Remy notes unchanged; TOUSA, WCI hurt by housing, subprime worries; Fedders slips

By Stephanie N. Rotondo

Portland, Ore., July 11 - Better-than-expected first-quarter results did little for Remy International Inc.'s bonds Wednesday, though traders are expecting a short squeeze to keep moving the notes upward.

"Earlier this month, we announced a major milestone toward our goal of substantially reducing our debt burden," wrote John H. Weber, president and chief financial officer, in a letter to investors posted on the company's web site.

Weber was referring to the announcement that Remy would file for bankruptcy under a pre-packaged reorganization plan that helped boost the bonds as much as 40 points.

"Upon completion of this process, Remy's capital structure will provide a foundation for sustained profitability and position the company to meet industry challenges," he said.

But while the news that the company was looking to reduce its debt through bankruptcy was only part of what prompted major gains in the company's debt - a short squeeze began and is expected to continue as the company makes its way through the bankruptcy process.

Meanwhile, poor earnings sector-wide and continued subprime mortgage woes are affecting not only homebuilders, such as Technical Olympic USA Inc. and WCI Communities Inc., but those that are involved in the housing process, such as Ply-Gem Industries Inc., as well. Traders reported each of those names as weaker on the session.

Things have been ugly for Fedders Corp.'s bonds, and it seems that they are "getting uglier," a trader said. The company's name has popped up again as the bonds have been slipping. Many market participants are waiting to see if the company has accomplished a turnaround in the second quarter, but results will not be released until August.

Remy notes unchanged

Automotive parts manufacturer Remy saw its bonds virtually unchanged after the company posted better-than-expected first-quarter results.

A trader pegged the 9 3/8% notes due 2012 and the 11% notes due 2009 around par, while the 8 5/8% notes due 2007 were seen at 109.5 bid, 110.5 offered.

"That's about where they have been," he said.

Another trader quoted the 9 3/8% notes at 99.25, which he called unchanged.

In a letter to its investors on the company's web site, Weber said that revenues decreased $9.6 million, or 3.1%, compared to the same quarter of 2006.

The attached financial sheets showed that the company had a net income of just under $73.5 million, compared with a net loss of just over $8 million the previous year. The company also showed an EBITDA of just under $16 million, which one trader called "much better than expected."

Since the company announced it would file bankruptcy with a pre-packaged reorganization plan last month, the bonds have surged as much as 40 points. Traders believe that a short squeeze prompted most of those gains and see short covering continuing into the future.

"Part of the squeeze has already happened," the first trader said. "I think we will see the bonds move from par to 120 or 130, it is very possible."

"A lot of people thought they were going to zero," he added.

"The short squeeze is not finished," said the second trader. "It has still got a ways to go."

And, he said, if the company continues to post better numbers, that will help push the bonds up, which will in turn hurt the shorts.

In other distressed automotive names, Tower Automotive Inc. downsized its credit facility to $910 million from $935 million and added maintenance covenants to its first- and second-lien term loans, according to a market source.

The downsizing came from a reduction to the synthetic letter-of-credit facility to $60 million from $85 million, the source said.

The covenant added to the deal is a net senior leverage ratio that's 4.25 times through the first lien and 4.75 times through the second lien, the source added.

Tower Automotive's credit facility also includes a $200 million five-year asset-based revolver, a $525 million first-lien term loan and a $125 million second-lien term loan.

The second-lien term loan is talked at Libor plus 625 bps to 650 bps.

JPMorgan and Goldman Sachs are the lead banks on the deal.

Proceeds will be used to help fund the acquisition of Tower by Cerberus Capital Management LP for about $1 billion.

On Wednesday, the U.S. Bankruptcy Court for the Southern District of New York approved the sale of Tower to Cerberus Capital Management, clearing the way for the deal to close by the end of this month.

Tower Automotive is a Novi, Mich.-based auto parts maker.

Housing sector weaker

A housing slump and continued subprime mortgage concerns are beating up the housing industry, trickling down into all aspects of the sector.

For example, Technical Olympic's bonds were seen weaker on the session, following a slip in the previous day's trading as well.

A trader quoted the 10 3/8% subordinated notes due 2012 lower at 71 bid, 71.75 offered, adding that the notes were in the high-70s Monday.

He also saw the 9% senior notes due 2010 at 89 bid, 91 offered, down from 94 bid, 95 offered on Monday.

At another desk, a trader saw Technical Olympic's 10 3/8% notes hit a low of 70.5 during the session, only to close a bit higher at 72. He said the senior notes got as low as 89.5, before coming up a bit to close at 90.5. Still, he called the debt down 3 points on the day.

According to that trader, a bank debt call was held Tuesday, but no one knew what had occurred during the call. He speculated that the call was not about the company specifically but about overall sector concerns.

Elsewhere, a trader saw the Hollywood, Fla.-based homebuilder's 9% notes "down pretty smartly" around 90, while the 10 3/8% notes were also deemed weaker at 72.

WCI's bonds were also softer, the first trader said, placing the 9 1/8% notes due 2012 at 92.25 bid, 94.5 offered. He noted that the issue had traded closer to par a week ago.

Of the other WCI issues, the trader also saw the 7 7/8% notes due 2013 at 89 bid, 91 offered, and the 6 5/8% notes due 2015 at 87 bid, 89 offered.

But homebuilders are not the only ones feeling the burn, he said.

"Anything to do with housing is getting beat up," he said.

That includes companies like Ply-Gem Industries, a window manufacturing company. That company's 9% notes due 2012 were seen at 85.25 bid, 86.25 offered after trading at 91 bid, 92 offered a week ago.

AMH Holdings Inc., a producer of external building products such as vinyl windows and siding, is also seeing its bonds slip, with its 0% notes due 2014 at 69 bid, 70 offered, down from around 75 a week ago.

"The market is getting beat up in general, but housing is really getting slammed," the trader said.

Poor earnings in the sector, as well as a possible downgrade on $12 billion in loans backed by subprime mortgages, have been affecting the industry. On Tuesday, D. R. Horton, the largest U.S. homebuilder, cited poor market conditions as the catalyst for its first quarterly loss since being added to the New York Stock Exchange in 1995.

Fedders slips

As the summer heats up, market players are cooling toward Fedders bonds, as one trader predicts the debt will fall to the 10 to 15 levels.

The trader quoted the 9 7/8% notes due 2014 at 27 bid, 29 offered but said that it was possible for the bonds to slip as low as 10, given the high interest rate on the company's revolving credit facility.

"It will bleed them dry," he said. "Unless they have a quick turnaround, that rate will eventually put them under."

It was previously felt that the bonds could see a 30- to 40-point increase on an asset sale, he continued. But the company announced earlier this year that it had halted the search for a buyer for its indoor air quality business.

A company representative said the asset sale had in fact been put on hold and did not think there were any plans to revisit a sale any time soon. Second-quarter results are expected in early August.

Movie Gallery loans, bonds dip

Movie Gallery Inc.'s first-lien term loan B was lower on Wednesday in very light trading, according to a trader.

The first-lien term loan B ended the day at 89½ bid, 91 offered, down about half a point, the trader said.

Meanwhile, the second-lien term loan went out at 70 bid, 72 offered, unchanged on the day, the trader added.

On the bond side, a trader said that the 11% notes due 2012 were down 2 points on the session in the 22 area. He said there was nothing new to report on the company.

Elsewhere, a trader called the bond unchanged at 22.5 bid, 23.25 offered.

Sara Rosenberg contributed to this article.

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