Thornburg gyrations continue; USA Interactive up on court ruling; Hawaiian Telcom slides on numbers

By Paul Deckelman and Paul A. Harris

New York, March 31 - The Thornburg Mortgage Inc. saga continued to drag on throughout Monday's session, as the Santa Fe, N.M.-based mortgage provider's bonds bounced around at mostly lower prices amid continued investor uncertainty about whether the company would meet its previously stated financing goals.

Interactive media giant IAC/InterActive Corp.'s USA Interactive's bonds were seen several points better, as investors digested a Friday court ruling essentially giving the New York-based company's chief executive officer, media mogul Barry Diller, a free hand to revamp IAC's structure by spinning off several valuable properties, over the objections of shareholders that include Liberty Media, headed by fellow media tycoon and one-time Diller friend John Malone.

There was considerable activity in the bonds of such companies as Pinnacle Foods Finance and AES Red Oak LLC, although no definitive news was seen out on either company.

From deep in distressed-debt territory came word that Hawaiian Telcom Communications Inc.'s bonds slid badly after the company posted disappointing quarterly earnings numbers.

The first quarter of 2008, which generated just shy of $10 billion of issuance, drew to a close with a whimper in the primary market.

The Monday session generated no news.

No high yield bond deals are presently on the road, sources say.

Market indicators tend to the downside

A market source saw the widely-followed CDX index of junk market performance about unchanged from the levels to which the market barometer had eased on Friday, around 89 1/8 bid, 89 5/8 offered. Meanwhile, the KDP High Yield Daily Index lost 0.11 to end at 73.30, while its yield widened by 3 basis points to 9.85%.

In the broader market, advancing issues trailed decliners by a narrow margin. Overall activity, reflected in dollar volumes, jumped nearly 65% from Friday's levels.

While last week's Credit Suisse High Yield and Leveraged Finance Conference in Arizona was over and would no longer be a distracting factor - but a trader said that "unfortunately, it looks like another big spring break week," with some of the people who took off last week for a little family time with the kids out of school still not back yet. That, he said, would serve to depress trading activity, although it would be better than Friday's sleepy session.

"It was the same old stuff," another trader said, "with not much movement."

Yet another trader described the day's activity level as "pretty dead."

A syndicate official who spoke after Monday's close said that trading in cash bonds continued to be very light.

Thornburg keeps 'em guessing

As has been the case over the past several sessions, there was a lot of talk among market players about Thornburg Mortgage - but that was pretty much what it was, talk, with only relatively light trading in the name actually going on. Thornburg gyrated around between the mid-60s and the upper 50s, but there were only a relative handful of trades and just a couple of those were large enough to be considered truly indicative of anything.

The bonds bounced around at mostly lower levels in the absence of definitive word on whether the company had met its financing goal, the deadline of which had been extended to Monday.

A trader called the bonds down a point at the end of the day at 60 bid 62 offered, but another trader saw a round-lot trade at 57 bid late in the day, well down from prior levels in the lower 60s, and said the bonds were trading flat. He suggested that "either people are betting that they did not get their financing in a timely manner, or the news is already there and we haven't seen it yet." He said there had been no definitive news on the financing, "only speculation".

In the current market, "if people see no news, they automatically suspect the worst."

A market source actually pegged the bonds as having gone home Friday as high as 67 on some late odd-lot trading, although the final round-lot trade of that session had been at 62. The bonds fell as low as 55 in early trading Monday, then edged back up into the 60s, before being driven back down late in the day.

Thornburg in mid-March announced that it had reached an agreement with five major lenders to freeze any further margin calls - demands for more collateral to back the mortgage securities securing its short-term borrowing. As part of that agreement, Thornburg was to raise at least $948 million of fresh capital by last Thursday - a deadline which was extended first to 5 p.m. Friday and then, over the weekend, extended to the close of business Monday.

As the deadline came and went there was no official comment from either the company or the lenders whether its financing goal had been met within the new extended timeframe, whether the effort had ended in failure, or whether there would be another extension - but then late in the session, Thornburg announced the transaction had been successfully completed.

Thornburg has proposed selling $1.35 billion 10-year bonds carrying an attractive 18% initial coupon - but is still apparently having trouble getting a deal done due to market angst about the continuing problems of lenders - even lenders like Thornburg that were not dealing in the risky subprime mortgages that have brought a number of financial companies down. Thornburg found an investor to commit to buying $450 million of the privately placed bonds - but that purchase was contingent upon it lining up purchasers for the remaining $900 million of new debt.

Holders of Thornburg's New York Stock Exchange-traded shares were especially distressed Monday by the lack of progress, or even definitive news that there had been no progress - something, anything concrete. They took the shares down 44 cents, or 26.67%, to $1.21. Volume of 25.4 million shares was nearly double the norm.

Elsewhere in the mortgage sector, Residential Capital LLC's 6½% notes due 2013 were unchanged at 49 bid, 51 offered, but its 8 7/8% notes due 2015 lost a point to 49.

A trader saw "nothing" going on in Countrywide Financial Corp., with its 3 ¼% notes coming due on May 21 at 98 bid, par offered, while its 6¼% notes due 2016 were at 79 bid, 81 offered.

IAC bonds up on a thriller from Diller

Elsewhere, a trader saw IAC's USA Interactive 7% notes due 2013 up several points from Friday's levels, helped by the news that a Delaware court on Friday gave company CEO Barry Diller the green light to proceed with his plan to spin off several well-known IAC properties - Ticketmaster, HSN Home Shopping Network, Lending Tree, and its time share business, leaving IAC to hang onto its nearly 60 internet-based properties, such as Ask.com.

The trader saw the notes trading at 106 bid, 108 offered, well up from 104.5 before Friday's news. He said that there were "a lot of bonds traded," with some large-block trades at levels as high as 108.

A market source saw the bonds - issued in 2003 by what was then known as USA Interactive, now called IAC - at around the 107 level, a point off its day's high but up 2½ points from late Friday. Activity in the credit was described as busy.

Diller's plan to essentially split IAC into five parts by spinning off the four units drew the ire of John Malone, whose Liberty Media owns about a third of IAC's stock but 60% voting control. Unfortunately for Malone, that voting control rests with Diller, to whom Malone gave an irrevocable proxy to vote that stock, back when the two powerful media titans were still pals - a friendship that pretty much ended when Malone demanded the ouster of Diller and his wife, socialite and fashion designer Diane Von Furstenberg, from IAC's board of directors. Diller's plan would lessen Liberty's influence over the company, causing Malone to object and turn to the courts - but the judge ruled Friday that "Liberty does not have a right to contest to the proposed spin-off."

Busy trading on no news

Several other names seen moving around on Monday included Pinnacle Foods Finance, whose 10 5/8% notes due 2017 were up more than 4 points at 86, although there was no fresh major news out on the company, which produces such well-known brands as Mrs. Paul's frozen fish, Aunt Jemima pancakes and syrup, Vlasic pickles and Swanson TV dinners.

There likewise was no news out on AES Red Oak, a subsidiary of the Arlington, Va.-based power producer AES Corp. - but that didn't stop the company's bonds from falling 7 points to around the par level, a market source said.

And a trader said fairly active dealings in supermarket operator Delhaize America Inc.'s 9% notes due 2031; those bonds ended around 120 bid, up a point on the day.

Hawaiian Telcom gets totaled

The trader also saw Hawaiian Telcom's floating-rate notes due 2013 open at 64 bid and then cascade down to 49, their closing level, well below the 70 bid level they'd held last week.

"I'd consider that a considerable move," he observed, adding that "they got hammered" as the market reacted badly to the latest financial results.

In a press release, the Honolulu-based telephone service provider's chief executive officer acknowledged that 2007 was "challenging." He also said that the company is "currently evaluating options that will sharpen our operational focus."

For the fourth quarter, Hawaiian Telcom reported revenues of $116.4 million, down $4 million from the previous quarter and 6.6% lower year-over-year. Operating expenses increased from the third to fourth quarter to $86.8 million. The company attributed the higher figures to "bad debt expense."

For the quarter, net income was $109.9 million, primarily attributable to the sale of the company's directory publishing business, compared to a quarterly net loss of $29.9 million in the same period a year ago.

For the full year ending December 31, revenues declined $19.5 million, or 3.9%, to $483.7 million. However, year-over-year the company showed a 6% decrease in operating expense to $326.3 million.

New Abitibi bonds give up last of gains

A trader saw the new Abitibi-Consolidated 13¾% notes due 2011 - which priced at par last Wednesday and then shot up to almost the 103 level in aftermarket dealings, only to come back down after that over the next two sessions - continue to head lower Monday. The bonds ended off a point at par bid, 102 offered.

Stephanie N. Rotondo contributed to this report.

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