Intermet files bankruptcy, bonds gain 5 points; Delta bonds lower; Solutia higher

By Ronda Fears

Nashville, Sept. 30 - Auto parts maker Intermet Corp. filed bankruptcy Thursday, echoing complaints about the record steel prices that prompted it earlier this month to warn of a third-quarter net loss. But its bonds, which had been slipping rapidly over the past two weeks, regained 5 points to around the 40 area on hopes of collecting accrued interest in a bankruptcy case.

Solutia Inc.'s bonds were higher, too, by 2 points, a distressed debt trader said, although there was no news to move them. The company is seeking an extension to the exclusive period for it to file a reorganization plan.

Following two previous extensions, the St. Louis chemical company now wants until Jan. 10 to file a plan and until March 10 to solicit votes. A hearing on the request was slated for Wednesday, but the outcome has yet to surface.

The lack of any newsflow on the Delta Air Lines Inc. situation was cause for its bonds, including two convertible issues, to drift lower by around 1 point, as a buyside convertible trader suggested the markets are more skeptical than optimistic when there is no news circulating.

Intermet bends to bankruptcy

Intermet, which makes powertrain, chassis, suspension and structural components, suffered not only from the skyrocketing steel and other raw material prices over the last 18 months or so, one distressed bond trader said, but also the downturn in auto sales.

The trader noted that September auto sales figures are due to be released Friday "and they are still not looking very good, despite all the [manufacturer incentives] programs."

Intermet's top customers are Ford Motor Co., General Motors Corp. and DaimlerChrysler as well as parts suppliers like Visteon Corp., Delphi Corp. and Metaldyne Corp. - several of which have issued their own earnings warnings amid sluggish sales.

Intermet said it expects operations to continue without interruption and noted its European operations were not included in the bankruptcy.

Intermet warned about three weeks ago that the continued rise in raw materials costs was a major factor in its projected third-quarter loss, noting the cost of scrap steel rose to an average of $395 a ton by the end of August from about $160 a ton at the beginning of 2003.

On Sept. 17, Intermet said it expects to post a third-quarter net loss of $19 million, or 74 cents a share, to $24 million, or 94 cents a share, on revenue of $197.8 million. That would compare to a net loss of $50,000 on revenues of $175 million in third quarter 2003.

For the nine months ending Sept. 30, Intermet said it expects a net loss between $33 million, or $1.28 a share, to $38 million, or $1.48 a share, on sales of $625.6 million, versus a net loss of $3.5 million on revenues of $662.6 million in the first nine months of 2003.

Intermet hard-pressed for DIP

Intermet said it is negotiating debtor-in-possession financing of up to $50 million, with nothing certain yet. The company said it is reviewing one firm commitment and one detailed proposal and expects to resolve the DIP financing matter within a couple of days.

The company has asked the court for permission to use cash collateral in the interim, with the consent of the agent for the lenders that have a security interest in the collateral. If approved, that cash should be sufficient to operate at least through mid-October, Intermet said.

It is somewhat unusual that the company filed bankruptcy without having a DIP financing package lined up, said the distressed debt trader, but "not entirely unheard of." Moreover, he said that point was shrugged off by bondholders.

Another distressed debt trader said the Intermet bonds traded sharply higher as holders now foresee the possibility of collecting accrued interest now that the company has filed bankruptcy.

The Intermet 9¾% bonds due 2009 traded Thursday at 39 bid, 41 offered, he said, up from 34 bid, 35 offered on Wednesday. The bonds had melted off more than 40 points last week, to the lower 30s, on the earnings warning, which put it in violation of its bank facility and required a waiver from lenders.

Intermet has about 4,500 workers and 17 plants in North America affected by the bankruptcy, a company spokesman said. The company has about 6,000 employees worldwide.

Delta bonds down 1 point

Delta bonds were down 1 point on Thursday, a distressed trader said, without mentioning any impetus to move them. Indeed, there remained a virtually empty slate of headlines for the Atlanta-based carrier, which is still trudging through negotiations with bondholders to effect debt exchanges and with pilots to wrangle hefty wage concessions.

Although Delta recently announced a 10% cut to its overall wage packages, a firm deal has yet to be struck with its union pilots. Meanwhile, the company's offer to issue $680 million of new senior secured notes for up to $1.56 billion of existing debt runs through Oct. 14.

"One might say no news is good news, but really the feeling is quite the opposite," said a convertible trader who moves Delta paper. He suggested that the lack of newsflow from Delta and/or its union pilots and/or any official bondholder committee members is perceived as a negative pivot point.

"If there was a positive spin they could make, they'd be out there with it," the trader said.

"Now, it's looking more likely that we'll see a pilot deal in conjunction with a bankruptcy announcement. Both sides realize that a pilot deal does not stop the bankruptcy. The pilot deal will be announced with the stipulation that the company will not try for more cuts in the bankruptcy. I suspect that is the negotiating point right now."

Thus, he said the Delta convertibles dropped about 1 point, too.

Delta's 7.70% notes due 2005 skidded from a 44 bid and the 8.30% notes due 2029 drifted off from 22 bid on Wednesday, while the 8% convertibles were down from 32?% bid and the 2?% convertibles off from 33? bid.

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