Collins & Aikman clouds as Chrysler pulls contracts; Calpine shoots ahead; Fleming lower

By Carlise Newman

Chicago, Nov. 6 - Collins & Aikman Corp. paper dimmed slightly Thursday after the company confirmed that it would not supply interior trim for future DaimlerChrysler AG midsize sedans. News reports had said Chrysler was considering the company's role as a supplier a few weeks ago.

Collins & Aikman said in a news release that the Chrysler "D-segment" business did not meet higher hurdles for returns on investment that it adopted after obtaining the interior trim contract in April. The company said the business would not produce revenue until mid-2006 or later, while requiring an initial investment of more than $50 million plus significant price givebacks on current business.

"The bonds dropped as soon as the Chrysler news came out," said a trader.

Collins & Aikman's 10¾% senior notes eased to 82½ bid, 83½ offered from 83 bid, 85 Wednesday, while the subordinated 11½% notes fell 2 points to 72 bid, 73½ offered.

When the reports emerged that Chrysler might put all its work with Collins & Aikman up to be rebid that issue fell 7 points. Later, Ford Motor Co. contracted Collins & Aikman for a new vehicle line, and the bonds rallied.

Collins & Aikman said in a news release that it has "fully accommodated Chrysler's effort to transition the D-Segment to another supplier."

"In this context let us be very clear," said chairman David Stockman in the release. "We are in the business of gaining more business but not at any price. Let us also make clear this involves a discreet and specific investment decision. We obviously value our relationship with DaimlerChrysler and remain dedicated to world-class performance on all existing and future work they may award us."

Elsewhere, Calpine Corp. paper continued to rise after the company posted a profit Wednesday for the third quarter. In addition, on Thursday the company announced two separate note offerings totaling $1 billion. Calpine will use proceeds to pay down debt.

The San Jose, Calif. company said it will offer about $600 million of senior unsecured convertible notes due 2023 and about $400 million of a new series of second-priority senior secured notes. Late in the session, terms emerged on the senior secured notes - they priced to yield 10.243%.

Calpine's 8½% notes due 2011 were up about 3 points on the session to about the 73½ bid, 74½ offered, according to a trader.

"Nothing was stopping those bonds today," he added.

Calpine said net income jumped to $237.8 million, or 51 cents a share, from $151.1 million, or 34 cents, in the year-ago quarter.

Calpine's latest quarter included a gain of 23 cents per share from the repurchase of debt and preferred securities, partially offset by a 1 cent per share loss for other charges. The one-time gain in the latest quarter came as Calpine's financial woes, linked partly to slumping electricity prices, enabled it to repurchase some debt at a discount.

Meanwhile, Fleming Cos. Inc.'s bonds were lower after a brief period above water. The 10 1/8% notes due 2008 fell to 16 bid from 16¾ bid when last seen trading a few days ago. The bonds had jumped to 16½ from 15 bid last week, which traders said was not due to anything in particular, but was a big percentage move.

Fleming is being investigated by the Securities and Exchange Commission for a host of issues, including its vendor trade practices, accounting for some sales transactions, and its presentation of earnings.

Late Wednesday, news was out that at least two major U.S. food companies may face civil charges from federal regulators on allegations that they helped the food distributor inflate its revenue. Kraft Foods Inc. and Dean Foods Co. both said on Wednesday they received notices from the SEC on the matter.

"Fleming paper is basically dead," one trader said.

HealthSouth Corp. debt continued to trade at lower levels after reports late Monday that the company's noteholders had declared the company in default and after the company's former chairman was indicted on 85 criminal accounts.

HealthSouth said that it has received a notice of technical default from some holders of its senior notes and senior subordinated notes. The notes provide for a cure period, following which the noteholders would have the right to accelerate payment of the outstanding amount on the notes.

HealthSouth's 7 5/8% notes due 2012 fell 1 point to 77 bid, 79 offered, one trader said. The bonds had fallen 6 points on Tuesday.

"The bleeding is slowing, but they're really up against a lot," he said.

The company said in a news release that it is current on all interest payments due to its bank and noteholders and reiterated its intention to remain current on all upcoming interest payments.

Meanwhile the company's former chief executive officer Richard Scrushy was indicted on 85 criminal counts, including conspiracy to commit fraud, in connection with the massive accounting scandal at the Birmingham, Ala.-based company he founded.

Elsewhere, WorldCom Inc. again was barely changed a few days after obtaining court confirmation for its reorganization plan.

WorldCom debt was ¼ point higher at 38¼ bid, according to a trader. The bonds rose 2 points last Friday in anticipation that the plan would be approved, and rose about 4 points so far throughout this week. They began to slow down during Wednesday's session with a rise of only ¼ point.

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