Thornburg Mortgage bonds weaken despite larger profit; automotive sector bond trading ends mixed

By Stephanie N. Rotondo

Portland, Ore., Aug. 26 - Despite a larger profit in the second quarter, Thornburg Mortgage Corp.'s bonds ended Tuesday's session lower.

The mortgage lender's bonds had gained during Monday trading ahead of the earnings release. But once the numbers came out and the conference call was held, the debt began to decline.

Meanwhile, trading in the auto sector closed the day largely mixed. Sources called General Motors Corp.'s bonds unchanged to slightly lower, while Ford Motor Co.'s debt was unchanged or better, depending on whom you asked. Metaldyne Inc.'s bonds ended unchanged.

While the last few sessions have been on the lackluster side, some market players have expressed hope that all will change come next week.

"It will be better [after the holiday]," one trader said. "Folks are out now, so no one wants to start something new. Once everyone comes back, maybe that will change."

Thornburg bonds dip after numbers

Thornburg Mortgage's bonds traded back down during Tuesday's session after running up on Monday. The declines came on the back of an earnings release and subsequent conference call held by the Santa Fe, N.M.-based mortgage lender.

One trader said the 8% notes due 2013 first traded lower at 73.75 bid, 74 offered, only to fall to 71.5 bid, 72 offered by the close of business. Another called the debt "a little bit lower" at 70 bid, 72 offered.

"They ran up yesterday, mostly on odd lots," he said.

At another desk, a trader quoted the bonds wide at 71.5 bid, 74 offered.

Sources saw the bond trade more actively than in the previous session, though one noted, "given that they reported, they were not really [busy]."

"It was not the kind of size or volume that you would expect, but then again nothing is right now," the source added.

Thornburg posted a profit for the second quarter at $412.3 million. That compared to net income of $83.4 million the same quarter of 2007.

The results were impacted by, among other things, a $536.9 million fair-value gain, as well as a $209.6 million loss on impairments related to the company's mortgage-backed securities portfolio.

While the company's chief executive, Larry Goldstone, remained upbeat about the company's core business, he noted that challenges still exist. Specifically, he said that recent rating downgrades from Fitch Ratings against mortgage securities have thrown negotiations with lenders for a loop. Also, Thornburg has yet to restart its loan origination business.

"Everything that we do seems to take more time and is far more complex than we anticipate it's going to be because our circumstances are somewhat precarious, to put it mildly," Goldstone said.

Auto sector unchanged (mostly)

The automotive sector ended the day mixed, with no news to facilitate much movement.

A trader called Ford Motor's 5.8% notes due 2009 unchanged at 98.5, while another said General Motors' 7.2% notes due 2011 were likewise unchanged at 63.5 bid, 64 offered.

"They seemed pretty active," the trader said of the GM issue.

Another market source saw GM's 7 1/8% notes due 2013 slip about a point to 55 bid and Ford's 7% notes due 2017 gain slightly to close at 72.5 bid.

Another trader said that GM's 7.2% notes "may be the most active" GM issue in Tuesday's market, quoting it up almost half a point at 63.875 bid. He saw the benchmark GM 8 3/8% bonds due 2033 off half a point at 49.5 bid, while Ford Motor's 7.45% bonds due 2033 were unchanged at 51.5.

At another desk, a trader saw the GM and Ford benchmarks "pretty much unchanged" at 48 bid, 49 offered and 51 bid, 53 offered, respectively.

Among the parts suppliers, Metaldyne's 10% subordinated notes due 2013 remain quoted from 10 to 15, a trader said.

"That's where they have been for two weeks," he said. "There's a seller out there."

In a morning report, Gimme Credit analyst Shelly Lombard wrote that Metaldyne, like most others in the auto arena, continues to face obstacles - such as the fate of its biggest customer, Chrysler. Though the company's equity sponsor Ripplewood will likely continue to support the company, the near future is bleak.

"Near term we see no positive catalysts and we expect weak results and unanswered questions about its biggest customer Chrysler to depress [bond] prices and make the bonds almost impossible to value," Lombard wrote.

Elsewhere in the autosphere, Lear Corp.'s 8¾% notes due 2016 fell by nearly 2 points to close around 75.

Broad market mixed

Traders reported that broad market activity continued to be light - although better than the previous session - with no one sector making up the bulk of trades.

"There's lots of names with the same kind of volume," a trader said. "But nothing is really out of whack."

"We have just kind of shut it down this week because nobody is in," said another trader.

Tousa Inc.'s subordinated debt - which includes the 10 3/8% notes due 2012 and the 7½% notes due 2011 and 2015, respectively - "keep coming in," a trader said. He pegged the issues at 3 bid, 5 offered.

Though there has been no company-specific news to cause the decline, "there has been nothing positive out of the homebuilding sector in a while," he said.

Meanwhile, Community Heath Systems Inc.'s 8 7/8% notes due 2015 were "relatively unchanged," in the words of one trader, at 101 bid, 101.5 offered.

Claire's Stores Inc.'s 9¼% notes due 2015 closed around 42.5.

"There was not much else in retailers," a trader said.

A trader saw a fair amount of activity in AbitibiBowater Inc.'s 8.55% bonds trading at 56 on a round-lot basis, about a point lower than recent levels.

Another market source meantime saw the bonds going out at just under 54.625, although mostly on a series of smallish late trades, although there was a sizable block at that same level. That stood in contrast to Monday's finish at 58.

Tribune Co.'s 4 7/8% notes due 2010 gained a point to 63 bid, while Six Flags Inc.'s 9 5/8% notes due 2014 were quoted up slightly at about the 57.5 bid area.

Paul Deckelman contributed to this article.

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