Tousa notes rally on fraudulent transfer ruling; Tronox, Smurfit-Stone climb; CIT bonds firm

By Stephanie N. Rotondo

Portland, Ore., Oct. 14 - The distressed debt market followed the lead of the equity market Wednesday, with many credits seeing moderate gains and volume nearly double Tuesday's levels.

According to one market source, trading volume in the high-yield market reached nearly $2 billion.

Tousa Inc. was in the news, as a bankruptcy court ruled in favor of a creditor committee alleging a fraudulent transfer occurred when the company purchased - and later refinanced - Transeastern Properties Inc.'s homebuilding units. The ruling resulted in the company's bonds increasing nearly five-fold.

Meanwhile, Tronox Worldwide LLC and Smurfit-Stone Container Enterprise Corp. continued to post gains, though there was little news to have caused the movement. Tronox did make a regulatory filing, in which it said it would meet with bondholders on Friday.

CIT Group Inc. is reported to be close to inking a new loan that would help the company fund its debt retirement goals. The funding could also be used for debtor-in-possession financing. Traders saw the lender's debt improving as a result.

Tousa notes pop on ruling

Hollywood, Fla.-based homebuilder Tousa saw its bonds jump in trading Wednesday, as a judge ruled that loans received shortly before the company's Chapter 11 filing were fraudulent transfers.

A trader said the movement in the 9% notes due 2010 was the day's "most notable, price-wise," with the bonds ending around 53. That compared to levels around 11 before the ruling.

Another source pegged the issue at 521/2, also up from around 11.

A bankruptcy judge ordered a group of lenders - including Citigroup Inc., Wells Fargo & Co., Bank of America Corp. and CIT Group Inc. - to pay $403 million to Tousa subsidiaries, plus interest and other expenses. The judge also took away a $207.3 million security interest in a tax-refund claim.

The lender group provided more than $1 billion to the homebuilder for its 2005 purchase of Transeastern Properties Inc.'s homebuilding business. The first $675 million came in 2005 and the remainder in July 2007 - six months before Tousa ended up filing for bankruptcy - to refinance the struggling joint venture.

In July 2008, a creditors committee filed the lawsuit alleging fraudulent transfer. The committee claimed that the financing - and subsequent granting of liens - equaled a fraudulent transfer as the units putting up assets as collateral did not benefit from the funds.

The judge opined that the units "did not receive reasonably equivalent value in exchange for the liens" and that said units were already nearing a breaking point before the loans were received. That then left them with "unreasonably small capital."

To note, a Tousa investor had warned the company's board in April 2007 that the planned refinancing would place the overall company in jeopardy.

Tousa filed for bankruptcy on Jan. 29, 2008. At that time, it had assets of $2.3 billion and debt of $2.2 billion.

Tronox, Smurfit on steady climb

Tronox Worldwide and Smurfit-Stone Container are two names that have seen steady gains of late, and Wednesday's session was no different.

A trader said about $50 million of Smurfit-Stone's 8% notes due 2017 traded up 4 to 5 points to 79 bid, 80 offered. Another source called the 8¼% notes due 2012 up more than 5 points to 79¼ bid.

Tronox's 9½% notes due 2012 meanwhile gained "another 7 or 8 points," a trader said, ending in the mid-60s. He said the bonds had been 57 bid, 58 offered on Tuesday and were in the mid-40s as early as last week.

Neither company had any fresh news out that would explain the gains, though Tronox did make a regulatory filing projecting assets and liability and equity through the end of the year.

Tronox also said in the filing that it was meeting with bondholders on Friday to give an update on its bankruptcy progress.

Tronox Worldwide is an Oklahoma City-based chemical manufacturing company. Smurfit-Stone Container is a Creve Coeur, Mo.-based maker of corrugated cardboard and other paper containers.

CIT bonds firm

CIT Group's debt got a boost on news the company was close to securing a $3 billion to $6.5 billion loan.

A trader said November 2009 issues moved up to the 70 area, while "longer paper was up a couple of points, I'd say generically around 63-ish."

Another trader saw CIT bonds "whipping around" in the wake of the latest news. He saw the short end of the company's curve, like the notes maturing next month, back up to around 70-72 from recent levels in the middle 60s.

"So that's just whipping around, waiting for a deal to happen," he said. "There was a lot of trading."

He said that the company's somewhat longer paper, like the 7 5/8% notes due 2012, probably did not move as much, although here too, there was "a lot of trading in these things all day, all the CITs." He saw those bonds around a 62-63 context, estimating that to be "up 4 or 5 points, as well."

CIT, which is trying to avoid a bankruptcy filing, is attempting to secure the funds as a way to fund the repayment of existing debt, according to news reports.

Earlier this month, CIT announced it would exchange "certain unsecured notes" for new notes in an effort to cut its debt by $5.7 billion. CIT is also soliciting votes for a pre-packaged bankruptcy, just in case the debt swap fails.

Reports also noted that the new loans could be used as DIP financing.

On Tuesday, the New York-based lender for middle-market and small businesses said its top executive, Jeffrey M. Peek, was resigning his post, effective Dec. 31.

Gimme Credit analyst Kathleen Shanley called into question CIT restructuring attempts in a morning report.

"The problem with the reorganization plan is that it is unclear if CIT can be a viable competitor in the finance sector," she wrote. "Its reputation is badly damaged, and its access to new funding constrained."

Shanley added that Morgan Stanley projections have the company turning a profit over the next five years, but that the analysis presumes improving credit quality.

Paul Deckelman contributed to this article.

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