Refco climbs on bankruptcy, sale; Delphi, Visteon up on Valeo buzz; Collins & Aikman extends gains

By Ronda Fears and Paul A. Harris

Nashville, Oct. 18 - Just when Refco, Inc. bondholders thought the company would not file bankruptcy as the deadline passed for filing under the old code, which was friendlier to debtors, the company dove into bankruptcy and announced it would sell its key futures unit to a group of investors led by private buyout firm J.C. Flowers & Co. LLC for $768 million.

As a result the Refco Finance 9% bonds extended gains seen Monday on relief that a bankruptcy wasn't filed. Actually, the company filed bankruptcy late in the day Monday after the markets closed, so the bonds resumed the climb Tuesday.

"Refco bonds opened today at 49, that was up from Monday's close of around 42/43," said a distressed trader. "They took off and I saw them trade as high as 61/62 but then they started coming back down. There was a lot of confusion about which entities were involved in the bankruptcy and how those Finance bonds would be handled. They went home at 54/55."

Another sellside distressed debt trader, however, said the last trade he saw in the Refco bonds was at 52½ right at the close. Refco shares have been frozen at $7.90 since Thursday when trading was halted for news that turned out to be the indictment of former chief executive officer Phillip Bennett, who has pleaded not guilty to charges that he hid bad loans.

One trader said Refco's 9% bonds due 2012 opened the day at 45 bid, 46 offered, traded as high as 61 bid and closed at 51 bid, 52 offered.

"When you discount it for being in bankruptcy for a couple of years you come up with a number like 75," the trader commented.

"But you don't know how they are going to be penalized by the SEC," the source said, adding that a $100 million penalty seemed to be a reasonable guess.

"Factoring everything in we eventually got to a number like 55," the trader added.

"They traded right through 55 and got up to 60-ish, and then came right back off.

"People have sharpened the pencil and tried to figure out what the real value of this company is. Until we get some more information it's going to be a wild swing."

Another trader saw the Refco paper close out 54.0 bid, 56.0 offered, a little stronger on the day but off its earlier highs of 60.0 bid.

The trader marked the Refco 9s up eight points on the bid-side from where they opened to where they closed.

Meanwhile the bank debt was seen finishing better, ending the day in the low 90s.

Elsewhere on distressed debt desks, auto names - particularly Delphi Corp. and not-so-distressed Visteon Corp. - were on a seesaw ride, as well, on buyout chatter originating in Europe. Another boost to auto paper - like that of Collins & Aikman Corp. - came from a rally in the sector generated by a gain in Ford Motor Co. paper amid talk Tuesday that it might take follow General Motors Corp.'s path and sell off its finance unit.

Calpine explains hiring lawyers

While a fair portion of the distressed market was firmer Tuesday, Calpine Corp. bonds got crunched after reports that the company hired a law firm that people speculated was to help them file bankruptcy. But a buyside source said the law firm doesn't mean a bankruptcy filing, as Calpine has had its shares of legal spats.

Calpine said in a statement that it was working with the Kirkland & Ellis law firm in a legal battle with note holder trustees Bank of New York Co. Inc. and Wilmington Trust. The firm specializes in restructuring and bankruptcy litigation but Calpine said the firm "is a long-time advisor" to the company and has been working with it for at least a year in regard to the noteholder dispute, which was not specifically defined.

The Calpine statement did not hit the tape until mid-afternoon, at around 2:45 p.m. ET, so its securities did not rebound much from it. At least one trader also said that market players remained skeptical.

Calpine's short-dated paper dropped 5 or 6 points, the trader said, and longer-dated issues lost around 3 or 4 points, while its convertible bonds lost 5 to 10 points. Calpine shares fell 20% at one point of the session but recovered somewhat to end off by roughly 13.5%.

One trader told Prospect News on Tuesday afternoon that the news had Calpine's existing paper trading "all over the place, mostly down and trying to fight its way back."

The source said that Calpine's conspicuously liquid 8½% notes due 2008 opened the day with a 60 bid, traded all the way down to 55 bid ("but that was too low") and closed at 58 bid, 58.50 offered.

"Where there is smoke there is fire," the trader remarked. "They're making people nervous."

The trader said that a "back of the envelope" calculation as to where to spot the "break-even value" of the Calpine bond comes out at "50 cents on the dollar on the unsecured.

"At 58 it sounds like there are still some believers that they can make it," the trader added.

Meanwhile another trader, late in the afternoon, spotted Calpine's 10½% notes due 2006 at 88.0 bid, 90.0 offered, unchanged, while the 8½% notes due 2011 were at 49.0 bid, 51.0 offered after closing Monday at 53.0 bid, 54.0 offered.

The source had that the 11s due 2011 was down three or four points from Monday's close to Tuesday's close, but flat throughout most of the Tuesday session.

Delphi up on Valeo chatter

Buyout chatter also moved Delphi higher but it came back as players figured it was all talk.

In reports from Europe, French car parts maker Valeo said it could buy businesses from struggling U.S. rivals Delphi Corp. and Visteon Inc.

"The weakness of Delphi and Visteon, two market leaders, should allow us to win market share or make acquisitions," Valeo chairman Thierry Morin told the Le Figaro newspaper. "Delphi, like Visteon, should be open to propositions from equipment makers such as Valeo. Some of their activities could interest us."

Morin said Valeo's debt-to-equity ratio gave it flexibility to make acquisitions and temporarily raise it from its current level of 70%.

One buysider remarked on the news, "Show me the money. Bad management is finally catching up with them, all of them in the auto sector - manufacturers, parts suppliers, all of them. The original bunch has long since retired and is laughing while they play golf. I think all of us left holding [bonds] are stuck."

Delphi's bonds moved up on the news, with the benchmark 6.55% notes due 2006 gaining to 68 bid, 69 offered from Monday's close of 65 bid, 66 offered, but eased back to close at 66 bid, 67 offered, a distressed debt trader said.

Delphi, along with the rest of the automotive sector, benefited Monday on news that its former parent, GM, 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 GMAC.

Visteon is restructuring with help from former parent Ford. Delphi, the largest U.S. car parts supplier, filed bankruptcy on Monday, sending ripples throughout the credit markets, particularly for auto paper.

Collins & Aikman firming yet

Again, buyout interest - in a more tangible way - helped Collins & Aikman to extend gains from Monday when 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 its assets.

The bankrupt Troy, Mich.-based automotive interior components manufacturer's 10¾% notes due 2011 added about 1 point to 53 bid, 54 offered, a trader said.

Early Monday, private equity firm WL Ross and automotive interior systems supplier Lear said they had agreed to form a joint venture relationship to explore strategic acquisition opportunities in the automotive interior components sector, specifically, among others, the acquisition of all or a portion of Collins & Aikman. Both had separately expressed interest in Collins & Aikman.

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