Mirant bank debt backpedals, but not bonds; Salton bonds gain as company has plan for '05 notes

By Paul Deckelman and Sara Rosenberg

New York, September 30 - Mirant Corp.'s bank debt gave up about half a point on Friday after its big two day rally, according to a trader. However, the bankrupt Atlanta-based power generation company's bonds continued to firm, traders in that market said.

Salton Inc.'s bonds slated to come due in December were seen trading in the mid 90s, up several points from previous levels, after the company told investors and analysts that it will definitely use some of the proceeds from recent asset sales to pay off the remaining outstanding December bonds.

Mirant's 2003 paper closed out the day quoted at 108.5 bid, 109.5 offered, down from 109 bid, 110 offered, a bank debt trader said.

However, a market source pegged Mirant's 7.40% notes, which were to have matured last year, at 120.5 bid, up 2½ points on the day. He saw the company's 7.90% notes due 2009 up a like amount, at 121.5 bid.

At another desk, a trader quoted Mirant's convertible debt up, its 2½% converts due 2021 and its 5¾% notes due 2007 each up a point on the day, at 104 bid, 105 offered on the 21/2s and 114 bid, 115 offered for the 53/4s.

This past Wednesday, various news outlets reported that NRG Energy Inc. is in advanced discussions to buy Texas Genco in a deal expected to be valued at $5 billion or more.

One the heels of those reports, Mirant's bank debt jumped up by a good three points as investors liked the valuation that the NRG/Texas Genco acquisition was given. And then on Thursday, the paper jumped up by about another point and a half.

Prior to the merger talk, Mirant's '03 paper was quoted at 104.25 bid, 105.25 offered and the 2004 paper was quoted at 103.25 bid, 104.25 offered.

Owens Corning loans rise

Also on the bank loan front, Owens Corning's bank debt was up by about another point and a half on Friday, still spurred on by hopeful feelings that an emergence from bankruptcy by the asbestos-challenged Toledo, Ohio-based insulation maker could happen by the end of this year.

The paper was quoted at 129.5 bid, 130 offered on Friday and has gained three to four points over the last few days, according to a trader.

"The judge announced that he wants the company out by year-end, which isn't going to happen. But people are hopeful that maybe they'll reach an agreement with bankers," the trader explained.

Salton notes higher

Elsewhere, Salton's 10¾% notes coming due Dec. 15, were seen having jumped to 95 bid from prior levels around 91, apparently in line with the Lake Forest Ill.-based small appliance maker's smaller fiscal fourth quarter and fiscal 2005 losses, relative to last year. Also boosting the notes was the company's revelation that it will use a portion of the proceeds from recent asset sales to redeem all of the remaining $46 million of 10¾% notes (see related story elsewhere in this issue)

On a conference call following the release of the quarterly and year-end results, Salton's chief financial officer, David Mulder, proclaimed that some of the more than $90 million of the asset-sale proceeds will be used to augment the company's liquidity, so that "we have sufficient working capital to allow the company to meet its obligations through the holiday season."

Mulder, Salton's chief executive officer, Leonhard Dreimann, and its president and chief operating officer, William Rue, told the conference call participants that having finally gotten that thorny problem of the maturing bonds out of the way, having put some extra cash back into the company's till and restructured its loan agreements to give Salton more financial flexibility, having made strenuous efforts to mitigate rising costs of such vital raw materials as steel and petroleum-based plastics, and having wrung about $50 million in permanent operating costs out of its domestic operations since May 2004 - beating its original goal of $40 million of cost cuts, with another $25 million of cost cuts expected over 2006 and 2007 - Salton would be poised to return to profitability.

Delphi bonds gain

In relatively quiet secondary dealings, Delphi Corp.'s bonds were seen better, in tandem with a rise in the company's shares apparently motivated by analysts being not too worried about a possible upcoming breach of the company's loan agreements.

Delphi "spurted" Friday, a trader said, quoting the Troy, Mich.-based automotive electronics maker's 6.55% notes due 2006 as having firmed up to 73 bid, 74 offered from opening levels at 70 bid, 70.5 offered, before coming off that peak level later in the session to close at 72 bid, 73 offered.

At another desk, a market source quoted Delphi's 6.55s up 2¾ points to 74.5, while its 6½% notes due 2009 was up more than two points at 70.5. The 6½% notes due 2013 were up ¾ point at 67.5, while its 7 1/8% notes due 2029 was also ¾ point ahead, at 64.5.

"All of the Delphis went up a little," another trader said, "but the '06s went up more - and came back down."

He saw the 6.55s push as high as 75 bid from 71 bid, 73 offered at Thursday's close, but then come back down to 73 bid, 75 offered.

He saw the 6½ 2009s coming off their peak and ending a point higher at 68 bid, 70 offered, while the 2013 61/2s were at 67 bid, 69 offered, and the 7 1/8s rose to 63 bid, 64 offered, all up a point.

Delphi's New York Stock Exchange-traded shares jumped 24 cents (9.52%) to $2.76 on volume of 31.4 million, four times the norm.

News reports said that the company was getting close to breaching certain debt-to-EBITDA requirements on its loan covenants.

However, analysts, such as J.P. Morgan's Himanshu Patel, downplayed the significance of this development. Patel wrote in a research note that "we do not see the tripping of this debt covenant as a major development in this story," even suggesting that it might work to Delphi's advantage to be in default, as this might add a sense of urgency to its ongoing talks with former corporate parent General Motors Corp. and the United Auto Workers union, which represents employees at some high-labor cost factories that Delphi inherited when it was spun off from GM several years ago.

Delphi is asking GM and the UAW for help in dealing with its labor cost problems, and has warned that it could file for Chapter 11 before Oct. 17, when changes making the federal bankruptcy laws less friendly to debtor companies are slated to take effect.

Patel also noted that while the alerted its hourly workers that their pensions could be at risk if it files for bankruptcy, "we do not see the existence of this letter [to workers] as a strong indicator of the status of the ongoing talks."

Delphi announced late in the session that it expects to end the current quarter with $1.6 billion of cash - up from financial market expectations - and is considering asking its lenders for a covenant waiver (see related story elsewhere in this issue).

Examining Ford move

Market players meantime continued to analyze Ford Motor Co.'s announcement earlier in the week that it plans to radically overhaul its procurement policies, aiming to eliminate about half of the roughly 2,500 suppliers from whom it buys an estimated $70 billion of auto parts for its vehicles per year.

The nation's Number-Two carmaker said it would restructure its purchasing activities to direct more of its business to certain dedicated key suppliers, including Delphi, Visteon Corp. and Lear Corp., along with Magna International Inc., Johnson Controls Inc., Yazaki Corp. and Autoliv Inc.

What might this mean to the junk world's automotive supplier sector?

High yield analyst Chris DeYoung of Schroders plc said that Ford's designation of Visteon, Lear and Delphi as key suppliers is "an obvious benefit to those companies." Of more interest from a high yield perspective, he said, is which of the companies in the automotive supplier sector will be left on the outside looking in when Ford makes its final cut sometime before it starts building its 2008 models.

Suppliers who stand to lose Ford business, he said, include Dura Automotive Systems Inc. and Collins & Aikman Corp.

He noted that Magna - one of the seven companies Ford named as key suppliers - "competes with Dura across a number of product lines, so I believe that Dura could be a potential loser from this acceleration of Ford's consolidation of its supplier base."

At a recent Bank of America investment conference, the Rochester Hills, Mich.-based maker of automotive control systems touted a new electronic transmission shift module which Ford liked enough to order for all of its various models. However, DeYoung noted that Ford's most recent consolidation move does not take effect till 2008 at the soonest.

Another potential big loser, he said, is Collins & Aikman, which currently gets about a quarter of its revenues from Ford-related sales.

The Troy, Mich.-based maker of automotive interior components is currently in the throes of bankruptcy - Ford, in fact, along with General Motors, Chrysler and several big Japanese automakers, all Collins customers, recently threw the company a financial lifeline by fronting it additional debtor-in-possession funding after a JP Morgan-led bank group refused to come across with a second scheduled installment of DIP funds, citing Collins' deteriorating outlook.

DeYoung noted that Collins competitor Lear - which has expressed interest in perhaps combining its interiors business with Collins & Aikman's in a joint venture - "made the list [of preferred suppliers] and CKC didn't. You could draw conclusions from that."

Other high yield automotive components makers who might also find themselves left without a chair when the music suddenly stops, in DeYoung's estimation, include Tower Automotive - like Collins & Aikman, now in bankruptcy - and Dana Corp., whose ratings were recently junked by the two of the three major agencies who previously had it as an investment-grade credit.

One name which was not on the initial list of the seven key suppliers Ford unveiled - but which might still wind up as a Ford supplier going forward, since Ford said it would be expanding its list - is TRW Automotive. DeYoung enthused that "there's no question about it" that Lake Forest, Ill.-based TRW "is a great credit, and I don't think TRW will be dropped from the list."

As far as other supplier names, he said "what I think you might find is some of the companies falling into the category of a Tier II supplier - supplying to the Tier I's that made the list."

The Schroders analyst said that Ford's move is certainly not a new development in Detroit - "it's something that's been unfolding in the auto industry for a number of years, consolidation of suppliers." While GM and Chrysler also previously indicated that they would be consolidating their supplier base, he said, Ford's formal announcement that it would be halving the number of its suppliers and announcing the first of the suppliers who will be a part of its new system "just seems to be one of the most dramatic moves by one of the Big Three in this timeframe."

Auto names better

At another desk, a market source saw Tower Automotive's 12% notes due 2013 up nearly a point at 86.75. Collins & Aikman's 10¾% notes due 2011 were at 44 bid, 45 offered.

Adelphia Communications' bonds were seen down two points on the session, its 10¼% notes due 2011 at 76 bid, 78 offered, and its 10¼% notes due 2006 dropped to 72 bid, 74 offered.

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