Collins & Aikman clobbered on Chrysler contract news; Adelphia bank debt better

By Paul Deckelman and Sara Rosenberg

New York, Oct. 3 - The bonds of Collins & Aikman Products Co. skidded sharply lower on Friday after a Detroit-area newspaper reported that Chrysler Corp. "intends to take the extraordinary step of rebidding nearly all of the more than $1 billion in current and future business" that the No. 3 U.S. carmaker does with the already troubled Troy, Mich.-based automotive components supplier.

On the upside, AK Steel Corp. - whose bonds had been getting pounded down for the past few sessions after it released bearish third-quarter earnings guidance - saw its debt firm off its recent lows on Friday, pushed up by news that the Middletown, Ohio-based steelmaker had reopened talks with the United Steel Workers of America, following the failure of contract negotiations earlier this year.

On the bank-debt front, Adelphia Communications Corp. paper was seen up again on Friday, amid talk that the bankrupt Coudersport, Pa.-based cable operator had held a positive meeting with one of its lenders.

But Collins & Aikman clearly was "the big news" of the day, as one distressed-debt trader put it. He quoted the company's 10¾% senior notes due 2006 as having fallen as low as the lower 70s during Friday's busy trading from Thursday's close around 87, and then having firmed slightly off those lows to go home at 78 bid,79 offered - still down around 10 points on the session. And he saw its more volatile 11½% subordinated notes due 2006, which had closed in 77.5 bid neighborhood on Thursday, as having swooned as low as the mid 50s in early trading Friday before recovering a little bit of lost ground to finish around 60 bid.

Collins & Aikman's bonds had been firming solidly earlier during the week - the 111/2s had started the week around 70 and then had risen as high as the 78-79 area over the next few sessions on market talk of a possible bank financing in the offing, before careening downward on Friday.

"You know how they raced up, and the 111/2s got to 77, and then - KABLAM!" said another trader. "It was sheer ugliness today," as the subordinated bonds fell to 61 bid, 63 offered from 77 at his shop, and the seniors dipped to 79 bid, 80 offered from previous levels at 87 bid, 89 offered.

The first trader said the credit "went for a ride" in reaction to a story in Friday's Detroit Free Press, which said that Chrysler - Collins & Aikman's single largest customer - was planning to solicit bids from other potential suppliers for nearly every product Collins & Aikman sells to Chrysler, which itself is struggling to cut costs, boost sales and make a profit this year.

Collins & Aikman chairman and chief executive officer David Stockman was quoted by the newspaper saying the idea that Chrysler would put most or all of Collins & Aikman's business up for grabs was "flat wrong," and it quoted another unidentified executive of the parts supplier as saying that Chrysler could not re-source most of its business with Collins & Aikman - among its 10 largest suppliers - because it has several new products upcoming for which Collins & Aikman is a key supplier of interior component parts on, and throwing those contracts to someone else at this stage of the game would throw the rollout of those Chrysler models into disarray.

But that may just so much whistling past the graveyard. The paper also quoted an unidentified Chrysler executive as blasting the interior parts maker. "By any measure - cost, quality, delivery or technology - Collins & Aikman is probably our worst supplier," he said. "Every piece of business they do with us is at risk. It either is now or it will be soon."

"Who knows how much of this is true?" said the distressed-debt trader, "but it was definitely a Collins and Aikman morning and certainly was the biggest, most active issue today."

Auto industry experts say the loss of all or most of the $1.2 billion Chrysler business would be devastating to Collins & Aikman, which does around $4 billion of business a year overall.

Another trader said that the analysts at his shop believe that there is about "a 25% chance of a blow-up in this credit," with the senior notes falling as low as 35 in a worst-case scenario and the subordinated bonds to 18. They see about a 50% likelihood that Collins & Aikman stays in its current weakened state, with the senior bonds holding in a range of 72 to 78 and the subordinateds at 62 to 68, and a 25% chance that the credit will improve somewhere down the line, with both tranches of bonds firming into the high 90s in a best-case scenario.

Equity investors obviously weren't looking at any best-case scenarios Friday; they took Collins & Aikman shares down $1.30 (34.85%) to $2.43 in heavy New York Stock Exchange dealings of 7.2 million shares - about 33 times the usual turnover.

Another issue making news on the distressed desks was AK Steel, whose 7 7/8% notes due 2009 were seen having firmed to 68 bid from Thursday's levels around 65.75, while its 7¾% notes due 2012 were three points better at 66.5.

While Collins & Aikman had been firming previously but lurched into reverse on the negative news in the Free Press, AK bonds had been struggling the past several sessions, ever since the company warned that its third-quarter losses would likely come in larger than analysts were anticipating (82 to 86 cents a share, versus Street estimates of 62 cents a share).

But they turned around Friday after AK said it had met with the steel workers union to offer a "new approach" toward resolving outstanding issues that kept the company and its main union from reaching a contract agreement earlier in the year.

Adelphia Communications bonds were "up a little," a market source said, pegging its 10 7/8% notes due 2010 and 9 7/8% notes due 2005 at 74.5 bid, up from 72 and 72.5 previously. He saw the bonds of its Century Communications unit, such as the 9½% notes due 2005, unchanged at 70.2 bid, although its 8 7/8% notes due 2007 were seen at another desk up several points to around 76 bid, while the parent company's 9 7/8s were more than two points better at 75.5.

Adelphia's bonds were likewise firmer, with the Old Century tranche quoted at 88.75 bid, 89.25 offered and the New Century tranche quoted at 86 bid, 87 offered, according to a trader. Both pieces of paper were up about half a point on the day.

"We heard there was a lender meeting today," the trader said, speculating that the bank debt is being pushed up because people like what they're hearing from the company.

There was talk on this past Wednesday as well of a private lender meeting during which the company was said to have released better performance numbers. On that particular market talk, the company's bank debt was reported to be up by about a point across the board.

Elsewhere, WestPoint Stevens Inc.'s bank debt saw some activity on Friday with the first lien tranche quoted slightly higher at 93 bid, 94 offered, versus 92.5 bid, 93.25 offered on Thursday, according to a distressed-debt trader.

"They released monthly numbers on Tuesday that were a bit lower than expected but the bank debt never dropped," the trader added, explaining that the financial news may be what's causing the trading activity in this particular name.

Financial results for August issued by the West Point, Ga.-based maker of bed and bath home fashion products included a monthly loss of $5.185 million, according to a filing with the Securities and Exchange Commission.

A distressed-debt trader said that WorldCom Inc. bonds were little changed at 33.75 bid, while its MCI unit's notes hung in at 77 bid, 80 offered. WorldCom-owned Intermedia Communications was quoted at 84 bid, 85 offered.

But he said outside of the brisk activity in Collins and Aikman and, to a lesser degree, in AK Steel, it was mostly "a trade by appointment environment."

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