Technical Olympic bonds gyrate wildly, while Transeastern bank debt eases; Remy retreats

By Paul Deckelman and Sara Rosenberg

New York, March 27 - Technical Olympic USA Inc.'s battered junk bonds went on a wild ride on Tuesday, traders said, beaten down as much as 10 points in the early going on continued market angst about the troubled Hollywood, Fla.-based homebuilder - but then bouncing off those lows to end only moderately lower, helped by a reassuring research report.

At the same time, the bank debt of Technical Olympic's problem-plagued joint venture, Transeastern Homes, was seen having moved a little lower in apparent sympathy with its parent's bonds, while Technical Olympic's own bank debt was unchanged on the day.

Elsewhere, Remy International Inc.'s bonds - recently strong on market buzz that the Anderson, Ind.-based automotive electrical systems maker may do a rights offering or otherwise manage an equity infusion - continued Monday's trend of giving back some of those gains.

Traders saw Tembec Inc.'s bonds continuing to get sawed down, possibly hurt by the rise in the Canadian dollar seen after the failure of separatists seeking independence for Quebec in Monday's provincial elections.

Among the airlines, Delta Air Lines Inc.'s bonds were seen up half a point to a full point, as the bankrupt Atlanta-based Number-Three U.S. carrier outlined its plans to emerge from Chapter 11 next month, cut debt and swing back to profitability before the end of the year.

However, Delta's equally bankrupt rival, Northwest Airlines Corp. - whose bonds frequently move more or less in tandem with Delta's - was moving in the other direction on Tuesday, giving back some of the sizable gains which they had notched in Monday's dealings.

Technical Olympic bounces around

Technical Olympic "was the big mover," a trader in distressed credits opined. "That was the most exciting one."

He saw the company's beleaguered 10 3/8% notes due 2012 - which on Monday had fallen another 5 points to around 68 bid, 70 offered - collapsing down to lows around 58 bid in Tuesday's early trading, but later coming off those lows to end around 66 bid, which given the context of the bonds' wild swing, he termed "just under unchanged."

"What a difference a day makes," said another trader, who noted that the bonds had been trading in the lower 70s for much of Monday, before sliding down into the upper 60s on rumors that all of troubled Transeastern's more than $600 million of outstanding debt may end up head of Technical Olympic's own bonds in the event of a bankruptcy filing or other restructuring scenario.

He too saw the bonds picking up early Tuesday where they had left off late Monday, and continuing to plummet, before hitting rock bottom around 58.5 bid, 61.5 offered, and then moving back up to closing levels around 65.

A market source reported that the bonds - one of the most actively-traded issues of the day, according to Trace, Nasdaq's bond-transaction tracking system - pushed as high as a 70-71 context during the afternoon, before ending at 69 bid, actually a bit higher than Monday's levels.

The Technical Olympic bonds managed to rebound off their nadir after RBC Capital Markets issued a research report, the first trader said, "essentially saying that the assets are covered" in the event of a bankruptcy or restructuring scenario, or even up to a liquidation.

"I think that the assumption that the parent [i.e. Technical Olympic] takes over Transeastern, is already well out there. So that's going to happen," he declared. He said the report outlined two potential scenarios - Technical Olympic taking on $400 million in debt, or, alternatively, all $625 million of its half-owned subsidiary's obligations.

"Basically, what they're trying to do is haircut the assets and say there's still asset coverage. I don't think I'd buy it, based on that - but somebody is."

Addressing the concerns that caused the bonds to fall on Monday - bondholder angst about the prospect of the parent's bond debt being pushed lower on the food chain than the subsidiary's debt - he declared that "there's no doubt that a portion of [Transeastern's debt] is going to be higher" than Technical Olympic's bonds. "Everybody accepts the fact that at least $400 million of debt taken on, if they consolidate this JV, is going to be higher" in Technical Olympic's capital structure than its own bonds - "it's going to be bank debt," which routinely ranks ahead of bond debt in any corporate restructuring scenario.

The big question, he continued, "is what about the other $225 [million] - where is that going to fit in? It's still up in the air, really. They're still trying to negotiate with Deutsche Bank, which owns most of it."

"Tech Olympic definitely continued to be the worst performer of the [homebuilders'] group," said another trader of the big drop in the bonds Monday and the bounces seen Tuesday, "as the whole Transeastern thing continue to put serious pressure on them."

Besides the 10 3/8% notes, he said that the company's 7½% notes due 2015 and its 7½% notes due 2011 were also rocking and rolling crazily, with the former coming off its lows to end the day around 67.5 bid, and the latter doing the same and going out at 64.5.

"The research report said that if there is a possible Chapter 7 [liquidation proceeding], there's enough asset coverage that they'll be OK," he said, so the bonds "had a nice move today, down and up."

He saw the Technical Olympic gyrations taking place in the context of a totally bad day for homebuilder names in general, with news ranging from industry leader Lennar Corp. reporting that its earnings plunged 73% in the fiscal first quarter from year-earlier levels, to Beazer Homes USA Inc. facing a federal criminal investigation of allegations of mortgage fraud and other charges. "They're all probably off anywhere from a half point to a point, across the board."

Transeastern bank debt seen easier

While Technical Olympic's bonds were rocketing down and then back up, traders in the bank debt market saw Transeastern's loan paper dropping in apparent sympathy with the recent beating that Technical Olympic's notes have taken, one of them said.

The Transeastern bank debt closed out the day at 98.25 bid, 99.25 offered, down about ½ point from previous levels, the trader said.

Meanwhile, Technical Olympic's own revolver was quoted really wide at 95 bid, 99.5 offered on Tuesday, unchanged from where it was seen during the previous session, a fund manager added.

Remy in retreat after rolling on rumors

In the automotive sphere, Remy International's Delco Remy senior bonds - which last week had been pushed as high as the mid-to upper 80s on market rumors that the troubled company might be a takeover target for someone or might get an equity infusion via a rights offering from its own private investors or debtholders - were down for a second straight session, with a trader quoting the 8 5/8% notes due 2007 at 78 bid, 79 offered, well down from recent levels around 84.5 bid, 86.5 offered.

He saw its 11% notes due 2009 fall to 20 bid, 22 offered from 25 bid, 27 offered previously, and its 9 3/8% notes due 2012 at 20 bid, 22 offered from 24 bid, 26 offered.

"You've got sub debt trading in the 20s," another trader said, "so it's kind of wasted money to put equity in, in my opinion," he said, in discounting the cash infusion rumors.

"If you really want to do something for the company, maybe you go out and buy a bunch of the sub debt at a huge discount and get it off the balance sheet. That would make a lot more sense than trying to support this thing at these levels."

Tembec tumble continues

Tembec "was a mover today," a trader in distressed bonds said, quoting the Montreal-based forest products company's 8 5/8% notes due 2008 at 68 bid, 70 offered, down from 71 bid, 73 offered previously, and its 8½% notes due 2014 and 7¾% notes due 2012 each down 2 points on the day at 62 bid, 63 offered and 60 bid, 61 offered, respectively.

Tembec's bonds have come off recent high levels, some market participants have said, because of currency fluctuations, which hurt the company's sales to customers in the United States and elsewhere outside Canada. The latter country's currency meantime was markedly stronger on Tuesday, with foreign exchange traders citing the failure of the separatist Partie Quebecois, which wants to break the mostly French-speaking province away from largely English-speaking Canada, in Monday's provincial legislative elections.

Delta bonds better

A trader saw Delta Air Lines' bonds up anywhere from a half point to a point, taking modest flight on the news that the company anticipates emerging from Chapter 11 by the end of April, after having been there since the fall of 2005.

That is a faster emergence scenario than the company had recently been outlining, previously saying that it expected to come out of bankruptcy some time in May.

He pegged the carrier's 8.30% notes due 2029 at 57 bid, 57.5 offered, up a point on the day, after they had at one point spiked as high as 59 bid.

He saw the 10% notes due 2008 at 55 bid, 56 offered, up ½ point on the day.

Delta executives also said in documents prepared for an investor conference that they expect the restructured airline to be able to cut debt and even turn a profit for the year, possibly helped by asset sales. One such asset which could be on the block is Delta's Comair feeder carrier line.

The company envisions posting a pretax profit, excluding special and reorganization items, of $816 million for the year. It projects a loss of $25 million to $50 million - narrower than a year ago - in the first quarter, which ends Saturday.

"I don't think it was so much the news [that Delta expects to cut debt, maybe sell assets and be profitable] as it is that they are closer to coming out," another trader said, "so people are a little more comfortable with it, and bonds are up a little, maybe a point or so.

"It didn't move a lot - but it kind of stabilized" at higher levels.

Also among the airlines, Northwest's bonds - which on Monday had gained altitude after the Eagan, Minn.-based Number-Five U.S. air carrier got the go ahead from a bankruptcy judge to begin seeking creditor approval of its reorganization plan - were in retreat on Tuesday.

A market source saw its 7 7/8% notes due 2008 down 1¼ points at 86.75, while its 10% notes due 2009 fell back to 85.5 bid, 86.5 offered, a 1½ point drop on the session.

Rotech plans term loan

Back in the bank debt market, Rotech Healthcare Inc. filed an 8-K report with the Securities and Exchange Commission indicating that it is planning on getting a new $160 million payment-in-kind term loan due Sept. 26, 2011.

Credit Suisse is the bookrunner and lead arranger on the deal.

Proceeds will be used to repay and terminate the Orlando, Fla-based home medical equipment provider's credit facility and for general working capital purposes.

Primus unit completes funding

Meantime, Primus Telecommunications Group Inc.'s Canadian subsidiary closed on a new $35 million loan due 2012, according to a company news release.

Guggenheim Corporate Funding, LLC is the administrative agent on the deal.

The loan carries an interest rate of Libor plus 425 basis points.

Proceeds were used to refinance the McLean, Va.-based telecommunications company's existing credit facility that was scheduled to mature in April 2008.

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