Dura bonds dive, but Danka dazzles; Hexion plans secured deal; funds see $62 million outflow

By Paul Deckelman

New York, Oct. 12- Dura Automotive Systems Inc.'s bonds were seen reverting to form Thursday and once again heading down after having blipped upward Wednesday to around the 38-39 area on technical factors related to the bonds trading ex-interest ahead of the scheduled Oct. 16 coupon payment. But Thursday's session saw early attempts to rally fade and the bottom dropped out during the last two hours of trading. The bonds ended up cascading down into the mid-20s.

Danka Business Systems plc's bonds, on the other hand, were seen firming smartly, pushed up by the news that the office imaging systems provider had agreed to sell its European unit and use the proceeds to pay down debt.

A similar asset-sale scenario - though this one is still in the realm of speculation, rather than definite fact - helped to push the bonds of SunCom Wireless Holdings Inc. higher.

In the primary market, Hexion Specialty Chemicals Inc. announced its intentions of selling an $825 million issue of senior secured bonds as part of a larger financing program for the Columbus, Ohio-based maker of thermoset resins.

Pre-deal market price talk meantime emerged on CompuCom Systems Inc.'s prospective $175 million offering of eight-year senior notes, which could price as soon as Friday morning, high yield syndicate sources indicated.

Funds back in the red

And after trading had wound down for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday, $62 million more left the funds than came into them.

That loss stood in contrast to the previous week, ended Wednesday, Oct. 4, during which new inflows had totaled $136.6 million.

The latest week's outflow was the fourth negative number in the past five weeks. During that stretch, some $111.2 million more has flowed out of the funds than has come into them, according to a Prospect News analysis of the AMG statistics.

Despite that recent reversion to the generally negative trend that has held sway for most of the year, the past roughly two or three months have stood out as the exception, with inflows still seen in six weeks out of the last 12, with net inflows in that period totaling $431.1 million, according to the Prospect News analysis, and inflows also seen in eight weeks out of the past 15, for total net inflows of $527.9 million in that time, according to the analysis.

However, despite that third-quarter show of strength by the funds, the year-to-date figures continue to tell a very different story.

Counting the latest week's result, the funds have hemorrhaged $3.165 billion since the start of the year, according to the AMG data, widening out from the previous week's $3.046 billion net outflow total.

Outflows have now been seen in fully 28 weeks out of the 41 since the beginning of the year, against just 13 inflows, according to the Prospect News analysis. The figures exclude distributions and count only those funds that report on a weekly, rather than on a monthly, basis.

Funds that report on a monthly basis on the other hand, saw a net inflow of $171 million in the most recent week, and a year-to-date inflow total of $3.284 billion.

Counting both groups, that leaves the net year-to-date flows at positive $119 million.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

But "does it really matter, though?" a trader asked, rhetorically. "At this point," he said, "the market is raging, and equities [are also]. As much as everyone seems to be short out there and not really buying in high yield-land, we go higher, slowly but surely."

However, he cautioned, the recently strong market's days may be numbered. "I think we're going to hit a level here. I think it's going to fizzle out, because I don't know if the economy can keep up." The retrenchment, he suggested, might come "in the beginning of '07."

Dura is day's disaster

For Dura, it looks like the retrenchment is already here.

The troubled Rochester Hills, Mich.-based automotive components maker's Dura Operating Corp. 8 5/8% senior notes due 2012 had firmed by several points on Wednesday into the upper 30s - although that was on technical factors related to the bonds trading ex-interest ahead of the scheduled Monday interest payment, rather than due to any fundamental factors.

On Thursday that stronger trend sputtered out and died. A trader saw those bonds as low as 33.5 bid at mid-afternoon, well down from Wednesday's closing levels, while a source at another desk saw the bonds make an abortive attempt to come off their lows around that time and move back up to around 36.75 - only to then sink back to hit new session lows at 32.5.

But then, in the last hour or so of trading, the bonds completely swooned, and were quoted down anywhere from 10 to 12 points, even though there was no fresh news out that might explain the late slide.

"Late in the day, Dura got slammed," a trader exclaimed, quoting the bonds at 24 bid, 26 offered, down from levels earlier in the day that he had seen around 30 bid, 32 offered.

"They got shellacked, and I'm not sure why," he said. "Somebody must have gotten wind of something going on."

"We call this doing the limbo rock," quipped another trader in assessing the bonds' fall down to around the 26.5 bid, 28 offered level from 38 bid, 40 offered on Wednesday - a reference to the popular dance hit of the early 1960s in which singer Chubby Checker asked "how low can you go?"

Dura "got their *** twisted," yet another trader colorfully observed, notching the bonds down to 25.5 bid, 26.5 offered, a 12-point loss on the day, he said. "It was not a pretty sight."

Trading activity in the issue was described as heavy, with a lot of the trades of considerable size.

Questioning coupon payment

Market denizens are still uncertain about whether the company will make the scheduled $17.25 million interest payment that is due on the $400 million of outstanding bonds on Monday, or whether it will have to play for time and invoke the standard 30-day grace period while it tries to work its way through the situation.

Dura, like many other auto parts suppliers, has been badly hurt by recently announced production cutbacks by Detroit's "Big Three" carmakers, and rumors that Dura would be forced to follow such sector peers as Delphi Corp., Dana Corp., Tower Automotive Inc. and Collins & Aikman Corp. into Chapter 11 have swirled around the company for months, gaining further impetus over the summer when it hired the New York-based turnaround specialist firm Miller Buckfire & Co. LLC to advise it on a financial restructuring. Miller Buckfire had also advised Dana shortly before that Toledo, Ohio-based systems maker sought protection from its creditors on March 3.

The ratings agencies have already knocked Dura's bonds down to near-bankruptcy levels, with Moody's Investors Service having downgraded its 8 5/8s to Ca from Caa3 previously on Sept. 20, and lowering its 9% notes due 2009 - which currently languish at levels around 3 or 4 cents on the dollar- to C from Ca, citing the impact of cutbacks by the carmakers. It also lowered the company's bank debt to Caa2 from Caa1. Some weeks earlier, on July 28, Standard & Poor's had cut Dura's corporate credit rating to CCC from B-, and had lowered its bond ratings to CC, all with a negative outlook.

Dura, which makes gear shifts and other driver control systems, seating control implements, glass assemblies, structural door modules and exterior trim systems, is trying to overhaul itself operationally to cut costs and bring its spending into line with the diminished revenues that have resulted from the decline of the "Big Three," a core market for Dura's products.

In February, it announced a multi-part turnaround plan - which the company nicknamed "50-cubed," since its elements include achieving a 50 parts-per-million quality level, raising average earnings by 50% from the company's historical performance, and transferring at least 50% of it production to what it terms "best-in-cost" facilities - mostly, though not exclusively in lower labor cost regions such as Mexico or Eastern Europe. Dura also at that time announced plans to put three non-core German businesses up for sale.

But despite its efforts at belt-tightening, including plant closings and headcount reductions, the company continues to hemorrhage money. In July, Dura reported that revenues for the fiscal second quarter ended July 2 fell to $573.3 million from $623.8 million in the year-earlier period, and the company suffered a net loss of $131.3 million ($6.96 per diluted share) - a sharp deterioration from its $3 million (16 cents per diluted share) of net income in the 2005 second quarter. Dura's adjusted loss from continuing operations for the quarter, excluding facility consolidation charges and a deferred tax asset valuation allowance, totaled $38.3 million ($2.03 per diluted share) versus adjusted income of $1.6 million (nine cents per diluted share) a year earlier.

As of the end of the second quarter, Dura's balance sheet showed $278.809 million of long-term debt, net of current maturities, as well as the $400 million of 8 5/8% notes, $532.519 million of the 9% notes, and $55.2 million of convertible trust preferred securities subject to mandatory redemption.

Other autos fail to follow

Dura's debacle did not drag Dana, Delphi or the other names in the sector down though, a trader said.

"Not really," he opined. "Nothing really came off."

Another trader saw the bankrupt Troy, Mich.-based parts maker Delphi unchanged to off ½ point, with its 6½% notes due 2009 half a point lower at 96.25 bid, 97.25 offered, while its 7 1/8% notes due 2029 were unchanged at 91 bid, 92 offered.

Dana's 6½% notes due 2008 were meantime unchanged at 75.5 bid, 76.5 offered, while its 5.85% notes due 2015 were ¼ point down at 71 bid, 72 offered.

Danka better on asset sale

On the upside, Danka Business Systems got a boost from the news that the London-based international distributor of photocopiers, network printers, multifunction devices and other automated office equipment, parts and supplies has agreed to sell its European business to Ricoh Europe BV for $210 million in cash.

Danka will now focus on its growing business in the United States. Proceeds from the sale will go to pay down debt.

Danka's 10% notes due 2008 were seen up 6 points at 97 bid, 98 offered.

At another shop, the 10s were seen up 5½ points at 97.75, while its 11% notes due 2010 were 6¼ points better at 98.5.

SunCom sale speculation

SunCom Wireless Holdings's bonds firmed on market speculation that the Berwyn, Pa.-based wireless telecom provider may look to sell its Puerto Rican operations, use the proceeds to pay down a large chunk of its $1.7 billion of debt, and then restructure around its remaining business in the United States.

"Call it a potential asset sale," a trader said, in pegging the company's 8¾% subordinated notes due 2011 - the old Triton PCS bonds - up 5 points at 89 bid, 90 offered.

At another desk, a market source saw SunCom's 8½% senior notes due 2013 at 95.375, up 5/8 on the day, and quoted the 83/4s in the mid-80s, for a 2 point gain on the session.

SunCom bonds have firmed smartly since the start of the month, with the 81/2s up nearly 2 points in that time, not including Thursday's gains, and both the 8 1/s and the company's 9 3/8% subordinated notes due 2011 quoted up some 8 points since the start of last week.

Talk of a possible asset sale and debt paydown got some legs from a Debtwire story laying out the Puerto Rico sale scenario, which conservatively estimated the unit's value at $250 million, but allowed that some knowledgeable people say that the Puerto Rican assets are a valuable EBITDA generator and would likely fetch well above that figure.

The story quoted a person familiar with the situation as denying that any kind of out-of-court or prepackaged plan was currently in the works. However, he did confirm that the company's management continues to hold discussions with large bondholders about potential deleveraging transactions.

Stone Energy deal dead

Apart from asset-sale news, the announcement that Stone Energy Corp. and Energy Partners LP will not be merging after all sent the bonds of the two companies in opposite directions.

Energy Partners' 8¾% notes due 2010 were seen up a point at 104 bid, while Stone's 6¾% notes due 2014 were seen having fallen as much as 3 5/8 points to 95.625.

A trader saw the Stone bonds down 3 points or more across the board, quoting its 63/4s at 94 bid, 96 offered, and the company's floating rate notes due 2010 at 97 bid, 99 offered.

Energy Partners, a New Orleans-based independent energy exploration and production company, had agreed some months back to acquire Lafayette, La.-based E&P operator Stone in a cash-and-stock deal valued at $1.4 billion, along with assumption of $563 million of Stone debt. But in announcing the deal was off, Energy Partners paid Stone an $8 million breakup fee. EPL said it would explore other alternatives to boost its share price, including sale of the company- but urged its shareholders to reject an unsolicited bid for the company made by Australian operator Woodside Petroleum Ltd.

Hexion sets deal

In the primary market, specialty chemicals maker Hexion announced its plans to sell $825 million of new senior secured notes, and at the same time expects to enter into a new $2 billion term loan facility and a new $50 million synthetic letter-of-credit facility.

Information about the upcoming bond deal is sketchy - market sources had no definitive word on who would lead the transaction, although signs seemed to point in the direction of Credit Suisse, which has worked on financings for the company before, and which is the dealer-manager for a tender offer the company has begun for several series of its existing bonds. Bond-deal proceeds will be used to buy those bonds from their holders.

There was also no immediate word on the timing of the upcoming deal, although a company spokesman told Prospect News that the offering would likely come to market "in the near term," which he said meant more or less concurrently with the tender offer, which has an Oct. 24 consent solicitation deadline, and is scheduled to expire on Nov. 8, with both deadlines subject to possible extension.

Besides the tender offer, proceeds from the bond deal and from the new credit facilities will be used to repay existing credit facilities and to pay a $500 million common stock dividend to the privately held company's shareholders.

CompuCom talk, covenant changes

Also on the new-deal front, primaryside participants heard price talk emerging on CompuCom Systems's prospective $175 million offering of eight-year senior notes.

They expect the offering to yield between 11¾% and 12%.

The books on the deal were expected to close at the end of trading Thursday, with pricing expected subsequently. The deal will be brought to market via bookrunner Citigroup.

The syndicate sources said that there had been some changes made in the deal's covenants since its Sept. 26 launch.

The company, a Dallas-based provider of outsourced information technology services, plans to use $125 million of the anticipated proceeds from the deal to pay existing debt, and will use $45 million to pay a dividend to its equity sponsor, Platinum Equity LLC, a Beverly Hills, Calif.-based information technology industry buyout specialist which acquired CompuCom in 2004.

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