Tousa, Delphi hurt by housing, consumer data; Idearc: Bad business?; Harrah's bonds slide again

By Stephanie N. Rotondo

Portland, Ore., June 24 - Disappointing consumer and housing data weighed heavily on the distressed bond market Tuesday, traders reported.

Most notably, the latest reading on home prices and consumer confidence hurt the housing and automotive sectors. Tousa Inc.'s debt lost about 3 points, while Delphi Corp. - hurting already on declining auto sales - continued its downward slide.

Meanwhile, Idearc Inc. has steadily declined over the last few weeks. The company's debt continued that trend Tuesday, but it was not clear why. With no news out to serve as a catalyst for the move, some market players believe it could simply be the company's business model.

A decline in tourism has hurt the gaming sector by and large. But over the last few sessions, it has been Harrah's Operating that has been under pressure. The casino operator's debt traded lower yet again Tuesday.

Housing, consumer data hurt Tousa, Delphi

As consumer confidence and housing prices continued to slide, the housing and auto sectors came under pressure.

A trader said Tousa's 9% notes due 2010 were "getting ground down" to 56 bid, 60 offered.

"They haven't traded, but they are weaker by 3 points," he said.

The trader added that housing stocks took a hit in early trading after the index and housing data came out. Hovnanian Enterprises Inc.'s equity lost about 10% of its value before coming back by the close of business.

"That was a kick for the whole sector," he said.

In the auto sector, Delphi' bonds were seen active, hitting a low of 28.75 bid, 29.5 offered before coming back to close at 29.5 bid, 30 offered. Another source saw the 6½% notes due 2013 at 29.75.

"That left a few for sale," he said.

Metaldyne Corp.'s 11% notes due 2012 were also weaker at 29 bid, 30 offered, while Visteon Corp.'s 7% notes due 2014 closed down a deuce at 58 bid.

In just under a year, the Conference Board's consumer confidence reading has lost more than half its weight. For June, the group reported consumer confidence at 50.4 from a revised May reading of 58.1. June's reading marked the lowest level since February 1992 when the measurement came in at 47.3.

Many market players point to troubles that began last year in the housing market as the first sign that the economy was turning downward. In fact, the Standard & Poor's/Case Shiller home price index indicated that home prices are continuing to fall, down 1.4% in April and 15.3% weaker over the year.

The automotive industry is also in a decline as U.S. automakers are slashing production and, in some cases, raising prices.

Idearc: Bad business?

Over the last couple of weeks, Idearc's debt has slowly, but steadily, been on the decline. But it has not been clear what is propelling the move.

A trader said the 8% notes due 2016 were left at 64.5 bid, while another pegged the bonds at 64 bid, 65 offered. Another source saw the debt at 65 bid.

There has been no news out to cause the gradual meltdown in the phonebook publisher's debt. When asked, several market sources had no explanation for the losses.

But one source said that it was simply that Idearc - as well as sector rival R.H. Donnelley - had a "challenged business model."

"When the market started to turn around, the bonds began to outperform," he said, noting when the bonds climbed into the high-70s. "At the first sight of despair, they have given up gains and then some. I'm not sure there is anything more sophisticated than that going on."

The source explained that as the company struggles with the "inroads of the internet" and declining advertising sales, it "needs to adapt to change faster." To accomplish this, he said, Idearc should downsize and reduce expenses.

Still, "I'm not predicting bankruptcy anytime soon," he said of both Idearc and R.H. Donnelley, citing "reasonable liquidity and high profit margins."

"But they both have their work cut out for them," he added.

Idearc will report its second-quarter results on July 29.

Harrah's debt slips again

Harrah's bonds continue to be one of the more actively traded names in a market that has reached a virtual standstill. But instead of gaining, as they had just weeks ago, they have been falling.

One trader said the 10¾% notes due 2016 started the day at a low of 81.25. By the afternoon, the bonds had moved up to end at 82.5 - off from the lows, but still weaker on the day.

Another trader said Harrah's newest issue hit a low of 81.25 bid, 81.5 offered, closing around the 82 level. Yet another source pegged the 5¾% notes due 2017 at 53 bid, down a point.

Harrah's, a highly leveraged company, will likely continue to struggle amid an economic recession that - unlike other recessions - has not left the gaming sector immune.

"Harrah's leveraged buyout piled on debt just as operating results started to weaken," wrote Kim Noland, Gimme Credit analyst, in a morning report. "Harrah's first-quarter results were disappointing and it may be some time before results improve given the 'new' type of recession in which gaming companies don't exhibit the same resiliency as they did in earlier downturns."

Harrah's is also in a difficult position as tourism has declined. Even in Las Vegas, where cheap flights used to be the norm, tourism is lower and airlines have either cut flights to the destination or raised prices.

Still, Noland said that there seems to be little downside in the debt, despite the fact that covenants allow the company to leverage even more, which would put more pressure on its corporate debt.

Elsewhere in the sector, Boyd Gaming's 7¾% notes due 2010, considered the strongest of the company's issues, were seen at 89 offered. Its 7 1/8% notes due 2016 were called a point lower at 75 bid, 76 offered, while its 6¾% notes due 2014 slipped a couple points to 77.75 bid, 78 offered.

Broad market weak

Ainsworth Lumber's 7½% notes due 2012 traded down as much as 2 points during the session to 46.75, before ending at 45.5 bid, 46.5 offered, down just a point.

OSI Restaurant Partners Inc.'s 10% notes due 2015 were likewise a point weaker at 66.

A trader saw Young Broadcasting's 10% notes due 2011 at 64 offered and its 8¾% notes due 2014 at 58 offered, both without a bid.

Claire's Stores Inc.'s junior bonds continue to lose weight, its 10½% notes due 2017 closing at 38 bid, 39 offered versus levels in the low-40s on Friday.

Ethanol producers also remain under pressure. VeraSun Energy's 9 3/8% notes due 2017 were quoted at 55 offered, while Aventine Renewable Energy Holdings' 10% notes due 2017 were around 63.

A trader said that Spectrum Brands Inc.'s 11% notes due 2013 opened Monday at 91, but by the end of the day had lost about 6 points to 85.25 bid, 85.75 offered. That compared to Friday levels of 88 bid 89 offered. The trader said the 7 3/8% notes due 2015 also traded "substantially lower," though he was not sure what happened. He pegged the 11% notes at 86 offered Tuesday, while another source saw the 7 3/8% notes at 65 bid, down 1.5 points.

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