Delphi dives on delay, cut valuation; E*Trade rebounds; Federal-Mogul launches part of exit financing

By Paul Deckelman

New York, Dec. 4 - Delphi Corp.'s bonds drove completely off the road and hit a brick wall on Tuesday, with traders quoting the bankrupt Troy, Mich.-based auto parts maker's paper down as much as 10 to 12 points across the board in heavy trading on apparent investor distress at Delphi's efforts to extend the bankruptcy process further, and changes in its previously proposed plan of reorganization that lower the enterprise value of the company - which could mean less of a recovery for bondholders.

Elsewhere, E*Trade Financial Corp.'s bonds rebounded Tuesday after three consecutive sessions during which the paper had been pounded down on negative investor response to the company's $2.55 billion bailout deal.

Tembec Inc.'s bonds firmed on the news that Canada's central bank had cut its key interest rate ¼ point, which pushed the Canadian dollar lower against its U.S. counterpart - good news for companies like Tembec which export products to the United States.

In the bank debt market, Federal-Mogul Corp. kicked off syndication on the revolver portion of its overall exit financing loan package with a bank meeting. Price talk was heard on that six-year facility.

Delphi dives on delay, valuation change

Perhaps the most actively traded name Tuesday was Delphi Corp. - and its bonds were seen having slid anywhere from 7 to 10 points across the board, apparently on a combination of investor unease with the company's having asked for 90 days of additional time to issue a definitive new plan of reorganization and further extra time to solicit approvals for it, as well as with changes in the previous plan which Delphi said Tuesday had been approved by some creditors and stakeholders. Among the changes was a reduction in the overall enterprise value of the company, potentially cutting the bondholders' recovery.

A trader saw Delphi's 6.55% notes that were to have come due last year at 58 bid, 59 offered, saw its 6½% notes due 2009 at 58.5 bid, 60 offered, its 61/2s due 2013 at 57 bid, 60 offered and its 7 1/8% notes due 2029 at 59 bid, 60 offered, all down 10 to 12 points, he said.

Delphi, another trader said, "had been on a ride," with its bonds first rising to above the 120 bid levels during the summer and now trading for not even half of that. He saw the 6.55s at 57.75 bid, 58.75 offered and the 2013s at 56.5 bid, 57.5 offered, pronouncing both of the bonds "down 9½ to 10 points.

"That's what happens when people fight in bankruptcy," he observed. "They all get screwed."

Delphi and its various creditor groups and shareholders have been battling for a long while over the eventual makeup of a plan; the agreements announced Tuesday will be presented to the bankruptcy court overseeing its restructuring. The court has a hearing scheduled on Thursday.

"There's a tremendous amount of spinning going on" by people on the various stakeholder committees, noted Bill Featherston, managing director at J. Giordano Securities in Stamford, Conn. "As one guy said, 'it's like a drama school,' the acts which these people are going through."

The negotiations, he said, "have been dramatic - and I think a few people have thrown in the towel, as evidenced by the size of the paper that's been trading today. It's been dramatic."

Delphi disclosed that under the revised plan, the total enterprise value of the reorganized company will range from $11.2 billion to $14.1 billion, with a midpoint value of $12.7 billion. However, the company, former corporate parent General Motors Corp., the plan investors and the creditors' committee have agreed to a $13.3 billion assumed enterprise value, down from $13.4 billion previously. After deducting net debt and warrant value, the enterprise value will result in a $7.8 billion distributable equity value, down from $8.1 billion previously, or $59.61 per share based on 131.27 million shares, down from $61.72 based on 131.3 million shares.

Featherston said that Delphi's announcement of the lowered enterprise value of the company could well mean that "the unsecured creditors are going to getting less equity in the new [i.e. restructured] company than they originally planned on." He said that Delphi having cut the amount of financing that it will need to $6.8 billion from more than $8 billion originally "will be coming out of the unsecured creditors' pockets."

"The good news," he said is "they cut a deal with General Motors" on the compensation to be paid to Delphi's former corporate parent, "but the bad news is that in terms of exiting from bankruptcy, Delphi is requesting that the court extend their exclusivity from December to the end of March - so nothing is going to happen in a hurry."

While Delphi said it wants the extra time to gain approval of all of its creditors and other stakeholders to the revised terms of its plan, the reality, said Featherston, is "they'll continue to fight - and there is what we call 'investor fatigue' setting in. Some of the investors have just said 'screw it,' and they're throwing in the towel to sell their stuff at whatever the market will bear."

While Delphi's bondholders decided that "the revised plan wasn't very favorable" to them, another trader said, its shareholders were of quite the opposite mind; Delphi's nearly worthless penny stock shares were up a nickel, or 25.58%, to 27 cents per share.

E* Trade bounces back

Elsewhere, traders saw E*Trade Financial's bonds rebound smartly after having taken a drubbing over the previous three sessions on a feeling that the selling had perhaps been overdone.

A trader also noted "the general idea" that the much-maligned $2.55 billion cash infusion by a syndicate led by Citadel Investors Group at least means that "someone is investing in them," and noted a Wall Street Journal piece suggesting that the terms at which Citadel is investing in E*Trade in exchange for new bonds, stock and its asset-backed securities portfolio "may represent a price bottom" for the troubled New York-based on-line financial services company.

He saw E*Trade's 8% notes due 2011 "all over the place," starting the day at 74.5 bid and ending "somewhere in a 75-79 context."

Another trader saw the 8s at 77 bid, 78 offered, versus 73 bid, 75 offered on Monday, while its 7 3/8% notes due 2013 firmed to 72.5 bid, 73.5 offered, up from Monday's 67 bid, 69 offered, while its 7 7/8% notes due 2015 ended at 71.5 bid, 72.5 offered, versus Monday's 66.5 bid, 68.5 offered. The bonds, he declared were "up pretty good" on the company's 8-K filing with the securities and Exchange Commission, in which it gave the details of the complex transaction with Citadel.

Another market source saw the 8s going home at 78.25, up from a Monday level at 76, although they failed to hold on to gains that had pushed the bonds as high as 83 at one point in the day. The 7 3/8s were seen up 5 points at 72.5, while the 7 7/8s were around 4 points better at 71.5, although on lesser volume than the other two issues.

While bondholders may believe the three-day retreat was overdone, shareholders disagreed, taking the bonds down for a fourth consecutive session after Lehman Brothers lowered its price target by $11 a share, to $8, citing the company's problems even independent of the Citadel deal. Its Nasdaq-traded shares fell another 17 cents, or 4.14%, to $3.94

Tembec gains on Canadian rate cut

Traders saw Tembec's bonds better, and attributed the rise in the Montreal-based forest products company's paper to the decision by the Bank of Canada to cut that country's key interest rate by ¼ point. That, in turn, pushed the Canadian dollar down against the U.S. greenback and other currencies - movement seen as a positive for Tembec, whose lumber sales in the United States and other export markets have been hurt by the recently powerful loonie.

A trader called Tembec's 8 5/8% notes due 2009 up nearly 3 points at 51 bid, 53 offered, opining that "it was all on the currency."

Another trader also noted the rate cut as a factor, calling the 8 5/8s up 2 points at 51 bid, 52 offered.

A market source saw the company's 8½% notes due 2011 up a point at 42 bid, 43 offered.

Federal-Mogul launches exit revolver

In the bank debt market, Federal Mogul kicked off syndication on its $540 million six-year ABL revolver with a bank meeting on Tuesday afternoon. A market source said that in connection with the launch, price talk was announced, with the ABL revolver being talked at Libor plus 175 basis points.

Citigroup and JPMorgan are the lead banks on the deal.

The bankrupt Southfield, Mich.-based automotive parts manufacturer's $3.5 billion exit financing credit facility also includes a $1.96 billion seven-year senior secured term loan B and a $1 billion eight-year senior secured term loan C.

Timing on the launch of the term loan debt is still to be determined, the source added.

Of the total term loan amount, $878 million will be drawn at close, including $50 million that will be used to fund a letter-of-credit sub-facility cash collateral account, and the remaining commitments will be structured as a delayed-draw component available in up to three draws within sixty days of closing.

Official pricing on the term loans is unavailable, however, according to court documents, pricing on the debt can range from Libor plus 137.5 bps to 175 bps, depending on ratings. But, the court documents also had the ABL revolver pricing listed as Libor plus 150 bps.

Proceeds will be used to repay the company's existing debtor-in-possession financing facility, to pay any obligations under the plan of reorganization and U.K. company voluntary arrangements, for working capital and for other general corporate purposes.

In addition, upon exit, certain of the company's pre-petition debt will be exchanged for "Pre-Petition Take-Back Paper", comprised of a $1.328 billion term loan A and $305 million of junior secured PIK notes.

If drawn, the proceeds of the delayed-draw term loan debt will be used to refinance the company's secured term loan and its junior secured payment-in-kind notes.

Sara Rosenberg contributed to this report

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