Ipalco deal prices, rises in aftermarket; Thornburg jump continues; junk market seen mostly better

By Paul Deckelman and Paul A. Harris

New York, April 2 - Ipalco Enterprises Inc. successfully priced an offering of new eight-year notes on Wednesday. The paper priced at a discount to par, but traders said they moved up to around the par level in initial aftermarket dealings.

Back among the established issues, Thornburg Mortgage Inc.'s bonds continued to rise, building on the momentum seen Tuesday when the bonds pushed sharply higher after the company announced that it had indeed been able to raise some $1.35 billion of new capital, as required by its lenders, to keep from falling into bankruptcy.

Thornburg led the way for a generally higher junk market, which ignored an equity market retreat from Tuesday's big gains. Among the issues seen doing better were such names as KB Home and Momentive Performance Materials Inc. Builder Centex Corp.'s bonds continued to gain on Tuesday's asset-sale news.

On the downside, Reliant Energy Mid-Atlantic Power Holdings' bonds were seen down as much as 10 points in active trading, although there was no immediate explanation why.

A syndicate official said that the Tuesday session, wrapped around the strength seen in Monday's equity markets, was a very good day, in general, in the high yield market.

"Obviously Lehman Brothers raising $4 billion of new capital on Monday, a billion more than they projected, which sent the stock up 18%, helped our markets as well," the official commented.

The source added that although equity markets were flat on Tuesday, the credit markets continued to be strong across sectors, especially for higher-rated well-known credits.

"There was a very big cash bid, the official said, adding that the indexes tightened a little bit as well.

"Recession-proof sectors are still doing a little bit better, but even some retail names and auto names were tighter today."

Ipalco tight to talk

The primary market skittered to life with Ipalco Enterprises, Inc. doing a $400 million quick-to-market senior secured notes deal.

Ipalco, a wholly owned subsidiary of AES Corp., priced its new 7¼% bullet notes (Ba1/BB/BBB-) at 98.526 to yield 7½%.

The yield was printed on the tight end of the 7½% to 7 5/8% price talk.

Asked if the investment-grade rating from Fitch attracted buyers from outside the junk universe, an informed source said that the deal was well received by high yield investors across the board, and added that the order book was oversubscribed.

Merrill Lynch and Lehman Brothers were joint bookrunners for the debt refinancing deal.

The Ipalco transaction continued a trend seen since the beginning of the year in the primary market.

Nearly 19% of 2008's $9.73 billion of year-to-date issuance has come in the form of secured notes, according to Prospect News data.

By the April 2, 2007 close less than 8% of year-to-date issuance was secured.

In the record-setting issuance year of 2006 less than 1% had come in the form of secured notes by the April 2 close.

Aftermarket gains for Ipalco

When the new Ipalco Enterprises 7¼% secured notes due 2016 were freed for secondary dealings, they moved up from their discounted pricing level, traders said.

"They traded right up to par and kinda stayed there," one trader said.

"Ipalco definitely did OK," another trader said, pegging the bonds at a closing level of par to 100.25 bid, well up from their issue price earlier in the session at 98.526. "It was an impressive break." he said, adding that in his view, "it's a reflection of the new attitude in the market that the worst is behind us."

That newly less-pessimistic feeling was also manifested in the relative cascade of new paper - more than $1 billion, split up over several deals - which priced last week, the busiest new-deal market seen since late last year.

Market indicators head higher

Back among the established bonds, a trader saw the widely followed CDX index of junk bond performance up ¾ point at 94 bid, 94.5 offered. Meanwhile, the KDP High Yield Daily Index rose by 0.26 to end at 73.76, while its yield narrowed by 6 basis points to 9.73%.

In the broader market, advancing issues led decliners by a nearly two-to-one margin. Overall activity, reflected in dollar volumes, rose by nearly 13% from Tuesday's levels.

"High yield in general was stronger today," a trader said, despite weakness in the equities, which saw stocks - which had zoomed mightily to kick off the new calendar quarter on Tuesday, in retreat as profit-taking set in and some of the euphoria seen Tuesday dissipated, especially with Federal Reserve chairman Ben Bernanke making bearish noises in testimony before the congressional Joint Economic Committee. The bellwether Dow Jones Industrial Average, after having jumped almost 400 points on Tuesday - its eighth-biggest one-day climb ever - finished Wednesday down 48.53 points, or 0.38%, at 12,605.83. Broader equity indexes behaved in a similar fashion.

Thornburg parade rolls on

Among specific issues, Thornburg Mortgage's bonds - which had risen smartly in busy trading Tuesday after the Santa Fe, N.M.-based mortgage provider announced that it was able to stave off possible bankruptcy by selling $1.35 billion of new seven-year notes plus warrants to buy equity - kept right on heading upward.

A trader saw Thornburg's 8% notes due 2013 better by 4 points on the day at 71 bid, 75 offered.

Another trader called them 5-point gainers at a wide 70 bid, 75 offered, and noted that the bonds -which had been trading flat, or without their accrued interest after Thornburg received notices of default from several of its lenders for failure to meet margin calls and put up more collateral to back its short-term borrowings - were "officially trading with accrued [interest] once again."

Yet another trader saw the bonds get as high as 75.25 bid in round-lot trading before coming off that peak to end at 70.625, still up 3 or 4 points on the day.

He said that no trading has yet been seen in the new 18% notes due 2015.

While Thornburg's bonds continued to rise, the company's New York Stock Exchange-traded shares were going the other way, down 16 cents, or 11.03%, to close at $1.29 on volume of 27.7 million, about 1½ times the norm.

After wowing both the stock and debt markets on Tuesday with the sensational news that Thornburg had met its lenders' deadline for raising more than $1 billion in new cash, Thornburg on Wednesday cautioned that its funding agreement with the lenders was fragile and could still collapse. Specifically, it warned shareholders in a letter that if they failed to agree to giving the company the authorization to issue a huge block of new stock - Thornburg has about 171 million shares currently outstanding and seeks the authorization to inflate that figure to 4 billion - the whole rescue deal could slide down the tubes and land the company in bankruptcy court.

A failure to complete the raising of new capital would "seriously jeopardize the financial viability of the company," Larry Goldstone, the company's president and chief executive, wrote in the letter.

Thornburg envisions that after all of the new shares are issued to the holders of various warrants under the complex rescue deal, current shareholders would only have a 5.5% stake.

Thornburg plans to use the funds raised in the sale of the new debt and warrants to meet margin calls issued by five lenders who loaned the company some $5.8 billion via short-term repurchase agreements secured by mortgages. Around the middle of February, the lenders began demanding more collateral when the underlying value of the mortgages backing Thornburg's borrowings began to deteriorate sharply amid the ongoing credit crunch. Those margin calls had threatened to push the company into bankruptcy when it became apparent that while it had paid the initial $300 million round, it had no way of paying the subsequent series of calls. Thornburg last month reached agreement with the lenders to freeze any new margin calls for a year while it attempted to pay off the ones it had already received, and agreed to raise at least $948 million in new capital. An initial financing plan involving the issuance of $1 billion of new convertible debt fell through when the company's common stock began sliding on the threat of the large dilution the shareholders faced, prompting Thornburg to come up with its new plan; while the company originally faced a deadline of last Thursday for having the financing in place, the lenders agreed to extend its time first to Friday and then to Monday, to give Thornburg the opportunity to complete the deal.

ResCap also keeps on rising

Elsewhere among the mortgage and real estate names, Residential Capital LLC's 6½% notes due 2013 gained 2 points to 51 bid, 53 offered, while its 8 7/8% notes due 2015were also up a deuce at 53 bid.

However, Countrywide Financial Corp.'s 3¼% notes coming due on May 21 were "still" 98 bid, par offered, a trader said, although he saw the 6¼% notes due 2016 firm as high as 83 bid from 79 bid, 81 offered previously.

New Jersey-based real estate operator Realogy Corp.'s 12 3/8% notes due 2015 were up 1½ points at 47.5 bid, 49 offered.

And E*Trade Financial Corp. was on the downside in busy dealings, its 7 3/8% notes due 2013 half a point lower at 75.

Homebuilders ride the mortgage momentum

Homebuilder names continued to bask in the warm afterglow of the generally better tone felt among the mortgage and real estate names, on the hopes that what's good for the mortgage industry will turn out to be good for the builders as well, since they depend on a free flow of mortgage credit to would-be homebuyers. A trader saw KB Home's bonds "looking up a little," with its 7¾% notes due 2010 at 97.25 bid, 98 offered, its 5 7/8% notes due 2015 at 89 bid, 90 offered and its 6¼% notes due 2015 at 89 bid, 91 offered, all up "at least a point to 11/2."

Dallas-based builder Centex's bonds were seen firmer for a second straight session, its 7½% notes due 2012 a point better at 94 bid and its 7 7/8% notes due 2011 about ½ point better, just above 96; a market source said that activity in both bonds was brisk.

Centex announced on Monday evening that it had agreed to sell a portfolio of undeveloped lots to a joint venture led by RSF Partners Inc. for $455 million in cash, although that's less than the approximate $528 million book value of the holdings. About 8,500 lots in 27 neighborhoods scattered across 11 states -mostly California and Nevada - are being sold. Centex will retain a 5% stake in the joint venture that's buying the lots.

Among other builder names, a trader saw Beazer Homes USA Inc.'s 8 5/8% notes due 2011 up 2 points at 78 bid, 79 offered. Hovnanian Enterprises Inc.'s 6 3/8% notes due 2014 were unchanged at 68 bid, 70 offered, but Standard Pacific Corp.'s 7% notes due 2015 were 2 points up at 73 bid, 75 offered.

WCI Communities Inc.'s 9 1/8% notes due 2012 were up 2 points to 51 bid, 52 offered, continuing to recover from Monday's slide, while its 7 7/8% notes due 2013 were a point better at 50 bid, 51 offered. Its 6 5/8% notes due 2015 were unchanged at 47 bid, 49 offered.

Many issues higher...

Apart from the mortgage names and the builders, a trader said that "the market was up and everything seemed higher."

Among the gainers were Momentive Performance Products' 9¾% notes due 2014, seen up a point at 91.25 bid, 92.25 offered; a trader cited "positive research commentary" about the Wilton, Conn.-based specialty materials company. Sbarro's 10 3/8% notes due 2015 were up an appetizing 3½ points to the 90 level.

A trader saw General Motors Corp.'s benchmark 8 3/8% bonds due 2033 up ½ point at 72 bid, 73 offered, while domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were at 68 bid, 69 offered, also up ½ point. But their respective financing arms did better, with a market source calling GMAC LLC's 5 5/8% notes due 2009 up more than 2 points at 94.5 bid and Ford Motor Credit Co.'s 7 3/8% notes due 2009 up nearly 2 points at the 93 level.

Other winners included retailers like Rite Aid Corp., whose 8 5/8% bonds were at 77 bid, 78 offered and whose 9 3/8s were at 78 bid, 79 offered, both up a point, and Bon-Ton Stores Inc., whose 10¼% notes due 2014 were likewise a point better at 69 bid, 70 offered. Burlington Coat Factory Warehouse's 11 1/8% notes due 2014 were up a point at 78 bid, 79.5 offered, prompting a trader to observe that "all the retailers were up about a point" - that is, except the beleaguered Linens 'N Things, whose floating-rate notes due 2014 were up 3 points, at 37 bid, 39 offered.

...but not Reliant, Hawaiian Telecom

There weren't too many downsiders seen around on Wednesday, but one of them was a big one.

A market source said Reliant Energy Mid-Atlantic Power Holdings' 9.681% bonds due 2026 were down nearly 11 points, although they still held slightly above 110. Trading was described as active. There was no immediate indication of what drove down those bonds, issued by a subsidiary of Houston-based power provider Reliant Energy.

Also among the losers, Hawaiian Telecom Telecommunications Inc., whose floating-rate notes were seen having fallen over 20 points Monday to around the 49 level in response to disappointing earnings, continued to slide on Wednesday, finishing at 39 bid. Its 9¾% notes due 2013 were down around 4 points at 41.

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