Homebuilder bonds weaker; Residential Capital active, lower; Fedders notes lose ground

By Stephanie N. Rotondo

Portland, Ore., Nov. 19 - It was another ugly day in the distressed debt neighborhood as the junk sector was once again weaker, prompted in part by a more than 200-point drop in the Dow Jones Industrial Average.

"It's ugly out there," a trader said. "And if you say otherwise, I won't believe you."

"It was a very weak market," another trader said. "Everything is falling." He added that most names were down at least 1 to 2 points.

Homebuilders by and large followed that trend. Technical Olympic USA Inc.'s bonds were down at least 2 points, while WCI Communities Inc.'s debt fell as much as 4 points. Standard Pacific Corp.'s notes were also down about 2 points.

But there was very little news to prompt the moves.

"There is very little news out there," a trader said. "Everything was just weak. [It was] another brutal sell-off."

Meanwhile, Residential Capital LLC continued to see softness in its debt. The bonds have been spiraling downward since last week when reports came out that the company was facing potential bankruptcy if it did not receive a second bailout.

Fedders Corp.'s bonds, which had previously been radio silent, are beginning to see more action. But as the bonds drift lower, the market is speculating on the debt's worth post-bankruptcy.

With the Thanksgiving holiday coming up, market players are preparing for a relatively quiet week.

"It is going to be few and far between," a market source said.

Wednesday and Friday will be an early close for the bond market. The market will be closed Thursday in observance of the holiday.

Homebuilders drift lower

In response to the weaker market, already hard hit homebuilders took another downturn during the first session of the holiday week.

A trader called Technical Olympic's 9% senior notes due 2010 down 2 points at 37 bid, 38 offered. The trader also quoted the 10 3/8% notes due 2012 at 4 bid, 5 offered and the 7½% notes due 2011 and 2015 at 5 bid, 6 offered.

A market source pegged the 9% notes at 37.5 bid, 38.5 offered.

The first trader said the WCI Communities 9 1/8% notes due 2012 has lost 4 points since Friday, closing Monday at 63 bid, 64 offered. Standard & Poor's downgraded the homebuilder to CCC from CCC+, based on continuing concerns related to cancellations and covenant pressure.

Meanwhile, Standard Pacific's bonds continued to feel weaker, the trader said, deeming the 6½% notes due 2008 down 2 points at 86 bid, 88 offered. Another trader called the 7% notes due 2015 unchanged to a half point lower around 64.

The first trader said that there is some expectation that Standard Pacific, based in Irvine, Calif., will be "another Technical Olympic, a bankruptcy candidate."

In its monthly report, the National Association of Home Builders/Wells Fargo builder confidence index held steady at 19 for the second month in a row. That figure is a record low since the index's inception in 1985. Ratings under 50 indicate that most of those surveyed see conditions in the sector as poor.

Anything housing related took a hit in Monday's market, a trader said. He said Realogy Corp.'s 10½% notes fell a couple points to 74 bid, 75 offered, while another trader said MAAX Corp.'s 9¾% notes due 2012 lost 2 points to 29.5 offered. He said it was the first time the manufacturer of bathroom fixtures had fallen into the 20s.

ResCap active, lower

Last week, Residential Capital's bonds took a dive as market players speculated about the future of the struggling mortgage lender. At the beginning of the new week, the bonds did not kick that trend.

A trader said the company's bonds remained active, with the floating-rate notes due 2008 ending the day at 70 bid, 71 offered. He said the longer dated paper closed in the 53 bid, 54 offered range.

Another trader saw ResCap's 6 1/8% notes due 2008 down 3 points at 62 bid, 64 offered, while at another desk, a trader called the junior bonds, such as its 6% notes due 2011, the 6½% notes due 2012, the 6½% notes due 2013 and the 6 7/8% notes due 2015 unchanged at 53 bid, 55 offered.

A trader was unsure whether the GMAC subsidiary would receive another bailout.

"Given the state of the market, I'd say no," he said. "But who knows, maybe."

Still, he wondered who is going to do it?"

"Big banks have their own issues," he said. "Are they really going to give more money to someone with so much subprime exposure?"

In a morning report, Kathleen Shanley, an analyst at Gimme Credit LLC, said that ResCap's exposure to homebuilders could hurt the company. The analyst maintained a sell recommendation on the bonds.

"Despite GMAC's support to date, GM/Cerberus may elect to put ResCap into bankruptcy given its exposure to homebuilders, and recoveries given default may be even lower than implied by current distressed levels," she wrote.

Fedders falls

Fedders' bonds have felt weaker of late, and Monday's trading day was no different.

A trader quoted the 9 7/8% notes due 2014 at 6 bid, 8 offered, while another called the debt down a half point at 6.25.

The first trader said that he heard a rumor that the bonds will be worth zero once the company exits bankruptcy.

He also added that the company has a massive loan with a large coupon.

"It sucks all the value out of it," he said.

Broad market weaker

No news was behind Insight Health Services Corp.'s 5-point drop in its floating-rate notes due 2011. A trader said the bonds traded at 87.5.

"A seller came in and smacked some bids," he said.

Buffets Inc.'s 12½% notes due 2014 also took a 5-point hit, closing at 46 bid, 48 offered.

A trader attributed the recent weakness to the company's high leverage.

"This is trading 40 points over where I want to buy them," he quipped.

Another trader called the bonds down 4 points around 47.

As the market anticipated a new valuation report, Calpine Corp.'s bonds fell a couple points with the 8½% notes due 2011 ending at 103.5 bid, 104 offered.

Retailers as a whole were softer, a trader said. He quoted Bon-Ton Stores Inc.'s 10¼% notes due 2014 down a couple points at 79 and Linens n'Things floating-rate notes weaker with a 56 handle.

Paul Deckelman contributed to this article.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.