Financial sector mixed; Dollar General paper better on numbers; Idearc bonds lose ground

By Stephanie N. Rotondo

Portland, Ore., March 28 - The financial sector ended Friday's session mixed overall, distressed traders reported, as a lack of activity in the marketplace did little to affect price movements.

Market players learned Friday that Thornburg Mortgage Corp. extended the deadline to sell $1.4 billion in new notes. However, the company's bonds showed little reaction, ending unchanged to just slightly weaker.

Countrywide Financial Corp., however, was continuing to trend upward. That name was also considered one of the more active issues of the day.

After releasing its fourth-quarter and full-year results late Thursday, Dollar General Corp. bonds ended the session firmer. Still, traders said there was not too much trading in that name, or the retail arena at large, as investors took in another decrease in consumer spending and what it means for the sector.

In the previous session, Idearc Inc.'s debt was considered relatively active and closed up on the day. Come the final trading day of the week, the company's bonds gave back some of those gains and were not as active as they had been earlier in the week.

As was the case Thursday, volume in the distressed bond market on Friday slowed to a crawl, and many players took advantage of the lull.

"Nothing went on today," said one trader. "There is not a lot to comment on."

"I can't think of much to say, to be honest," said another source. "Not too much was really going on."

Financial sector mixed

Thornburg Mortgage announced Friday it had one more day to find more buyers for its planned new issue of $1.4 billion in notes.

With the deadline moved from Thursday to Friday, the bonds showed little reaction. One trader said the 8% notes due 2013 were unchanged in the low-60s. Another market source echoed that sentiment, placing the debt around 63.

Another source pegged the Santa Fe, N.M.-based company's bonds down about half a point at 62.5.

Another trader quoted the notes as "just having tightened" to 60 bid, 63 offered from prior levels at 60 bid, 65 offered.

At another desk, a trader saw the bonds at 60 bid, 65 offered and said that he had heard "nothing regarding the margin calls," noting that the company had an extended deadline of 5 p.m. ET Friday to have its required $948 million of new financing done. "There was no news on that."

Another trader, though, said that the bonds were "a little higher" at 62 bid, 62.25 offered, saying "people were thinking maybe the deal got done.

Thornburg has to find buyers for at least $700 million of the notes, according to its agreement with Fairfax Financial Holdings Ltd., which agreed to buy $450 million of debt. The company needs to raise the cash to appease its lenders. Under an agreement with its bankers, if Thornburg can raise $948 million in new capital, at least five of its lenders have agreed to cease their margin calls and other repayment demands until March 2009.

Meanwhile, Countrywide Financial's bonds "continued to creep up," a trader said, who also added "there was definitely some activity" in the name.

The trader quoted the 6¼% notes due 2009 at "94 and change." Another trader, however, called the 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.

The Irvine, Calif.-based company's bonds had run up earlier in the week on speculation that buyer Bank of America would sweeten its bid - just as JPMorgan Chase had done in the Bear Stearns deal.

Among other financial issues, GMAC LLC's 6 7/8% notes due 2013 fell half a point to 77.5. Residential Capital LLC's 6½% notes due 2013 were down a point at 49 bid, 51 offered.

Dollar General up on numbers

A trader said Dollar General's 10 5/8% notes due 2015 edged up after the company reported its quarterly and full-year results, pegging the debt at 97.5 bid, 98 offered.

Another source deemed the bonds just over a point better at 98.25.

For the full year of fiscal 2007, Dollar General posted net sales of $9.5 billion, a 3½% increase year over year. The company showed a net loss of $12.8 million, compared to a net income of $137.9 million the previous year.

For the quarter ended Feb. 1, sales increased to $2.56 billion from $2.55 billion during the same period of 2006. Net income was also better at $55.4 million versus $50.1 million in the comparable timeframe.

The company, like others in the sector facing a downturn in consumer spending, laid out its operating priorities for the upcoming year, which included increasing gross margins and increasing sales growth.

"As we enter fiscal 2008, we are cautiously optimistic about the prospects for Dollar General," said Rick Dreiling, the company's recently appointed chief executive officer, in a press release. "We recognize that this is a challenging time for retailers and we are also aware that as we roll out our operating plan we may uncover other business challenges that need to be addressed."

Retailers have faced some turbulence in the wake of the subprime mortgage crisis and ensuing credit crunch. Consumers, worried about the threat of a recession, have tightened their belts, and consumer spending, as a result, has decreased. In a Commerce Department report published Friday, consumer spending was seen gaining only 0.1% in February, the weakest showing since September 2006.

Still, with the equity markets showing a relatively positive month in March, some are hoping the bottom is near, which could bring a turnaround for retailers across the board.

Dollar General is a Goodlettsville, Tenn.-based discount retailer.

Elsewhere in the retail arena, Linens n'Things Inc. floating-rate notes due 2014 were called "quiet but a little higher" at around 33, while Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2014 closed the day with a 77 handle.

Idearc loses ground

Idearc's debt gave back some of the gains it posted over the week, as company management told the audience at a Credit Suisse conference that it expected a decline in revenue through 2008.

A trader quoted the 8% notes due 2016 at 65.5 bid, 66 offered, noting that the bonds were active and much better the day before. Another source saw the bonds falling half a point to 66.5.

Yet another trader saw the bonds give back about half of Thursday's solid 1.5-to-2 point gain, closing at 66 bid.

Samuel Jones, Idearc's chief financial officer, said it was expected that multi-product amortized revenue would take a mid-single-digit percentage point hit throughout the year. As such, the company is electing to cease its dividend payments, a move aimed at improving its risk profile.

Idearc followed in R.H. Donnelley Corp.'s footsteps by choosing not to pay dividends. Its competitor said in late February that it would not make those payments, after lowering its fiscal 2008 outlook.

With Idearc predicting a decline in revenues, Standard & Poor's placed the company on CreditWatch negative.

Idearc is a Dallas-based publisher of telephone directories.

Broad market tidbits

Spectrum Brands Inc.'s 7 3/8% notes due 2015 were seen up nearly a point at 66, while Harrahs Operating's 5¾% notes due 2017 lost half a point and languished around 56 bid.

Neff Corp.'s 10% notes due 2015 gained 3 points to 48 bid, 50 offered.

Aventine Renewable Energy Holdings' 10% notes due 2012 were up almost 2 points on the day to the 66 level.

Realogy Corp.'s 12 3/8% notes due 2015 were seen down a point at 46 bid.

In the automotive realm, Visteon Corp.'s 7% notes due 2014 lost more than a point to end at 63 bid.

A trader saw "nothing" changed in AbitibiBowater Inc.'s bonds. But another saw its 8 3/8% notes due 2015 down 1.5 points to 51.

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.