More debt equaling less value in Technical Olympic's bonds; Iridium gains

By Stephanie N. Rotondo

Portland, Ore., April 3 - Investor concern of increasing debt caused yet another slip in Technical Olympic USA Inc.'s bonds Tuesday as market players noted a "lackluster" market day.

The Hollywood, Fla.-based homebuilder previously said it might have to incur some debt from its joint venture with Falcone Group, Transeastern. But according to market sources, investors are wondering where the absorbed debt would fall - and how much assets there are to cover the debt.

Dura Automotive Systems Inc. is continuing its restructuring effort, part of a program the company dubs "50-cubed." The most recent step in the company's progression is the closure of four of its manufacturing plants and the intent to sell some of its non-core businesses.

A trader said the company has seen better figures in its bonds, mostly amid acquisitions going on in the distressed automotive parts sector. But the fresh news did little to help - or hurt - the notes at the end of the trading day.

The fight continues between Iridium LLC and former parent company Motorola Inc., but settlement buzz generated a positive movement in the break-off company's bonds, a trader said. The trader, however, does not believe the hype.

Meanwhile, increasing consumer confidence and declining energy prices helped distressed airline duo Northwest Airlines Corp. and Delta Air Lines Inc. Both companies are looking to exit bankruptcy soon, with Delta slated to emerge from Chapter 11 protection by April 30.

Holidays at the beginning and end of the week are distressing distressed traders, who report things have been slow in the market.

"There is not a tremendous amount of activity on the Street," one trader said.

"It's just boring," said another market player. He added that "things might happen" Wednesday, but expected Thursday to be uneventful.

Technical Olympic bonds dip

Technical Olympic's bonds are continuing to slip amid growing concerns that the homebuilder will have to take on more debt from its joint venture Transeastern.

A market participant saw the 10 3/8% notes due 2012 come in at 73.75 bid, 74 offered earlier in the day, then fall to 72.5 bid, 73.75 offered by the close of the day. He said the 9% senior notes due 2010 are trading around 92.

A lawsuit filed by the joint venture's mezzanine debt administrative agent Deutsche Bank on Dec. 8 claimed the parent was obligated to pay the joint venture's debt. At that time, Technical Olympic denied that it had any obligation to repay the debt.

Then in March, the company changed its tune, stating that is seemed imminent that the parent would have to absorb some, if not all, of the joint venture's debt. The company also indicated that, should that occur, there were enough assets to cover the debt.

But a market source said there might not be enough to cover everything.

"If they have to [incur all Transeastern's debt], then it will definitely affect them," he said. He added that it depended heavily on where the new debt would be placed within the debt structure.

"If they place it on top of everything else, there is enough [assets] to cover Transeastern's debt and the seniors, but not necessarily enough for anything else," he said, especially since a lot of the company's assets are tied to Florida's "not-so-good" real estate market.

Dura steady on plant closures

Automotive component maker Dura was called better overall, but its bonds went out unchanged on the day, according to one trader, as the company announced the closing of four of its manufacturing facilities.

A market source quoted the 8 5/8% notes due 2012 at 27.25 bid, 28 offered, while another trader said the notes came out unchanged, despite fresh news on the company.

The trader did mention that the bonds had gotten better in reaction to an asset sale announced last week by Tower Automotive Inc. The fellow distressed auto parts maker said it would sell nearly all of its assets to Cerberus Capital Management LP.

But he saw Tuesday's news that Dura will close four of its plants as part of its restructuring plan having little effect on the company's notes.

The company also said that it intends to sell its jack and hinge and latch businesses

"The decisions to consolidate facilities and transition assembly lines are extremely difficult but necessary," said Larry Denton, chairman and chief executive officer of the company, in a press release. "Our restructuring programs are designed to improve our long-term competitiveness and assist the organization to emerge from Chapter 11 protection in an expedited timeframe."

Iridium notes gain

The battle is not yet over for bankrupt Iridium, but its bonds were seen up 1.5 points on talks of a potential settlement with its former parent, Motorola.

A trader pegged the notes at 24 bid, 24.5 offered, adding that all the company's debt trades about even.

Iridium has been fighting with Motorola since Iridium filed bankruptcy in 1999, claiming the parent company continued to control Iridium even after it broke off from Motorola in 1997. The company alleges that the continued control by the parent company led to the eventual demise of Iridium.

Most recently, a federal appeals court overturned a $135 million settlement between unsecured creditors and lenders of Iridium in favor of Motorola. The decision leaves the ball in a bankruptcy court's hands once again.

But the trader is not swayed by rumors of a settlement.

"I don't think it's going to happen, but it's moving the bonds anyway," he said.

Airlines taking off

Better market conditions and dipping oil prices spurred slight gains in distressed airline bonds, a trader said.

He pegged Northwest Airline's 10% bonds due 2009 up a point at 86.5 bid, 87 offered, while Delta's 8.3% bonds due 2029 latched on to a half point gain, closing at 57.75 bid, 58.25 offered.

A Redbook Research report released Tuesday showed increasing consumer confidence, as consumers spent more money in chain stores in March than in February. Declining oil prices also eased inflation concerns, as oil dropped more than a dollar to close at $64.64 a barrel on the New York Mercantile Exchange.

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