Textile maker bank debt continues slide; distressed bonds becalmed

By Paul Deckelman and Sara Rosenberg

New York, July 8 - Bank debt of textile makers continued to take a pounding Thursday, traders said, with Dan River Inc. the punching bag of choice, this as a result of continued pressure in the sector that began with rumors about a possible liquidation of Galey & Lord Inc. and poor monthly numbers recently released by the company.

For the period from May 9 to June 5, Dan River, a Danville, Va.-based textile company, had a net loss of $4.729 million and cash and cash equivalents at the end of the month of $2.148 million, according to an 8-K report filed with the Securities and Exchange Commission on Wednesday.

The market on Wednesday's target of choice, WestPoint Stevens Inc., tightened up a little bit on Thursday with the bank paper trading in an 83 bid, 85 offered context, according to a trader. On Thursday that paper had dropped by about five points to 82 bid, 87 offered.

A trader in distressed bonds meantime quoted its 7 7/8% notes due 2005 and due 2008 as both trading "in the low 2s" - around two cents on the dollar for the West Point, Ga.-based bed and bath home fashion manufacturer's nearly worthless bonds.

And the bank debt of Galey & Lord - catalyst for the whole textile sector meltdown this week - once again managed to hold steady at 38 bid, 42 offered, a trader said.

But, Galey & Lord had previously already spiraled lower, falling to 35 bid, 45 offered, down from 48 bid, 49 offered last week after the New York-based textile company held a private investor call that sparked rumors of a possible liquidation.

Elsewhere, "we were pretty much bored to tears," a trader in distressed bonds opined. "There wasn't much moving around."

He saw Pegasus Satellite & Communications Inc.'s bonds for instance, "not much changed," still around the same levels in the lower 50s to which the Bala Cynwyd, Pa.-based satellite television programming distributor's bonds had moved earlier in the week.

The bonds were "very unchanged," said another trader, who quoted them around 52 bid, 53 offered.

Pegasus Media & Communications Inc.'s term loan D and initial term loan have meanwhile moved higher by about half a point since last week as more buyers have been coming in to the market, according to a trader.

The D tranche was quoted at 99.25 bid, par offered and the initial term loan tranche was quoted at 98 bid, 99 offered on Thursday.

Adelphia bonds dip

Bonds of Adelphia Communications Inc. were "a little lower," a trader said, quoting the Greenwood Village Colo.-based cable operator's 10¼% notes due 2011 at 97 bid, 98 offered, while its 7 7/8% notes due 2009 were at 91.5 bid, 94 offered, "just on lack of interest." Adelphia's 9 7/8% notes due 2007 lost a point to 96 bid. Traders have attributed Adelphia's recent slide of nearly 10 points from its prior highs to a combination of factors, most notable of which is a cooling of investor hopes that cable giant Time Warner will step in and buy some - or maybe even all - of Adelphia's assets.

AMR bonds, loans drop

Oil prices and some bearish talk from the former head of the pilot's union at AMR Corp. caused investors in the Fort Worth, Tex.-based airline giant to think about reaching for their parachutes.

The company's 9% notes due 2012 were seen down about half a point to 78 bid, 80 offered, while its bank debt was quoted at 93 bid, 95.5 bid. AMR shares meantime fell 69 cents to close at $10.66 Thursday on the New York Stock Exchange after ex-union leader John Darrah's 14-page note to fellow pilots was made public.

He said that the company's financial returns have been nearly $1 billion short of projections since last year - and will get worse, threatening the long-term viability of its American Airlines unit.

A spokesman for American, said the airline's turnaround was still on course.

Airline convertibles hit

A sharp spike in oil and fuel prices was blamed by many traders for the plunge in airline convertible paper Thursday.

The August futures contract for crude oil soared $1.25 to end Thursday at $40.33 a barrel after hitting $40.40 during the session.

"I think they [airlines] are lower due to oil going up 3.2% to a five-week high of $40.33," said a sellside convertible trader.

But he observed an interesting strategy in the AMR converts.

"Hedgies are setting up AMR paper at a 10- to 11-point spread, betting on a collapse," the dealer said, noting the convert arbs are buying the AMR 4.5s and selling the AMR 4.25s at price levels 10 to 11 points apart.

Although AMR narrowly averted an emergency landing in bankruptcy court last year by getting nearly $2 billion in wage concessions from its unionized employees, a buyside convert trader said: "The turnaround has run aground."

If so, that's also bad news for Delta Airlines, which is trying to do what AMR did - get big concessions from its pilots in order to stay alive.

The sellside converts dealer said, however, that it seemed Delta would be more likely to crash before AMR, at this time. And, he said wage concessions - past tense for AMR, and in progress at Delta - may fall short of what the carriers will need to stay afloat.

"DAL will go first," he said. "AMR is in better shape.

"The key is you want to file with about $1 billion to $1.5 billion in cash so you can survive 1.5 to 2 years in Chapter 11 [bankruptcy] without having to get financing along the way," the trader continued. "That is why DAL would choose to file sooner rather than later. [There's] no point in burning cash this winter - just file and reorganize the cap structure."

In addition to skyrocketing fuel costs, which have saddled the airline industry across the board, labor costs have been a major focal point for Delta management.

Atlanta-based Delta and its unionized pilots have been in discussions on wage concessions for almost a year Delta has said it must slash its pilot contract by 45%, whereas the latest pilot offer was for a 9% pay cut. While the negotiations still seem miles apart, there has been some sentiment recently in the market that the pilots will cave in.

"The unions will help, but they may not be enough," the sellside convert trader said. "AMR got a big pay cut and they are still looking for savings. Oil [or fuel costs] and over capacity my hurt as well."

Unions at bankrupt carrier United Airlines have already agreed to $2.5 billion a year in concessions, but the airline has said it may need to ask for more in order to secure exit financing from private sources.

Delta's 8.30% junk bonds due 2029 closed Thursday at 39 bid, 39.5 offered - well down from prior levels at 40.25 bid, 41.25 offered.

(Ronda Fears contributed to this article.)

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.