Refco bonds jump on futures unit sale talks; Lear-Ross combo boosts Collins

By Paul Deckelman and Sara Rosenberg

New York, Oct. 17 - For the first time in more than a week, scandal-scarred Refco Inc.'s bonds were seen heading sharply higher Monday, given a boost by the news that the troubled New York-based commodities brokerage is in talks to sell its futures trading unit.

There also was a lot of focus on the auto sector, as news emerged that General Motors Corp. and the United Auto Workers union had reached an agreement on cutting healthcare costs, while WL Ross & Co. LLC and Lear Corp. announced the formation of a joint venture that would look into possibly purchasing some or even all of Collins & Aikman Corp.

That helped boost the bonds of companies in that sector, as well as giving an overall better tone in the bank debt of auto names, with Collins & Aikman one of the big gainers.

But the biggest gainer in the bond and bank debt world was Refco, which said Monday that it is in advanced negotiations with a group of investors led by J.C. Flowers & Co. for the sale of its futures brokerage business conducted through Refco LLC, Refco Overseas Ltd., Refco Singapore Pte. Ltd., and certain related subsidiaries and other assets.

The company went on to say that it expects to reach a memorandum of understanding with J.C. Flowers shortly and will execute definitive agreements soon thereafter.

Refco was "very volatile," a bond trader said, noting that the company's 9% notes due 2012, which had gone home on Friday quoted at 31.5 bid, 32.5 offered, had opened Monday at 38, boosted by the J.C. Flowers news and "immediately raced up to 48," before backing off that high to close at 41 bid, 42 offered.

"It ended up 10 points, day-over-day," he said, even though the bonds were off six or seven points from the highs.

He said most of the wildly volatile dealings took place in the mornings.

A trader in distressed bonds saw an even greater swing, pegging the bonds as having opened at 29 bid, 31 offered, around Friday's close, and then having shot all the way up to 50 bid, 51 offered, before coming down and closing at 41 bid 43 offered.

Those bonds had been trading as high as 108 bid on the Friday before Columbus Day, but then moved sharply downward - to about 90ish on Tuesday, the first day back from the holiday, into the 70s on Wednesday, to 40 bid on Thursday, and finally, 30 bid Friday.

In the bank debt market, Refco's debt rallied by into the 80s when, after the recent surge of negative news, a positive finally surfaced - the news that Refco is close to selling the futures brokerage business.

The bank paper was quoted at 81 bid, 83 offered in the late afternoon, after having traded as high as 86 bid, 88 offered in the morning, sources said. Those levels were dramatically higher than Friday's closing quotes of 64 bid, 68 offered.

All last week, Refco's bank debt and its bonds were seen seesawing all over the place, with bank debt levels swaying anywhere between the 50s and the 80s after news broke that Phillip R. Bennett, now ex-chief executive officer and chairman of the board of directors, owed the company an approximately $430 million receivable.

Bennett was said to have repaid the receivable in cash, including all accrued interest. However, the impact is still being felt as problems with previous and upcoming financial statements resulted from the alleged fraud, multiple rating downgrades were announced, a 15-day moratorium on all activities of Refco Capital Markets LLC was imposed because of liquidity issues and the company's regulated broker dealer, Refco Securities LLC, initiated the process of unwinding proprietary and client positions.

Refco has retained as special advisors to its board of directors Arthur Levitt, formerly chairman of the SEC and chairman of the American Stock Exchange, and Eugene A. Ludwig, formerly U.S. Comptroller of the Currency, and currently chief executive officer of Promontory Financial Group LLC and Promontory Financial Group LLC. Goldman, Sachs & Co. has been retained as the company's financial advisor.

There had been a little speculation in the markets - not overly much - that Refco could conceivably seek bankruptcy protection, slipping in under the wire just before changes toughening the federal Bankruptcy Code took effect on Monday.

But there was no filing - and in fact, market participants reported hearing of no such sudden, last-minute filings of convenience by debt-laden companies - perhaps because all of the really troubled companies that were going to file had already done so, culminating in Delphi Corp.'s filing over the Columbus Day holiday weekend. There was just one small filing - Boyds Collection Ltd.

Delphi up on GM news

Delphi's bonds were knocked around after that filing, but showed signs of recovering Friday, probably due to short-covering. They were up again on Monday, with Delphi's 6.55% notes due 2006 moving up to 65.5 bid, 66.5 offered, up about four points on the day.

Delphi, along with the rest of the automotive sector, got a boost on Monday on the news that its former corporate parent, General Motors Corp., had reached an agreement with the United Auto Workers union on healthcare costs that will save it an estimated $3 billion annually - as well as news that it is seeking a buyer for a controlling stake in its General Motors Acceptance Corp. Such a transaction could bring in anywhere from $12 billion to $15 billion, if consummated, according to sources in the market.

Collins & Aikman strong

One of the biggest automotive gainers was Collins & Aikman, whose bank debt strengthened by about two to three points, according to traders.

More specifically, the bankrupt Troy, Mich.-based automotive interior components manufacturer's bank debt was quoted at 97 bid, 98 offered late in the afternoon, up from 94 bid on Friday, a trader said.

Meantime, Collins & Aikman's 10¾% notes due 2011 were firming smartly to 52.5 bid, 53.5 offered from prior levels at 49 bid, 51 offered on the news, a trader said.

On Monday morning, private equity firm WL Ross and automotive interior systems supplier Lear said that they had signed a framework agreement providing for a joint venture relationship to explore strategic acquisition opportunities in the automotive interior components sector.

The proposed joint venture plans to explore, among other things, the acquisition of all or a portion of Collins & Aikman - something each company has said separately that it might be interested in.

"The market for interior component products is severely distressed and we have indicated that we are actively engaged in finding a better solution for our customers and our shareholders," said Bob Rossiter, Lear chairman and chief executive officer, in a news release.

"With the support of our customers, the proposed joint venture provides the best near and long-term opportunity to achieve a viable business model for this product segment, while also offering significant opportunities to participate in the ongoing restructuring and consolidation of the automotive supply industry."

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