Tousa bonds take a ride on filing; Tekni-Plex notes better; Buyers take aim at Six Flags

By Stephanie N. Rotondo

Portland, Ore., Jan. 29 - Distressed debt grew stronger Tuesday as the sector added at least one more bankruptcy to its ever-growing group.

The market has been speculating for months that Tousa Inc. would eventually have to file for Chapter 11 protection - it was just a matter of when. When the homebuilder missed a Jan. 1 coupon payment, the buzz was that the filing would come sooner than later.

That turned out to be true as the company filed for bankruptcy on Tuesday. The news sent the bonds on a ride, opening about 6 points higher before coming back in to end the day 3 to 4 points better than Friday's levels.

Bankruptcy is still not out of the question for Tekni-Plex Inc., either. The packaging company's debt was deemed "better bid" by one trader, as discussions with noteholders continue.

Six Flags Inc. could also be falling victim to the lure of bankruptcy. Documents filed with the Securities and Exchange Commission this month have fueled rumors that the amusement park operator might be considering a Chapter 11 filing. Still, investors were not swayed during Tuesday's session, as one trader saw more buyers interested in the name.

Overall, traders reported a firmer day, with things generally up a few points.

"We got a few more bankruptcies," said one distressed player. "It is slowly but surely coming our way."

"It just gets frustrating with the lack of activity," he added.

Another trader said short covering was the catalyst for the strength of the day. Another said "the whole market was up, about 1 point across the board."

"Things are tightening," he said.

Tousa files for Chapter 11

Tousa was the name of the day as its bonds fluctuated on news that the homebuilder had filed for bankruptcy.

The Hollywood, Fla.-based company has been circling the drain for some time now, and many market players have long considered it the weakest among the struggling sector.

Now that the company has finally filed, however, that sentiment has changed.

"I like the bonds now," said one trader who many times before expressed just the opposite. "It's a good play at 49, 50 cents on the dollar."

Another trader used a term not often associated with Tousa: "Hopeful."

"They are upbeat about continuing to be a homebuilder, as opposed to liquidating," the trader said. "It seems like there is more to be hopeful about."

The trader further explained that it was previously believed that the company would be forced to liquidate if it filed bankruptcy. But it currently seems "unlikely," he said, that liquidation would occur - thus, investors hopped on board.

"As long as the builder can continue to operate in some form going forward, holders in the reorganized company can hope to realize some recovery of their investment over time," wrote Vicki Bryan, analyst with Gimme Credit LLC, in an afternoon report.

A trader said the company's corporate day was "active," its 9% notes due 2010 at 49 bid, 50 offered, which he called "up a little" from Friday's closing levels. Still, the bonds closed down 3 points from their daily high of 50 bid, 52 offered.

Another trader said the bonds initially moved higher on short covering, pegging the 9% notes at 49 bid, 50 offered, the 8¼% notes due 2011 at 48.5 bid, 49.5 offered and the subordinated issues - the 10 3/8% notes due 2012 and the 7½% notes due 2011 and 2015 - at 7 bid, 9 offered.

At another desk, a trader said the 9% senior issue traded as high as 50, before settling in to 49 bid, 49.5 offered, still up 4 points on the day.

In the bank debt, Tousa's first-lien term loan headed higher, while its second-lien term loan moved lower.

The first-lien term loan was quoted at 94 bid, 96 offered, up from Monday's levels of around 93 bid, 95 offered, traders said.

And, the second-lien term loan was quoted at 82 bid, 84½ offered, down from around 83½ bid, 86½ offered, traders added.

Tousa plans to swap debt for new equity for its senior debt, while subordinated noteholders could receive warrants and a litigation claim, pending further negotiations. A majority of the senior debt holders have already agreed to the plan, but traders are not expecting it will be good enough for holders of the subordinated debt.

"It might be challenged by subordinated holders," a trader said.

"The subs are not treated well in what I think will end up being the plan," another trader opined.

Other homebuilders were also better during the session. When asked what might account for the gains in the sector, a trader said that another pending interest rate cut from the Federal Reserve, along with "improvements in the mortgage market might translate to buyers."

Even recent disappointing home sales numbers could be igniting some hope for investors, he continued.

"[The numbers] were bad, but not a total disaster," he said, adding that the figures might have "exceeded diminished expectations."

The trader quoted WCI Communities Inc.'s 9 1/8% notes due 2012 "a little better" at 55 bid.

In other housing-related names, the trader saw Realogy Corp.'s 10½% notes due 2014 at 72.5 bid, 74.5 offered.

Still, another trader speculated that the upward momentum in housing names was not related in any way to Tousa's news, but to an overall improving junk bond sector.

"Homebuilder's were a little stronger, but nothing more aggressive than anything else," he said.

Tekni-Plex better bid

A trader said Tekni-Plex's bonds were "better bid for," as the company continues its discussions with its 12¾% noteholders regarding a possible exchange.

The trader quoted the 12¾% notes due 2010 at 67.25 bid, 68.25 offered and the 8¾% notes due 2013 at 93 bid, 94 offered.

However, another trader called the debt "barely unchanged."

With a forbearance agreement set to expire on Feb. 14, the market is wondering what will happen to the pharmaceutical packaging company - and what is the best course of action.

Last week, APS Financial issued its first report on Tekni. In the report, Scott A. Moxham opined that the best solution is a debt-for-equity exchange, though a bankruptcy filing is still a definite possibility.

But with a bankruptcy comes more issues, and in the end, noteholders could end up competing for their piece of the pie.

"We believe that a bankruptcy that will place the majority of the equity in the hands of the subordinated noteholders is the most likely scenario," Moxham wrote. "However, we also believe the current market price of the subordinated notes is grossly overstated."

Buyers take aim at Six Flags

Speculation of a possible Chapter 11 for Six Flags resulted in "buyers coming in," a trader said, with the amusement park operator's debt gaining during trading.

The trader placed the 9 5/8% notes due 2014 at 66.25 bid, 67.25 offered, while another market source deemed the bonds 3 points better at 66.

According to a filing with the Securities and Exchange Commission, Six Flags management is considering selling more of its parks in addition to major spending cuts. The cuts will come in the form of trimming personnel, as well as dropping media spending. All told, the company is looking to scale down operating expenses by as much as $60 million.

Broad market stronger

Delphi Corp.'s bonds moved up on the day, its 6.55% notes that were to have matured in 2006 and its 7 1/8% notes due 2029 at 39 bid. The 6½% notes due 2013 were also better at 38 bid.

Meanwhile, a trader said Quebecor World Inc.'s debt continues to be active, its 6 1/8% notes due 2013 at 51 bid, 52 offered. Another trader, however, said the bonds "barely traded," but conceded that they were up "maybe 1 point."

Sara Rosenberg contributed to this article.

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