Thornburg rise continues on bond deal news, Abitibi surge rolls on; XM, Sirius, keep rising

By Paul Deckelman and Paul A. Harris

New York, March 25 - Thornburg Mortgage Inc.'s bonds continued to climb on Tuesday as the embattled mortgage lender unveiled a new financing effort aimed at superseding last week's plan to raise $1 billion of fresh capital by a looming Thursday deadline or face the possibility of being forced into bankruptcy.

There was further upside in AbitibiBowater Inc.'s short-dated bonds, a day after the Montreal-based forest-products company announced that it had lined up a $350 million investment as part of its overall $1.4 billion refinancing that will allow it to pay those bonds off when they come due in the second quarter.

Price talk meantime emerged on Abitibi's planned $415 million junk bond deal, a key component of that overall financing effort.

And the bonds of XM Satellite Radio Holdings Inc. and prospective acquirer Sirius Satellite Radio Inc. continued to climb, up for a second day in the wake of the Justice Department having removed a huge potential hurdle to the merger deal between the rival satellite radiocasters.

Ford Motor Co.'s bonds, and those of its Ford Motor Credit Co. financing unit, were seen better ahead of an anticipated announcement Wednesday about Ford selling its money-losing Jaguar and Land Rover luxury vehicle lines to up-and-coming Indian automotive powerhouse Tata Motors Ltd.

Market indicators continue to climb

A trader saw the widely-followed CDX index of junk market performance gain 3/8 point on Tuesday to end at 90¼ bid, 90½ offered. Meanwhile, the KDP High Yield Daily Index advanced by 0.28 to finish at 73.39, while its yield tightened by 6 basis points to 9.83%.

In the broader market, advancing issues beat decliners by a better-than-three-to-two margin. Overall activity, reflected in dollar volumes, rose by some 19% from Monday levels.

A high yield syndicate source said that the indexes continued to outperform cash on Tuesday.

"Cash has lagged over the past couple of days," the source remarked.

However, the official noted that equities were mostly flat - "slightly down in the Dow; slightly up on the S&P 500" - even though the Conference Board Consumer Confidence Index was reported Tuesday to have hit a five-year low.

"You saw a little downward blip in the equities, related to that," the official said.

"But for the most part the market shrugged it off.

"Given that the consumer confidence number was that dramatic there was relatively little volatility, except during the immediate aftermath of the report.

"The Dow was either plus or minus 50 all day."

Despite the increased volume levels, several traders said that the overall market - apart from the big names to which news was attached - was relatively quiet, generally speaking, although most issues did seem to have an upside bias.

More gravy for Thornburg

Perhaps no bonds were as explosive in moving upward as Thornburg Mortgage's 8% notes due 2013. Those bonds had jumped about 9 or 10 points on Monday to around the 40 bid level despite the absence of any definitive positive news and despite lingering investor concerns that the Santa Fe, N.M.-based mortgage originator might not make its Thursday deadline for raising new capital - and they were seen up by at least that much, if not more, on Tuesday on the company's announcement of its new financing plans.

Thornburg's bonds, after closing out around the 39-40 area on Monday, opened several points higher Tuesday and then climbed to around 52 bid by mid-morning, in active trading, including a number of large-block trades, according to a market source. As the day wore on, the bonds kept moving up, reaching the 58 bid mark by mid-afternoon, and reaching 60 late in the session. Another market source quoted those bonds at 57 bid - still up 16 points on the session.

A trader said the Thornburg paper was "riding on an elevator going up," ending at 56 bid, 58 offered from prior levels around 40 and well up from 28 bid, 32 offered, "their last [big] low. They've been on quite a roller-coaster."

Another trader saw the bonds at 55 bid, 57 offered, up from 40 bid, 43 offered Monday. At another desk, the bonds were seen at 55 bid, 60 offered, up 15 points, although he noted that "the [$1.35 billion financing] deal hasn't been completed yet."

Thornburg announced early Tuesday that it plans to raise $1.35 billion of new capital via a private placement sale of new seven-year senior subordinated notes initially carrying an astronomical 18% coupon, which could be reduced to 12% somewhere down the line if Thornburg manages to meet certain conditions including tendering for its outstanding preferred stock. It will also offer buyers of the new notes warrants to buy future shares at 1 cent per share. The additional equity is expected to total about 48% of the outstanding float, meaning a massive dilution of the company's existing shares.

Even so, Thornburg's New York Stock Exchange-traded shares jumped 46 cents, or 36.35%, to end at $1.73, investors apparently feeling that as bad as that dilution might be, the plan would allow the company to stave off the necessity of filing for bankruptcy, in which case the shareholders probably would not receive anything. Volume of 52.4 million shares was not quite four times the usual turnover.

Thornburg - which, ironically, never dealt with the kind of risky subprime mortgages that have wreaked such havoc across the capital markets - has been under pressure since last summer, when it experienced difficulty in accessing the capital markets to do the kind of short-term borrowing that mortgage lenders need to do to generate fresh capital so they can keep in order to keep writing new loans. After cratering around the lower 50s at that time, the bonds eventually stabilized and gradually began climbing back upward, pushing into the upper 80s by late February.

But the company revealed on Feb. 28 that it had received some $300 million of margin calls from the counterparties on about $2.9 billion of reverse repurchase agreements - short-term borrowing backed by mortgage securities. They wanted the additional collateral because of the falling value of the alt-A jumbo mortgages backing those securities. While Thornburg was able to meet the initial round of margin calls, it did not have enough capital available to meet subsequent margin calls, leading to several of the lenders issuing notices of default, which triggered cross-defaults on it other borrowings, including secured loans. Bankruptcy rumors swirled around the company and the bonds hit a low point of 28 bid earlier this month, but came off that low and started to head back upward after Thornburg announced last week that it had reached agreement with five large lenders under which they would hold off on pressing their demands for more collateral - if Thornburg could come up with $948 million of additional capital by this Thursday.

A trader, noting the rise in the bonds from their recent lows, even before Tuesday's announcement, opined that "if you do your worst-case scenario evaluation, it's possible that the bonds were worth about 30 without a deal getting done. If that were the case, then I could see the possibility of taking a shot and accumulating some bonds in the mid-to-high 30s [or perhaps even beyond that] with less downside than upside potential."

He saw the bonds hitting a high of 60 Tuesday in odd-lot trading, although the largest round-lot trade was in the 57-58 range - still an apparent expression of investor confidence that the fat coupon Thornburg is initially offering on its new deal will be enticing enough to investors that they will overcome whatever reluctance they may have to get involved with a clearly troubled company in a very troubled industry.

"People get a barometer [reading] from the primary desks how a deal is going," he said, and if they believe the likelihood of getting [the deal] done is accurate, it's worth a flyer to jump into the existing issue."

Thornburg said in a regulatory filing Tuesday that distressed-debt investor MatlinPatterson Global Opportunities Partners III agreed to buy $450 million of the notes. The company's chairman and co-founder, Mark Patterson, was quoted in a media interview as saying that current prices on distressed debt make the present situation "great buying time at low values."

The offer unveiled Tuesday replaces Thornburg's initial funding plan; the company said last week that it would raise the money by a $1 billion sale of convertible debt. But that sale, which originally was expected to take place this past Thursday, and then again, after having been postponed, on Monday, did not take place; convertible market sources saw little interest in that offering. Market participants speculated that one factor may have been that the spectacular fall in the value of Thornburg's equity - it traded at $28 per share a year ago and was still above $10 in late February before the margin-call revelations began, but then plunged as low as 69 cents per share earlier this month before stabilizing, still under $2 - undermined the appeal of securities convertible into that stock.

Other mortgage names better

Thornburg's spectacular rise seemed to carry its sector peers higher as well. Minneapolis-based mortgage originator Residential Capital LLC's 6½% notes due 2013 gained 5 points to 52 bid, 54 offered. Its 8 7/8% notes due 2015 were likewise 5 point gainers at 53 bid.

A trader saw Countrywide Financial Corp.'s 6¼% notes due 2016 at 79 bid, 81 offered , which he said was well up from week-ago levels at 62 bid, 64 offered. The Calabasas, Calif.-based mortgage company's 3¼% notes coming due on May 21 moved up to 98 bid, par offered from 94 bid, 95 offered previously.

Up, up and up for Abitibi

Elsewhere, the likelihood that AbitibiBowater will get its $1.4 billion of financing done and take out some $500 million of bonds maturing this year and next - including $200 million coming due less than a week from now, on April 1 - seems to be growing, with the company having announced a $350 million convertibles sale Monday and with price talk heard circulating around about its $415 million junk bond issue.

That in turn has pushed the two closes maturities up to and in some cases, beyond the par level. A trader saw Abitibi's 6.95% notes coming due on April 1 at 93 bid, 97 offered, up modestly from Monday's 91 bid, 93 offered, although he noted that the bonds "were trading between 104 and 105 for guaranteed delivery, so there's a huge short in them."

He also saw the 5¼% notes coming due on June 20 at 90 bid, 93 offered, up from 88 bid, 90 offered, while the 8.85% bonds due 2030 lost a point to 43 bid, 45 offered.

However, another trader quoted the 6.95s at 102 bid, 104 offered, which he called up 6 points on the day.

A trader saw "real wide markets" in Abitibi, seeing its 8.55% bonds due 2010 having risen to 57 bid, 58 offered while its 8 3/8% notes due 2015 were at 50.5 bid, 54 offered. He saw the day's big gainer, the 6.95% notes, trading at levels between par and 110, which was "something crazy, so ridiculous." He also said its 7 7/8% notes due 2014 were "ridiculously wide" at 80 bid, 90 offered.

A market source pegged the 6.95s up nearly 13 points, at just below the 105 level. Another market source situated the 6.95s at 102 bid, the 51/4s at 103 bid, both up around 13 points, and saw the 8.55s actually down a point at around 57.

Abitibi announced on Monday that Canadian investor Fairfax Financial Holdings Ltd. had agreed to buy $350 million of convertible notes in a private placement, which will give Abitibi enough capital to take out the nearly $200 million of maturing 6.95s and the $150 million of 51/4s.

Satellite names continue to fly

Traders saw continued gains in the bonds of satellite broadcasters XM Satellite Radio and its rival, Sirius Satellite Radio, which is acquiring XM in a $5 billion buyout deal; those bonds shot up by 4 or 5 points Monday on the news that Justice Department anti-trust regulators found no reason to stop the merger, even though the deal has drawn criticism from consumer advocates and some politicians who say that it will lessen radio industry competition and boost subscriber prices. It has also aroused the wrath of conventional, earth-bound broadcasters who fear the combined company would be a too powerful new competitor.

But the DOJ disagreed, and that sent the bonds skyward, and that flight continued Tuesday. A trader saw Sirius' 9 5/8% notes due 2013 up an additional 2 points on top of Monday's gains, at 85 bid, 86 offered, and said that XM's 9¾% notes due 2014 were likewise up a deuce at 96.5 bid, 97.5 offered.

Another trader also pegged the XM issue at 96.5 bid, 97.5 offered and saw the company's floating-rate notes at 96 bid, 97 offered, while quoting Sirius' paper at 85 bid, 87 offered.

Another market source said the XM 93/4s almost reached 98, up more than 2 points on the day.

The Federal Communications Commission will have the final say in whether the merger will be allowed to go through.

Ford to unload Jag, Land Rover

A trader said that Ford's bonds were up about 2 points on the session to around the 69 level, and noted that it looked like the pieces were falling into place for Ford to finally unload its money-losing Jaguar and Land Rover European luxury car nameplates. Perhaps as early as Wednesday, Ford is expected to announce a sale of those operations to India's Tata Motors, which is aggressively looking to expand beyond its South Asian base, while Ford seeks to focus its time, money and effort on reviving its core North American auto operations. Those operations last year suffered the embarrassment of slipping to third place saleswise behind Japan's Toyota - the first time since the 1930s that Ford wasn't the runner-up to perennial industry leader General Motors Corp.

Another market source saw the Ford benchmark bonds up 3 points on the day at that 69 level, and said that its Ford Credit 5.80% notes due 2009 were 2 points better at 96 bid in very active dealings. GM's widely traded 8 3/8% bonds due 2033 were meantime seen up 1½ points at 73 bid, 74 offered, while the latter's 49%-owned GMAC LLC financing operation's 8% paper due 2031 rose 2½ points to 73.5 bid, 74.5 offered.

Primary news trickle

Meanwhile the primary market produced only a trickle of news.

Abitibi-Consolidated Co. of Canada set price talk for its $415 million offering of three-year non-callable senior secured notes (B1) at 13¾% to 14%.

The deal, which the Montreal-based company is bringing in order to address upcoming maturities and liquidity needs, is expected to price on Wednesday.

Goldman Sachs and JP Morgan are the bookrunners.

Also expected to price Wednesday is the FairPoint Communications Inc./Northern New England Spinco, Inc. $540 million offer of 10-year senior unsecured notes (B3/B+)

Last week the deal was talked at the 11½% area.

Banc of America Securities, Lehman Brothers and Morgan Stanley are joint bookrunners for the merger deal.

Thornburg's private placement

Thornburg Mortgage, Inc., a Santa Fe-based company that has come under extreme duress as the result of the subprime mortgage mess, announced the private placement of up to $1.35 billion of 18% seven-year senior secured subordinated notes on Tuesday.

The initial issue size is $1.15 billion. An additional $200 million is contingent upon a tender offer.

The notes come with detachable warrants for 48% of the company's common stock.

The initial 18% interest rate will decease to 12% in the event that the company's shareholders approve amendments to increase the number of authorized shares of common stock no later than June 15 and upon the completion of tenders for the company's outstanding preferred stock.

According to a filing Tuesday with the Securities and Exchange Commission, $450 million of the notes were placed with MatlinPatterson Global Opportunities Partners III LP and MatlinPatterson Global Opportunities Partners (Cayman) III LP.

That placement is subject to placement of at least $700 million, and up to $900 million, of the notes with other investors.

Despite its size and mammoth initial coupon, high yield market watchers did not seem to be paying much attention to the Thornburg private deal, even in the face of Tuesday's dearth of news.

Backlog seen below $200 billion

Sources also mentioned the backlog of hung LBO risk during the Tuesday session.

One high yield syndicate official believes that the backlog, in its totality, is now between $180 billion and $200 billion.

"That's a dramatic reduction," the investment banker asserted, adding that the high yield portion is now in the range of $60 billion to $70 billion, including the deals that were funded and partially distributed. The bank loan portion of the overhang is now in the range of $120 billion to $130 billion.

Meanwhile another official from the high yield syndicate desk of a different institution said that some of the Harrah's Entertainment Inc. bonds reportedly came up for sale, perhaps as recently as Monday.

In late January Harrah's priced $6.335 billion of senior notes (B3/B-) in two tranches.

The sale included approximately $4.9 billion of eight-year senior cash-pay notes which were priced at par to yield 10¾%.

Also included was an approximately $1.4 billion tranche of 10-year PIK toggle notes which were also priced at par to yield 10¾%.

The sell-sider, who was not in the Harrah's deal, spotted the cash pay notes at 86 bid, 87 offered, on Tuesday morning. The toggle notes were 80 bid, 81 offered.

Also with respect to the backlog, the official related that the buzz on the Street is that the mammoth Clear Channel Communications Inc. LBO deal may be near collapse.

The $19.5 billion, $39.20 per share, LBO by Bain Capital and Thomas H. Lee Partners has provisionally cleared its regulatory hurdles, and the company has announced it expects to close by March 31.

However the deal has been snared in court.

Issuers face coupon shock

This official also said that potential high yield issuers might be pardoned for presently shying away from the new issue market.

"Issuers have a little sticker shock, right now," the banker said.

"When you tell a mid-single B issuer that the price is 100 bps wide of current trading levels you don't win friends and influence people."

The banker added that the new issue concession in the high grade triple B market has also spiked up, in part because of rallying Treasuries.

Presently, the source said, the new issue concession for triple Bs is 40 to 50 bps.

To lend some context to that range the banker said that last September that concession was 25 to 30 bps.

A year ago it was 10 to 15 bps.

"The high grade market hasn't made up for the drop in Treasury yields, whereas the high yield market has overshot Treasuries," the source commented.

"However the coupon that high grade borrowers are paying is not looking that bad.

"That's why you're still seeing plenty of issuance in that market."

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