Delphi debt spikes up on news; Dana bonds unchanged; Doral notes come to a halt

By Stephanie N. Rotondo

Portland, Ore., July 19 - With many market players away from their desks, the distressed bond market seemed to soften Thursday, spurred further by investor nervousness.

"I don't know what is causing it," a trader said, but he speculated that "leakage" from the LBO, CLO and subprime markets was the catalyst.

"It feels like the market is selling off," he continued. Investors are becoming more risk averse, he explained, with nervousness higher on the day than he had seen it all week.

"There is concern that the market could get worse before it gets better," he said.

But, of the names that did move during the otherwise quiet session, Delphi Corp.'s bonds were the most notable. The automotive parts supplier's debt gained at least 8 points during trading, sparked by Wednesday's announcement that it had inked a new investment plan with a private equity group, and Thursday's court approval of a settlement with its unions.

Meanwhile, automotive compatriot Dana Corp.'s bonds were essentially unchanged on the day, despite a Wall Street Journal report that a major shareholder is not happy with the company's current investment plan.

As predicted, Doral Financial Corp.'s bonds quieted down, as the Puerto Rico-based bank closed the buyout transaction with the Bear Stearns-led equity group. The financial institution's notes mature Friday.

With one more day left in the trading week, a trader wondered what Friday's session would bring.

"Tomorrow may be surprising," he said. "With less players in, there may be more volatility."

Delphi spikes up

Troy, Mich.-based Delphi saw its bonds move "up strongly," one trader said, pegging the debt up 8 points on the day.

The move comes one day after the company announced a new investment plan with an Appaloosa Management LP-led equity group. Fresh news that a federal bankruptcy judge approved a settlement between the company and the United Auto Workers union also helped to spark gains.

A trader said the 6½% notes due 2013 were trading at 128.5 bid, 129 offered, while another market source saw the 7 1/8% notes due 2029 around 132, up from 123.75. The source also saw the 6½% notes due 2009 up 8 points at 130.75.

"The bonds are up because the deal gives [the Appaloosa group] a lot of equity in the new firm - more than most people expected," the trader said. "The UAW agreement helps increase enterprise value, so [that] moves bonds and stock."

Under the Appaloosa plan, Delphi will receive an equity infusion of up to $2.55 billion, in the form of new preferred and common shares in the reorganized company. It was also announced Thursday that Delphi rejected a more than $3 billion bid from Highland Capital Management LP.

Dana steady

In other distressed automotive parts maker names, Dana's bonds were deemed relatively unchanged on the news that major shareholder Appaloosa - also a major shareholder in Delphi - is calling the company's new investment deal "absurd and one-sided."

A trader said the 6½% notes due 2009 "didn't seem to change," quoting the bonds at 103.25 bid, 104 offered.

"It doesn't feel like a huge move," he said.

Meanwhile, a market source also saw little change in the bonds, pegging the 7% notes due 2029 up just half a point at 101.25.

According to a report in the Wall Street Journal, Appaloosa sent a letter to Dana's board, in which it claimed they had neglected their fiduciary duty by agreeing to the Centerbridge Capital Partners LP plan.

In the letter, the equity firm said that the proposal - which includes an investment commitment of up to $750 million - "will yield far less than the maximum recoveries available to stakeholders."

Still, Appaloosa may still devise a plan to challenge Centerbridge, something the company hinted at last month.

Doral quieter

Trading in Doral's bond came to a standstill Thursday as the company closed on a $610 million buyout - just one day before its debt matures.

A trader pegged the floating-rate notes at 99.875 bid, par offered, about the same as the previous day's closing levels.

"It's boring now," he said. "It's all over."

On the equity side, the stock slid 3 cents, or 2.54%, to $1.15 - still about 50 cents higher than the takeout value of 63 cents per share.

Movie Gallery loan, bonds dip

Movie Gallery Inc.'s first-lien term loan was lower in sympathy with the rest of the market, rather than on any particular news, according to a trader.

The first-lien term loan B ended the day at 94 bid, 95 offered, down from 95.5 bid, 96.5 offered, the trader said.

"There's just general risk management going on across the board. [It's] not credit specific," the trader added.

The Dothan, Ala.-based movie rental chain also saw its bonds slipping, with a trader quoting the 11% notes due 2012 lower by 4 or 5 points at 35 bid, 36 offered, "maybe lower."

As for the reason for the recent losses, the trader said, "Why did they run up? They were down to 20 then moved close to 40. I think they are just coming back to reality."

Hines Horticulture moving

Usually one of the quieter names in distressed, Hines Horticulture Inc.'s bonds have been seeing some action recently.

A trader quoted the 10¼% notes due 2011 at 76 bid, 77 offered, "about where they were yesterday."

The only news the trader had heard from the nursery supplier was that its chief financial officer had resigned.

"If that is a positive, I don't know," he said.

Still, he said, it was noteworthy that the bonds had traded.

"It's not something that trades often," he said.

Sara Rosenberg contributed to this article.

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