Spectrum dips on sale delay; Bon-Ton slips; Thornburg, Fremont mixed on poor numbers

By Stephanie N. Rotondo

Portland, Ore., Oct. 17 - In a day that was categorized as "ugly and bloody" by at least one trader, Wednesday's distressed market was softer all around as a glut of bad news flooded the marketplace.

"The market was decimated this morning," a trader said. "It really felt like the end of the world."

Still, most names attempted to rebound from their lows of the day.

Spectrum Brands Inc.'s bonds "got killed," a trader said, after the company announced that it would postpone an asset sale.

Trading in the name was reportedly active as the bonds fell as much as 7 points during the session. However, the bonds managed to come up from their lows to closed about 3 points lower on the day.

Retailers - specifically Bon-Ton Department Stores Inc. - retreated as Bon-Ton announced it would not meet is yearly guidance for fiscal 2007 and a central bank report showed that consumer spending was weaker.

The mortgage sector got the old one-two as Thornburg Mortgage Corp. and Fremont General Corp. both released financials - and neither report was good.

But traders said investors were more interested in Thornburg's debt than in Fremont, which was deemed quiet on the day. Both managed to hold their ground by the end of the day - a feat that surprised some.

Spectrum bonds down on sale delay

A trader said Spectrum Brands' bonds "got killed out of the box" on the news that the company was delaying an asset sale.

The trader said the bonds fell as much has 6 to 7 points during the session but managed to come up from their lows to close just 3 to 3.5 points lower. He quoted the 7 3/8% notes due 2015 at 73 bid, 73.5 offered, down from the previous closing level of 74.5 bid, 75.5 offered.

Another trader said the bonds "seemed to be lower" at 73, while another source pegged the bonds 3 to 4 points down at 73 bid, 74 offered. He also saw the 11¼% notes due 2013 down at 85.5 bid, 86 offered.

"The whole story was the asset sale," the trader said of the company. "The underlying fundamentals in their industry have been weak."

Another trader called the news the "disaster du jour."

"[The bonds] are horrible," he said. "They are going lower."

"Everybody expected that sale," said another source.

Elsewhere, a trader said the bonds opened down 4 points at 86.5, pushed as high as 88, fell as low as 82, and finally ended at 85.5, down 4.5 points.

Its 7 3/8% notes due 2015 opened 2 points lower at 73, gyrated around at between 70 and 78, but ended at that same 73.

Trading in both issues was very active.

Another trader saw the 11¼% notes ending at 87 bid after getting as low as 85.

He saw the 7 3/8% notes start the day around 73.75 bid, 74.75 offered, get down to 72, and then come back to 73 bid, 74 offered.

He said the bonds "bounced at the end of the day - but they're definitely softer."

The manufacturer of Rayovac batteries had previously said it would sell some of its non-core assets to help reduce outstanding debt.

However, the company said it would delay the sale process due to the current troubles facing the credit market.

Earlier this month, Spectrum received a $225 asset-based revolving credit facility, which the company said should provide enough liquidity to maintain operations.

Bon-Ton notes slip

Bon-Ton Stores' debt fell "significantly," a trader said, as investors took in the news that the company would fall short of its full-year guidance.

However, the trader said the 10¼% notes due 2014 rallied by the end of the day, though still closed lower. He said the bonds hit a low of 89.75, closing up slightly from that at 90.5 bid, 91.5 offered.

Another trader saw the bonds at 91, with a low of 90.

"It felt like there was some short covering at the end of the day," he said, noting that it was the same in other retail names.

A source said the notes opened around 92.5, about the same level at which they had closed on Tuesday. The bonds swung between highs around 93.5 and lows just under 90, before closing just under 92.

A trader saw the whole retail sector "getting beat up," with Bon-Ton's bonds down as much as 4 points before getting a "bounce at the end of the day" to finish down 3 points at 91 bid, 92 offered.

After the market closed Tuesday, Bon-Ton issued a press release, which said that, based on its third-quarter results, it would not meet its fiscal 2007 guidance. Updated guidance will be given at its third-quarter conference call at 10 a.m. ET on Nov. 29.

Bon-Ton's news, as well as a new consumer spending report, hurt other distressed retailers as well.

A trader deemed Linens n'Things floating-rate notes down 3 to 4 points at 66, while another source quoted the notes at 65.

"The retail sector is under pressure," the source said. "A lot of numbers are coming out not so good and consumer spending concerns are going to push all those guys down."

At another desk, a trader saw Linens' bonds closing at 65, while Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2014 dipped to 91.5 bid, 92 offered.

Another trader saw Burlington's bonds trading at 97 "a couple of days ago," falling to a low of 91 Wednesday and bouncing off the lows to finish at 92.25 bid, 93.25 offered.

At another desk, the Burlington bonds were seen having fallen to around 90 from opening levels at 93, before bouncing back up to end at that same 93 level, still down one half point from Tuesday.

In its regional business survey, also known as the Beige Book, the Federal Reserve said consumer spending was weak, suggesting that economic growth in September and early October was slower than it had been in August. The report also stated that there was a "high level of uncertainty" regarding the outlook for retail sales.

Thornburg, Fremont bonds mixed

The mortgage sector was hit with a double-whammy, as both Thornburg Mortgage and Fremont General issued bad news Wednesday.

Thornburg posted a larger-than-expected loss for the third quarter, while Fremont reported its delayed 2006 and 2007 earnings - and market players continued to wonder if an investment deal with Gerald J. Ford would come to fruition.

"Fremont announced their past financials," a trader said. "Kaboom."

But while one trader called Fremont's news a "non-event," investors were not as quick to dismiss the word from Thornburg's camp.

One trader said Thornburg's 8% notes due 2013 were up slightly at 87.5 bid, 88.5 offered, which he said "makes no sense to me." Still, he noted that there were "real buyers" but "sellers were just stubborn."

Another trader said the notes came up from the day's lows to close at 87 bid, 88 offered.

"I'm fascinated that it holds that level," he said. "It should be lower."

However, another trader called the debt "not much changed" at 87.5 bid, 88 offered.

Over in Fremont's bonds, a trader said the 7 7/8% notes due 2009 were "not very active," placing the bonds at 94 bid, 96 offered.

One market source said the Fremont bonds moved lower for most of the day, falling to under 90 from previous levels around 93.5. Dealings were very light, however, and the bonds pushed back up to 95 on a smallish trade late in the session.

Another trader, however, said the Fremont bonds "traded back down to 90."

"I think they are headed lower unless those looking to buy out the company actually fund soon and just ignore the additional losses coming."

Still, according to one trader, the preferred issues were "active and higher."

"Not all is awry in Fremont-land," he said.

Thornburg posted a $1.09 billion loss for the third quarter of 2007, compared to a $72.9 million profit for the same quarter the previous year. The company also said that, in an effort to conserve cash, it would suspend its dividend payment.

Meanwhile, Fremont reported a $1.06 billion loss for the 18 months ending June 30.

"It is an interesting story," a trader said of Fremont's predicament. "It will be interesting to see what happens with the deal."

Earlier this year, the mortgage lender entered into a tentative agreement for an investor group led by Ford to inject $80 million into the struggling company. But in late September, Ford said he was thinking of backing out of the deal.

Standard Pacific dips

Homebuilders continued to feel weak as new housing data showed that new construction had slowed considerably.

But Standard Pacific's bonds seemed to be hurt the worst.

"There was activity there, all on the downside," a trader said. He quoted the 6½% notes due 2008 at 84, with a 26% yield.

"Gives you an idea of what people think of that credit," he quipped.

Another trader pegged the 2008 paper at 83 bid, 84 offered and the 7% notes due 2015 at 67 bid, 69 offered, which he called "slightly lower."

"There is pressure on homebuilders, the whole sector," he said. "They certainly were taking it on the chin today."

Elsewhere, a trader said the 7¾% notes due 2013 were a point lower at 73.5.

A Commerce Department report showed new construction of homes falling 10.2% last month, the fourth consecutive monthly decline - and the lowest level since March 1993.

Movie Gallery loan lower

Movie Gallery Inc.'s first-lien term loan was lower on rumors about accounting issues, a trader said.

The first-lien term loan ended the day at 89 bid, 90 offered, down from 90 bid, 91 offered on Tuesday, the trader said.

"There was a headline that warned of a potential accounting issue and people are a little taken aback by that in the public side for sure, "the trader remarked.

"Also, people are trying to figure out what allocations will be like on the DIP loan," the trader added.

Movie Gallery's $150 million debtor-in-possession financing facility is expected to allocate later this week.

The DIP facility, which is oversubscribed by existing first-lien lenders, consists of a $100 million term loan and a $50 million revolver, with both tranches priced at Libor plus 350 bps and both offered to investors with a 150 bps upfront fee.

Goldman Sachs is the lead bank on the deal.

Proceeds from the DIP facility will be used to refinance the company's existing revolver at a lower interest rate and provide additional working capital.

Movie Gallery is a Dothan, Ala.-based video rental company.

Tousa loan rebounds

Technical Olympic USA Inc.'s first-lien bank debt was stronger on Wednesday as investors seem willing to take a chance on recoveries should a bankruptcy scenario pop up, according to a trader.

The Hollywood, Fla.-based homebuilder's first-lien term loan was quoted at 96.25 bid, 96.75 offered, up from 95.75 bid, 96.25 offered on Tuesday, the trader said.

And, the revolver was quoted at 96.5 bid, 97 offered, up from 96 bid, 96.5 offered, the trader continued.

Technical Olympic's second-lien term loan, however, was unchanged at 90.25 bid, 91.25 offered, the trader added.

"People are thinking they're going to file. They're looking at recoveries. They're willing to take a stab at the first-liens in bankruptcy. More downside risk in the seconds so people are less willing to take a stab there," the trader explained.

Sara Rosenberg and Paul Deckelman contributed to this article.

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