Delphi investment plan boosts bonds; Delta, Northwest off

By Paul Deckelman and Sara Rosenberg

New York, Dec. 18- Delphi Corp. bonds firmed smartly Monday, pushed up by the news that a consortium of private equity investors agreed to put as much as $3.4 billion into the bankrupt Troy, Mich.-based auto parts maker. This was especially true of the company's 8¼% notes due 2033, which zoomed into the upper 120s - as high as 130 at one point - from prior levels around 105, traders said, fueled by the knowledge that holders of those bonds will be paid off fully in shares of the reorganized company.

Also in the autosphere, Meridian Automotive Systems, Inc. flexed pricing higher on its term loan and synthetic letter-of-credit facility, a bank debt market source said.

Airline bonds, which had a volatile week last week, picked right up where they left off on Friday, and were seen losing altitude, as Delta Air Lines Inc.'s bonds first climbed, and then gave back all of those gains and then some. Delta was reported to be readying a reorganization plan aimed at heading off an unsolicited and unwelcome takeover try by US Airways Group. Northwest Airlines Corp. bonds, which have been zig-zagging higher along with Delta, pushed upward by merger and acquisition speculation, were also seen lower on the session.

Delphi on an upside ride

Clearly, the major mover of the day, in both the distressed-debt market and the larger high yield trading arena, was Delphi, whose bonds soared, fueled by the news that an investor group led by Appaloosa Management LP and Cerberus Capital Management LP will pump up to $3.4 billion into the company, giving the investors a large stake when Delphi emerges from bankruptcy.

A trader saw Delphi's most widely traded issue, its 6.55% notes that were to have come due earlier this year, trading at 113 bid, 114 offered, up from levels around 110 bid, 111 offered on Friday, and saw its 7 1/8% notes due 2029 at 114 bid, 115 offered, up from 111 bid, 112 offered.

But the big mover of the day, he said were the normally seldom-traded 8¼% notes due 2033, which he saw at a wide 125.5 bid, 130.5 offered, versus Friday levels at 106.5 bid, 108.5 offered, "so these moved up by 18 points," he exclaimed.

Another trader saw an even greater rise in the bonds, pegging them at 130 bid, up from 106.

"They're slated to receive 100% equity, which is what some people want," he said, "which is kind of crazy. They're subordinated to these other bonds - but they've had a heck of a run."

The company's other bonds, meantime, rose respectably on Monday - though nothing like the 81/4s. The 6.55s got as good as 115 before falling back to close at 113.5 bid, 114.5 offered, as did the 6½% notes due 2009. The 6½% notes due 2013 ended at 112 bid, 113 offered, while the 7 1/8s were 114.25 bid, 115.25 offered, all up about 3 points.

While Delphi's bonds sizzled on the news of the company's agreement with the investor group, its Pink Sheets-traded shares fizzled, losing 63 cents (19.09%) to close at $2.67. Volume of 49 million shares was about seven times the norm.

Besides Appaloosa Management and Cerberus, others in the investor group include Harbinger Capital Partners Master Fund I, as well as Merrill Lynch & Co. and UBS Securities LLC.

Those companies will invest a minimum of $1.4 billion and a maximum of $3.4 billion in the struggling company in exchange for common and preferred stock that will be issued in the first half of next year. They would get at least 30% of the company's stock, and should they invest the maximum $3.4 billion, they would end up owning 72% of the company.

Various debt-holders would get 28 million shares, or 21% of the restructured Delphi, while former corporate parent General Motors Corp. would get 5%, or seven million shares. Existing shareholders would get 3 million shares and could buy up to 57 million more at a discount, which could total up to 44% of the post-Chapter 11 company.

Separately from the investor consortium, Delphi announced that it had accepted a financing proposal from JPMorgan Chase Bank and a group of lenders to refinance its existing $2 billion debtor in possession credit line and about $2.5 billion in loans.

Delphi further said that its board named Rodney O'Neal, who currently is serving as president of Delphi, to also take over as chief executive, effective Jan. 1, when Robert S. "Steve" Miller relinquishes the post. Miller will, however, continue to serve as executive chairman until the company emerges from bankruptcy. O'Neal will also remain as president.

Meridian Auto loan terms emerge

Among other automotive names on Monday, Meridian Automotive Systems was heard by a bank debt market source to have flexed pricing higher on its term loan and synthetic letter-of-credit facility and added an original issue discount of 98 to the tranches.

Under the modifications, the Dearborn, Mich.-based automotive components supplier's $80 million six-year term loan and $25 million six-year synthetic letter-of-credit facility are now priced at Libor plus 600 bps, up from original talk at launch of Libor plus 550 bps, the source said.

Prior to the bank meeting, it was expected that the two institutional tranches would carry pricing of Libor plus 400 bps based on various court documents that Meridian had filed.

The institutional bank debt is non-callable for two years.

The company's $175 million exit financing credit facility also includes a $70 million five-year asset-based revolver.

Court approval of the exit facility has already been obtained and the company is hoping to emerge from bankruptcy by the end of this month.

Deutsche Bank is the lead bank on the deal.

Delta down after early gain fades

Among the airline names, Delta Air Lines bonds initially moved up by about ½ point to a point, traders said - but the bankrupt Atlanta-based Number-Three airline carrier gave it all back, and ended down a point on the day in "volatile" trading, as one put it. Delta's 8.30% notes due 2029 ended down a point at 66 bid, 67 offered.

Another trader saw that same up-and-down motion, but said that the bonds went out unchanged at 66-67.

The Wall Street Journal was reporting Monday that Delta was getting ready to present a reorganization plan that values the airline at about $12 billion to the bankruptcy court overseeing its overhaul.

The Journal said that Delta was acting to stop an $8.4 billion takeover try by US Airways Inc. While management has contended all along it wants to emerge from bankruptcy as a stand alone company, some bondholders have been pushing for serious consideration of the US Air offer.

In other developments Monday, news reports said that US Air might be willing to increase its bid for Delta, if Delta can justify that it is worth more.

US Air was also said to be trying to persuade Delta creditors to allow US Air to conduct due diligence on Delta, so it can update its own plan to bring Delta out of bankruptcy using the fresher numbers.

While Delta's bonds were losing a point on the day, Northwest's bonds, which often move in tandem with Delta, were down about 1½ to 2 points on Monday. The bankrupt Eagan, Minn.-based Number-Four domestic airline's 8 7/8% notes due 2006 were at 91.5 bid, 92.5 offered, off 1½ points on the day.

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