Thornburg steady ahead of extended deadline; Delta dives on otherwise featureless Friday

By Paul Deckelman and Paul A. Harris

New York, March 28 - Thornburg Mortgage Inc.'s bonds were seen pretty much holding steady or maybe up slightly on Friday as investors waited to hear whether the Santa Fe, N.M.-based mortgage lender had met the financing conditions of its margin-call moratorium agreement with its lenders by the extended Friday afternoon deadline.

Traders otherwise saw little going on in the junk market. Abitibi-Consolidated Co. of Canada's new three-year bonds continued to come down from the highs they had hit in initial aftermarket activity following the issue's pricing on Wednesday, while parent AbitibiBowater Inc.'s existing bonds - which had run up strongly earlier in the week - were seen little traded.

There was likewise not much going on in the bonds of Clear Channel Communications Inc. as investors tried to make sense of the latest developments in the corporate soap opera surrounding the San Antonio, Tex.-based media company's planned leveraged buyout by several big private-equity firms - including its warning Friday that the deal might not close if banks supposed to be providing the funding for the deal are allowed to walk away.

A market source saw a late tailspin by a Delta Air Lines Inc. issue, although there seemed to be no concrete news or other developments that might explain the plunge in the Atlanta-based air carrier's paper.

The primary market meanwhile fell silent after its busiest week in a number of months - one which saw three new deals price over a two-day span, for Abitibi-Consolidated, Steel Dynamics Inc. and FairPoint Communications Inc., plus a fourth deal re-pricing part of a tranche of Harrah's Entertainment Inc. bonds originally sold back in January.

Market indicators seen mixed

A market source saw the widely-followed CDX index of junk market performance about ½ point easier around the 89 1/8 bid level. Meanwhile, the KDP High Yield Daily Index lost 0.07 to end at 73.41, while its yield widened by 2basis points to 9.82%.

In the broader market, advancing issues shaded decliners by a narrow margin. Overall activity, reflected in dollar volumes, plummeted by 36% from Thursday's levels.

"It was a very quiet day," a trader said. "I think it was a combination of being spring break week," with the public schools in many parts of the country on their traditional spring hiatus and many market participants scheduling their own vacations for this week to get in a little bit of family time, "and the Credit Suisse High Yield and Leveraged Finance Conference in Scottsdale," Ariz., monopolizing the attentions of a number of portfolio managers and other junk market decision makers.

"Plus it was just a matter of the market being exhausted from the turmoil it's been through, although it does seem to have settled down a bit."

He said the day was characterized by "very selective trading, sort of by appointment only. It was very difficult to get something done, even if you had a great order, just because accounts are on the sidelines, if they are [even] in. It's Friday, there's the spring break and the conference.

"So there were too many excuses to do no business."

Another trader agreed that "just not much was going on." He said that "this whole week has just been a limp into the quarter's end. The market kind of closed down on Wednesday afternoon; Thursday was terrible and today was worse. We got a few things done this [Friday] morning but generally speaking, the market has been at a standstill."

He noted that net flows for weekly-reporting high yield mutual funds were negative $78 million in the week ended Wednesday, "almost nothing" in the grand scheme of things.

He said that "we've seen customers over the last several weeks sort of trying to put money to work here and there - not broadly, but a certain few significant high yield players putting money to work."

Hedge funds, he pointed out, "have been on the sidelines as far as we can tell, pretty quiet. People are hearing, or thinking, that this could be the worst quarter ever in hedge fund history, but we'll see how that shakes out over the next couple of weeks as earnings are reported."

He added that "there was also a big scare out there, a lot of nervousness regarding the financial stocks," particularly after Oppenheimer & Co. analyst Meredith Whitney warned in a research note that earnings will not support current dividend payouts this year at Citigroup, Wachovia Corp and other U.S. banks, "which could be down 50% from current levels by midyear. That kind of stuff creates a lot of uncertainty and nervousness. You have two schools right how - people who've put money to work and are just kind of waiting and seeing, while a lot of [other] people are just afraid and are not doing anything at all."

On the whole, though, he said that "it was encouraging to see a couple of new deals price and it feels that things are starting to loosen up at least a little bit."

Thornburg remains an enigma

But many eyes in the market remained focused on Thornburg, which announced around mid-afternoon that it had come to an agreement with its lenders extending the 5 p.m. ET Thursday deadline for coming up with at least $948 million of new financing to 5 p.m. Friday - but made no further mention of what would happen after that.

The end of the session came and went with no word from either the company or the lenders whether it had met the extended deadline, had failed to meet it or whether the deadline would be extended again. As of press time on Friday night, there still had been no official word from either quarter as to what was happening.

The required funds would be used to meet certain existing margin calls on its short-term mortgage-backed borrowings from those banks, and would give Thornburg a reprieve from having to meet others. Thornburg reached that agreement a week earlier with five parties providing it with some $5.8 billion in financing.

In the absence Friday afternoon of any further official word - or even any unofficial word - a trader quoted Thornburg's 8% notes due 2013 as "just having tightened" to 60 bid, 63 offered from prior levels at 60 bid, 65 offered.

Another trader saw the bonds at 60 bid, 65 offered and said that he had heard "nothing regarding the margin calls," noting the extended Friday deadline. "There was no news on that."

Another trader, though, said that the bonds seemed to him to be "a little higher" at 62 bid, 62.25 offered, opining that "people were thinking maybe the deal got done." Yet another trader also pegged the bonds around that same 62 bid, 62.25 offered level, presuming they had been pushed up by the late-day news that the deadline had been extended at least through the close of business Friday.

Elsewhere in the mortgage sector Friday, Residential Capital LLC's 6½% notes due 2013 were down a point at 49 bid, 51 offered.

A trader saw Countrywide Financial Corp.'s bonds unchanged, with the 3¼% notes coming due in May at 98 bid, par offered, while its 6¼% notes due 2016 were at 79 bid, 81 offered.

Clear Channel remains in limbo

Another uncertain name Friday was Clear Channel Communications, whose bonds had firmed smartly on Wednesday when it looked like the giant radio and billboard company's planned leveraged buyout by a private-equity syndicate led by Thomas H. Lee Partners LP and Bain Capital Partners LLC would fail because the banks supposed to provide the more than $20 billion of funding for the deal were reportedly getting cold feet, fearful that recent credit market problems would turn the deal into a big loser for them. That shocked the stocks but buoyed the bonds, since it would mean no huge new leverage for the company.

On Thursday, Clear Channel trumpeted a ruling by a Texas state judge who issued a temporary court order directing the banks to do nothing to undermine the planned transaction by withdrawing or changing the terms of the funding, at least until the matter could be sorted out in his courtroom, but there really was little impact on the bonds, although the shares went up on the news. The banks meantime moved to have the case taken out of Texas, Clear Channel's home base, and potentially moved to a friendlier environment.

On Friday, Clear Channel warned in a Securities and Exchange Commission filing that without the promised financial support of the big banks, it "cautions the markets that a closing may not occur," and admits that it is unable to estimate a target closing date at this time.

Clear Channel said that the lenders didn't show up to a meeting with the company and buyers - this even after Texas judge John D. Gabriel had issued an order the previous day barring the banks from doing anything to undermine the deal.

Against such a backdrop, a trader said, Clear Channel "is just on again, off again, on again, off again." He said that "the paper's been pretty much locked up, I think."

There are, another trader said, "a lot of different twists and angles, and no one is 100% certain how to play it," with the battle raging back and forth between the courts in Texas and New York, where Thomas H. Lee and Bain also filed suit against the banks - Citigroup Inc., Morgan Stanley, Credit Suisse Group, The Royal Bank of Scotland, Deutsche Bank AG and Wachovia Corp. "Everyone at this point is hesitant" to do anything.

He saw the company's 6 7/8% notes due 2018 - which had zoomed about 4 or 5 points in heavy trading on Wednesday to the 88 level, "doing nothing."

He also saw some activity in Clear Channel's 5¾% notes due 2013, which seemed fairly actively traded by Friday's extremely dull standards, with over $2 million of bonds moved. He said the bonds had eased to 78.75 bid from levels around 79.5 to which they had moved when Clear Channel's paper rallied at mid-week.

Tenet 'marginally' better on analyst's boost

Elsewhere, a trader said that Tenet Heathcare Corp.'s bonds were perhaps "marginally more positive" Friday, its 9 7/8% notes due 2014 at 96.5 bid, 97.5 offered, as the companies shares rose 4% - the most of any company in the Standard & Poor's 500 index - after Deutsche Bank Securities analyst said that the Dallas-based hospital operator might beat average analysts' earnings forecasts this quarter. Analyst Darren Lehrich attributed the anticipated better performance to "solid pricing, seasonably strong volume growth and good cost control."

But back in junk bond land, the trader was not so sure. Tenet, he said, "has been kind of languishing. They may be up with the market a little bit, but I think most people [here] are taking a wait-and-see approach. They've over-promised and under-delivered for so many quarters now, and at some point in the future, they will run into liquidity issues. It's a turnaround story that's never turned around and they've never really been able to turn the corner - so to say that they've seen positive signs, who knows?"

Delta issue seen diving

A market source indicated that Delta Air Lines' normally lightly traded 10½% notes due 2016 had plunged a breathtaking 21 points on the session to 49, from prior levels around 70 the last time the bonds had traded, some weeks ago. The drop was on the strength of several large-block trades at that lower level reported late in the day to the Trace bond tracking system.

There was no fresh negative news out about the Atlanta-based air carrier, which has been in talks with Eagan, Minn.-based rival Northwest Airlines Corp. on a possible merger. Talks have stalled on efforts to mesh the seniority of the two airlines' pilot staffs. Northwest on Friday unveiled a new proposal that would pay the pilots less generously, in view of the impact that soaring fuel prices have recently had on the airlines' bottom lines. Both carriers went bankrupt in 2005 before emerging from Chapter 11 last year.

Nothing new with Abitibi

A trader saw "nothing" changed in AbitibiBowater's bonds. Its shortest-dated issues, including its 6.95% notes coming due April 1, continue to hover around the anticipated par takeout point, now that the Montreal-based forest products company has successfully done a bond deal aimed at generating funds to retire the two issues of bonds coming due this year.

But another saw its 8 3/8% notes due 2015 down 1½ points to 51.

Abitibi's new 13¾% notes due 2011, meantime, were seen trading around 101 bid, 102 offered, down from levels near 102 seen on Thursday and near 103 seen on Tuesday, when the bonds priced at par earlier in the session.

Among other new deals, a trader saw the new FairPoint Communications 13 1/8% notes due 2018 at 98, "actively trading just above issue." Those bonds priced just below 98 on Wednesday.

Steel Dynamics' new 7¾% notes due 2016, which priced Thursday at par, were being quoted at 100.25 bid, 100.5 offered.

Primary shows signs of life

The high-yield primary market came to life during the final full week of March, the first full week of spring.

Three issuers, each pricing a single tranche of notes, raised $1.328 billion of proceeds.

Factoring out the backlog of LBO deals - there was activity on that front as well - the week to Friday is the biggest week thus far in 2008.

The second biggest week thus far in 2008, again factoring out the LBO overhang, was the first business week of the year - the week beginning Jan. 6 - which saw $500 million in a single tranche.

The week beginning Jan. 28 actually saw the biggest amount of issuance, but most of it, $6.335 billion, came in two tranches from Harrah's Entertainment Inc., which was related to the overhang.

Long money

Sources told Prospect News that although the week to Friday saw some novel issuance it also saw deals which market insiders tend to refer to as "down the middle of the fairway" trades.

These, the sources added, played to strong order books from buy-and-hold accounts.

Steel Dynamics, Inc. priced an upsized $375 million issue of eight-year senior notes (Ba2/BB+) in an a.m. to p.m. Thursday drive-by transaction.

The Butler, Ind., rolled steel manufacturer was in the market to refinance bank debt.

It was the first all-high yield drive-by deal to clear the market since Constellation Brands, Inc. priced $500 million of 8 3/8% seven-year senior notes (Ba3/BB-) and Alliance Imaging, Inc. priced a $150 million add-on to its 7¼% senior subordinated notes due Dec. 15, 2012 (B3/B-), both on Nov. 28, 2007, nearly four months ago.

The new par-pricing Steel Dynamics issue, upsized from $300 million, came with a yield of 7¾%, at the wide end of the 7 5/8% to 7¾% price talk.

The order book was two-times oversubscribed.

Banc of America Securities, Morgan Stanley and Goldman Sachs & Co. were joint bookrunners.

Also FairPoint Communications Inc. and Northern New England Spinco, Inc. priced a $551 million issue of 13 1/8% 10-year senior unsecured notes (B3/B+) at 97.873 to yield 13½% on Wednesday.

The yield came wide of the 11½% area price talk.

Banc of America Securities, LLC, Lehman Brothers and Morgan Stanley are joint bookrunners for the merger deal, which also was reported to have played to a strong, buy-and-hold type of book.

If there was "fast money," i.e. hedge funds, at play, sources seem to agree that it happened in Wednesday's other transaction, Abitibi-Consolidated Co. of Canada's $413 million issue of three-year senior secured notes (B1/B+) which priced at par to yield 13¾%, on the tight end of the 13¾% to 14% price talk.

Goldman Sachs & Co. and JP Morgan were the bookrunners for debt restructuring deal.

Caution ahead

All in all it was a good week, a senior high yield syndicate official told Prospect News just as the Friday session was coming to a close.

It was a good sign that the buy-and-hold accounts got involved in the primary market.

Nevertheless, this official was loathe to say that the burst of late March activity represented a possible regeneration of the primary market.

Throughout the latter part of the week Prospect News quizzed sources on the buy-side and the sell-side as to the probability that a scenario put forth in recent days by sidelined bulls: that the meltdown at Bear Stearns represents the bottom of the current market.

The most enthusiasm that this suggestion kindled, however, was a couple of polite "maybes," and a few more "probably nots."

No calendar

As if to underscore the ongoing turbulence in the high yield and throughout the credit markets, the senior high yield official pointed to the fact that the final full week of March came to an end with no junk deals being marketed.

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