Collins & Aikman bonds nosedive on new troubles; Hynix prices downsized two-parter

By Paul Deckelman and Paul A. Harris

New York, June 24 - Collins & Aikman Corp.'s bonds were traveling in the fast lane on the road to oblivion Friday, on rumors that the bankrupt Troy, Mich.-based automotive components supplier delivered bad news at a meeting of its bank creditors, and is apparently feeling a liquidity pinch and is looking to its customers for a quick fix.

Junk bond secondary market activity was otherwise unremarkable, traders said, with the Collins & Aikman situation pulling other automotive names down in sector sympathy, and not much happening outside that area.

Overall the tone was weaker as equities continued their conspicuous late-week slide, according to a market source.

In the primary arena, Hynix Semiconductor Inc. priced its downsized, restructured two-part seven-year notes deal, the sole new issue to appear during an otherwise dull day.

But it was Collins & Aikman that accounted for, in the words of one secondary trader, "90% of the activity" in the junk bond market on Friday, as the company's 10¾% senior notes due 2011 swooned to levels as low as 24.5 bid from Thursday's close around 40-41, before coming off the lows to end at 29 bid, 30 offered, still down nearly a dozen points on the day.

Meanwhile, the company's 12 7/8% subordinated notes due 2012 lost nearly half of what little remaining value they have, dropping to bid levels in the 3.5 to 4 area from prior levels around six or seven cents on the dollar.

Collins & Aikman "got murdered," the trader said, linking the fall in the bonds to the call with the bank lenders. "Unbelievable annihilation."

"I wasn't on the call," he added, "but obviously, something was said that was quite disheartening, because they had been in the 40s for like a "month-and-a-half," or ever since stabilizing at that level following the company's May 17 Chapter 11 filing with the U.S. Bankruptcy Court for the Eastern District of Michigan in Detroit.

In fact, he noted the bonds, which earlier in the week had weakened to around 39, had shot back up to a 40-41 context around mid-week, actually rising in the face of Moody's Investors' Service's warning that it might downgrade Ford Motor Co.'s bonds to junk from their present Baa3 level.

"There was a lot of blood on that one," he said of the latest Collins collapse.

"CKC got killed," another trader agreed, also quoting the senior notes as having fallen to 29 bid, 33 offered.

He had heard that the carnage was at least partly attributable to rumors that the company's $300 million debtor-in-possession loan "is struggling" - especially since the company had reportedly told its lenders that its annual EBITDA would likely fall short of expectations in the $200 million to $220 million range, though no one yet knows by how much.

"It was torpedo city today," yet another trader said, also noting the chatter that the bank meeting had apparently not gone well. "It was a reason to sell. Nobody wanted to buy, I guess."

An analyst who saw the bonds fall steeply broached the idea that the company's near-term liquidity position is precarious, noting the fact that on Wednesday Collins & Aikman had filed a motion with the bankruptcy court requesting $30 million of bridge financing from its lending customers, to tide it over until the bigger loan package kicks in. It also sought - and got - an expedited schedule for hearing its motion, with Judge Steven W. Rhodes shortening the usual period for filing objections to the bridge loan motion to noon on Thursday and scheduling that hearing on Thursday afternoon. There was no immediate word from the court or from the lawyers involved as to the outcome of that hearing.

In its brief, Collins & Aikman said that the money would be used to "bridge the debtors' short-term funding needs. The Debtors have an immediate need to maintain business relationships with vendors, suppliers and customers and to satisfy other immediate working capital and operational needs."

There was also some talk in the market that the bonds were affected by the announcement Friday that Collins & Aikman's bonds are being dropped from the widely followed CDX index maintained by Dow Jones & Co. and a coalition of major investment banks - but opined that he didn't know whether that would move the market as much as the other rumored factors, such as the bearish EBITDA outlook or the need for quick additional cash, which address the company's fundamentals.

"There was some advance warning of that [the CDX announcement]. Certainly it coincided, and perhaps it hurt, but I don't think it was an event that was a surprise."

Other auto names lower

The bad news coming out of Collins & Aikman helped to pull some of the other bonds in the sector down in apparent sympathy, with Visteon Corp.'s 8¼% notes due 2010 easing to 89 bid, 90.5 offered from prior levels around 92 bid, 93 offered.

A trader saw Delphi Corp.'s 6.55% notes due 2006 half a point lower, at 96.75 bid, 97.75 offered, while its 6½% notes due 2013 lost a point to 74 bid, 75 offered.

Another trader likewise saw its 7 1/8% notes due 2029 a point lower, at 68.5 bid, 69.5 offered.

The first trader said that there had been "zero" response to Thursday's news that the Troy, Mich.-based automotive electronics manufacturer, a former General Motors Corp. unit, had hired turnaround specialist Robert "Steve" Miller as its chairman and chief executive officer.

Miller had most recently been the non-executive chairman of the bankrupt Southfield, Mich.-based auto parts maker Federal Mogul Corp., which is preparing to emerge from Chapter 11. Miller also oversaw restructuring efforts at such troubled industrial names as Bethlehem Steel Corp., which on his watch was sold to International Steel Group, and Waste Management Inc., Aetna Inc., Morrison Knudson Corp. and Chrysler Corp. At the latter company, as chief financial officer in 1980, he negotiated the bailout agreement that saved the third-largest domestic automaker from bankruptcy.

Taking the helm of Delphi on Thursday, he expressed equal confidence that the former GM unit's problems could be solved without winding up in the bankruptcy courts - but the financial markets were unimpressed.

"If anything, the bonds showed moderate weakness, down half a point to a point post-that announcement," the trader said. "There was no upward movement, that's for sure."

GM, Ford lower

He also saw both GM and Ford bonds weaker Friday, though in "very quiet trading," with GM's benchmark 8 3/8% notes due 2033 down a point at 80 bid, 81 offered, and Ford's flagship 7.45% notes due 2031 1½ points lower at 79.5 bid, 80.5 offered.

Steels - whose health is linked to that of the auto industry, a major user of steel - were also weaker, with AK Steel Corp.'s 7 7/8% notes due 2009 down a point at 89.5 bid, 90 offered.

Apart from those names, he said, "there really wasn't anything else going on. "

Hynix up in trading

Among newly priced new deals, Hynix Semiconductor's 9 7/8% notes due 2012 were at 97.5 bid, 98 offered, up from their 97 issue price earlier in the session, while its floating-rate notes due 2012, which priced at par earlier in the day, were at 100.25 bid, 100.75 offered.

Chiquita Brands International Inc.'s new 8 7/8% notes due 2015, which priced Thursday at par and then settled in at 99.75 bid, 100.25 offered, were quoted Friday at 99 bid, 99.75 offered, while Ocean Rig Norway SA's new 8 3/8% notes due 2013, which priced at par Thursday and then moved up to 101.25 bid, 101.5 offered, hung on to most of their initial gains, ending at 101 bid, 101.5 offered.

Hynix is only new deal

In the primary market only one issuer sold bonds Friday as Korea's Hynix Semiconductor priced two tranches totaling $500 million, downsized from $750 million.

The Seoul-based company's senior notes (B1/B+) were sold in two seven-year tranches.

The $300 million fixed-rate tranche priced at 97.00 to yield 10.491%, just below the midpoint of the revised 10½% price talk which the company boosted earlier in the week from the 9¾% area. The tenor of the notes was decreased to seven years from 10 years and call protection was decreased to four years from five years.

The $200 million issue of floating-rate notes priced at par to yield Libor plus 650 basis points, on top of talk that had widened earlier in the week from 600 basis points area.

Deutsche Bank Securities, Citigroup, UBS Investment Bank and Merrill Lynch & Co. ran the books for the debt refinancing deal.

That brought the week to a close with $3.2 billion of issuance having priced in 13 dollar-denominated tranches, more than doubling, in terms of dollar amount, the previous week's $1.556 billion which came in seven tranches.

At Friday's close, year-to-date issuance was approximately $49.3 billion in 196 dollar-denominated tranches. By the same point in 2004 approximately $75.8 billion had priced in 310 tranches.

Junk more stable than stocks, says Keefe

Meanwhile on Friday Pax World High Yield Fund portfolio manager Diane Keefe told Prospect News that with the stock market having taken steep dives for two days in a row junk, which is said to be closely correlated with equities, pretty much held in.

"The market is a little weak," Keefe commented "It's just spotty summer trade. Stocks were way down on the close, and lost a lot in two days.

"Junk is holding up well compared to the equity market.

"I think on a relative value basis high yield has proven itself to be more stable than equities," the Pax World portfolio manager added.

"That may lead some technical improvement. If you think about what is going to make sense on a going forward basis - with oil prices over sixty bucks - corporate earnings, outside the energy sector, are not going to look too good."

Keefe noted that two roadshow stops were scheduled for New York on Monday:

* Compression Polymers Holdings LLC's $215 million deal in two parts (B2/B+), via Wachovia Securities, and

* Psychiatric Solutions Inc.'s $150 million offering of 10-year senior subordinated notes via Citigroup, a acquisition financing and general corporate purposes deal from the Franklin, Tenn.-based company that was actually announced late Friday.

Keefe specified that neither company had yet passed the social issues screens to which the Pax World High Yield Fund submits the credits in which it invests.

When Prospect News followed by asking the portfolio manager whether she intended to get involved in the big LBO financings that are believed to be in the works for late summer and early fall - Toys 'R' Us, Neiman Marcus and SunGard Data Systems - she responded that they were too far off to bring into focus.

However Keefe also said that she would not be taking part in the recently announced Cablevision $4.25 billion multi-tranche deal, which is expected to come to the market with proceeds pegged to take the company private.

She expressed the belief that those bonds, when they eventually come, will be "priced to move."

The run up to Independence Day

The final week of June 2005 gets underway with a fairly light forward calendar. In addition to Compression Polymers and Psychiatric Solutions, five deals are considered as likely to price before Friday's pre-Fourth of July early close.

On Friday U.K. leisure company Georgica plc boosted price talk on its £60 million offering of seven-year senior secured second-lien floating-rate notes (Caa1/CCC+) to three-month Libor plus 700 basis points, revised from three-month Libor plus 650-675 basis points.

The Royal Bank of Scotland has the books on the deal that is expected to price Monday morning in London.

Elsewhere Miami, Fla.-based construction and industrial equipment rental company Neff Corp. is expected to price $245 million of seven-year senior secured second-lien notes via Credit Suisse First Boston. A market source said that the deal is being talked at the 10½% area. However the bookrunner declined to confirm that.

Pricing is also expected on two related deals: Chaparral Steel Co.'s $300 million offering in two parts (B1/B) via Banc of America Securities and UBS Investment Bank and Texas Industries Inc.'s $250 million offering of eight-year senior notes (Ba3/BB-), via the same banks in reverse order.

Both deals are related to Texas Industries' refinancing and spin-off of Chaparral Steel.

In addition Commercial Vehicle Group Inc. is in the market with $150 million of eight-year senior notes (Ba3/B+), via Credit Suisse First Boston. The New Albany, Ohio-based truck parts manufacturer is expected to price the deal mid-week.

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