Bonds Sink to Distressed Area

Oakwood Homes Corp.'s foundation has sunk deeper into the distressed pit, and one high yield source said there's not much to buttress it at this point.

Oakwood's $300 million in long-term debt traded in the low 50s recently, and Ben Bayse, a high yield analyst at Freeman Securities, said what is needed is evidence of a turnaround.

"I don't know how ugly it's going to get," he said.

The company's $125 million, 7.875% senior notes remained at roughly 51 at press time. Its second tranche of $175 million, 8.125% senior notes traded at approximately the same level. And while Bayse declined to speculate on how quickly or how much further the bonds would dip, he said he didn't expect to see any bids coming into the market.

"Until we see that the implementation of the plan is having an impact, buyers will not step up," he said, referring to the company's decision to restructure itself.

Greensboro, N.C.-based Oakwood's reorganization plans were put in place last fall and include the reduction of inventories and plant capacity and the closing of poorly performing retail centers. The company manufactures modular and prefabricated homes.

While the $130 million market cap company's bond price has plunged steadily since last summer when it traded in the 80s, two marked drops occurred - one in late May and then again in September when Oakwood announced a reorganization plan, Bayse said. He did not have figures available and would only say the bonds fell sharply in a couple of stages.

Bayse said production and sales falling out of synchronization, as well as the speculation that interest rates would go higher, prompted the company's woes. "Oakwood is very sensitive to interest rates," he said.

Oakwood's Chief Financial Officer Robert Smith did not return calls seeking comment.

"It's early in the process of Oakwood's realigning costs, productions and sales to make a prediction as to where these things are going - it's my guess that it will take some time to realign," Bayse said.

Bayse said Oakwood should meet its next coupon of $4.9 million due in March on the 7.875% notes. The company has a $125 million revolver available and $27 million in cash. "If they weren't going to be able to meet it, their rating would have been knocked down to a CCC," he said.

On Jan. 5, Standard & Poor's downgraded Oakwood's debt to B+ from BB, citing, among other things, that any improvement in the industry's lackluster performance is not expected for several quarters.