Bon-Ton debt weaker; Thornburg helped by stock swap; Hines files Chapter 11; Fedders plan confirmed

By Stephanie N. Rotondo

Portland, Ore., Aug. 21 - Weaker numbers for the second quarter - along with lowered EBITDA guidance - hurt Bon-Ton Stores Inc.'s bonds Thursday.

Net loss widened from the second quarter of 2007, largely due to a goodwill impairment charge. A market source said the company's bonds - which had fallen in the previous session ahead of the numbers - fell even more. But another source said the bonds regained some ground toward the end of the day, closing unchanged.

Meanwhile, Thornburg Mortgage Corp. is seeing bids for its bonds move up. According to sources, the gain on the bid side is due to the company's preferred stock exchange. The exchange is part of a recapitalization plan to help the struggling mortgage lender.

Hines Horticulture Inc. announced Wednesday that it had filed for Chapter 11 protections after several months of mulling its options. A trader said the bonds - which have not traded for two months - are now worth significantly less than the last trade.

Also, Fedders Corp.'s plan of liquidation was confirmed Thursday. The trader said the bonds are now officially "worthless."

According to one source, there was "a little more noise in the morning, but not much follow through."

"There was a little bit of everything trading, but nothing stands out as far as price goes," he added.

At another desk, a trader was not hopeful for the final day of the trading week.

"Tomorrow's going to be real sleepy," he said.

Weak numbers weigh on Bon-Ton

Bon-Ton Stores reported its quarterly financials Thursday, but it was unclear what the figures did to the bonds.

One trader quoted the 10¼% notes due 2014 at 46.5 bid, 47 offered, down 1.5 to 2 points. But another trader saw the bonds at 47.5 bid, 48 offered, virtually unchanged on the day.

However, the second trader did note that the debt had gotten as low as 46 before regaining its losses.

For the second quarter, Bon-Ton reported a net loss of $33.8 million, compared to a loss of $15 million in 2007. The most recent quarter's loss includes a $17.8 million goodwill impairment charge.

During its conference call to discuss the results, the company's management also said that it lowered EBITDA guidance for the year - again. This time, the company cut expected EBITDA to $200 million to $213 million. The company had previously lowered guidance to $224 million to $232 million from $230 million to $237 million.

Since the second quarter of 2007, Bon-Ton has reduced debt by $80 million. In the call, Keith Plowman, chief financial officer, said the York, Pa.-based retailer was committed to using cash flow to pay down even more debt.

"Our balance sheet is stronger than the comparable period in the prior year, as evidenced by reduced debt levels and strong borrowing availability. We remain confident that we are well-positioned to take advantage of opportunities when the economy shows signs of recovery," Plowman said.

Elsewhere in the retail sector, traders saw Neiman Marcus Group Inc.'s 9% notes due 2015 and its 10 3/8% notes due 2015 softer at 98 bid, 98.75 offered. Sources had no explanation for the move.

Stock exchange helps Thornburg

Bids for Thornburg Mortgage's bonds have been moving up over the last few sessions, a trader said, but as of yet, there have been no trades and no offers.

The trader said that the 8% notes due 2013 were at 68 bid, looking for offers, which another trader echoed.

The Santa Fe, N.M.-based company's preferred stock exchange seems to be what is guiding the debt, the trader said. Earlier in the week, the company extended the offer for four series of its preferred equity.

The stock exchange is part of a recapitalization plan announced in March. Under the plan, MatlinPatterson will invest in the struggling lender, while the company looks to swap its preferred shares for cash and common shares. For the exchange to be successful, two-thirds of the series C, D, E and F stock must be tendered. As of Tuesday, the company had met that goal, but chose to extend the offer Wednesday until Sept. 2.

Hines files bankruptcy

Hines Horticulture filed for bankruptcy Wednesday, marking a milestone in the struggling nursery's life.

The Irvine, Calif.-based plant supplier said that the filing came after months of "exploring multiple restructuring alternatives," including an asset sale or new debt. The company is looking to sell all or substantially all of its assets as a result.

Black Diamond Capital Management LLC has agreed to serve as the stalking horse bidder. Black Diamond is a majority holder of the 10¼% notes due 2011.

According to a trader, those bonds are now worth somewhere between 30 and 40 cents on the dollar. However, the bonds last traded - two months ago - in the mid-50s.

Meanwhile, Fedders' plan of liquidation was confirmed Wednesday. According to one trader, the bonds are now deemed "worthless."

"But they always were," he said.

The trader quoted the 9 7/8% notes due 2014 at 1 bid, 2 offered.

Foamex loan slips

Foamex LP's first-lien term loan headed lower during Thursday's market hours following a ratings downgrade by Standard & Poor's, according to a trader.

The first-lien term loan was quoted at 76 bid, 78 offered, down from previous levels of 77 bid, 79 offered, the trader said.

S&P announced in the early afternoon that it cut Foamex's corporate credit rating to CCC+ from B-, first-lien bank loan rating to CCC+ from B and second-lien loan rating to CCC- from CCC. The ratings were removed from CreditWatch, but the outlook is negative.

The downgrade was a result of ongoing concerns related to financial performance in an increasingly difficult operating environment and the increased likelihood that Foamex will have to seek covenant relief from its lenders within the next several quarters, the rating agency said.

"Today's actions acknowledge the company's significant reduction in debt through completion of a rights offering in the second quarter and the additional reduction of $20.4 million completed on Aug. 15, 2008," said Henry Fukuchi, S&P's credit analyst, in the release.

However, the rating agency explained that although the completion of the rights offering was a meaningful step, business conditions have deteriorated and Foamex could face challenges in preserving sufficient access to liquidity because of tightening financial covenants.

Foamex is a Linwood, Pa.-based manufacturer of flexible polyurethane and advanced polymer foam products.

Broad market still lower

"There was a fair amount of Charter [Communications Inc.] trading," a trader said, noting the 11% notes due 2015.

The trader was not sure why the bonds were moving, quoting the debt at 75.75 bid, 76.75 offered.

Another trader called the bonds lower at 76 bid, 76.5 offered, though he was also not sure what was causing the action. However, he speculated that a seller might be in the marketplace.

Meanwhile, Merisant Worldwide Inc. has reportedly released a proposal to refinance its 12¼% discount notes due 2014. A trader said the bonds have still not traded, with the subordinated notes at 19 bid, 20 offered and the 9½% notes due 2013 at 71.5 bid, 72.5 offered.

Trump Entertainment Resorts Inc.'s bonds were "certainly lower," a trader said, at 44.5 bid, 45.5 offered. However, "they haven't been trading much recently," he said.

Sara Rosenberg contributed to this article.

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