and at 101 bid, 103 offered on a guaranteed delivery basis, while the 8.85% bonds due 2030 rose 3 points to 45 bid, 46 offered.

The old Bowater 9% notes due 2009 were meantime up 2 points to the 85 level.

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

Broad market tidbits

Neff Corp.'s 10% notes due 2015 were up a point at 46.5 bid, 48.5 offered.

At another desk, Angiotech Pharmaceuticals gained nearly 4 points on the day to 63 bid, while Spectrum Brands Inc.'s 11½% notes due 2013 were 3 points ahead at the 83 level. Another market source saw Spectrum's 7 3/8% notes due 2015 down a point at 65.

Idearc Inc.'s 8% notes due 2016 lost half a point to also end at 65.

Paul Deckelman contributed to this article.

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