Pliant bonds off after numbers, short call; GM bounces around on job cut announcement

By Paul Deckelman

New York, Nov. 21 - Pliant Corp.'s bonds were seen lower Monday, after the Schaumburg, Ill.-based packaging company reported quarterly results, and then surprised investors by shortening its scheduled conference call, omitting the standard question-and-answer period, a trader said.

Elsewhere, General Motors Corp. - recently the target of bankruptcy rumors making the rounds in the junk bond and the credit default swaps markets - was seen gyrating around as the Detroit-based automotive giant announced plans to close a dozen manufacturing plants and parts distribution centers in the United States and Canada and reduce its workforce by 30,000. Although the bonds rose early in the day, they were seen to subsequently come back down, ending little changed to up slightly.

Traders in the bank loan market meantime reported that dealings in distressed-company bank debt were "painfully slow."

Pliant's 11 1/8% senior notes due 2009 fell to 85.5 bid, 86.5 offered from 89.5 bid, 90.5 offered, a trader said, while its 13% subordinated notes due 2010 fell three points on the day to 22.5 bid, 24.5 offered.

"After they released their quarterly reports, they held a conference call but they didn't do a Q&A session," he said. "I was hearing that it was very short - like a five-minute conference call, which was obviously very disarming to the bondholders."

Pliant reported a net loss of $25.4 million in the third quarter ended Sept. 30 - an improvement from the $32.1 million of red ink in the year-earlier period.

In its 10-Q report filed with the Securities and Exchange Commission, Pliant warned that it "currently does not anticipate that it will fund the $20.8 million interest payments that will become due under its 2000/2002 notes [i.e. the 13% notes due 2010] on December 1, 2005. If the Company does not make the those interest payments by December 31, 2005, then the Company will be in default under the 2000/2002 notes. A default under the 2000/2002 notes would allow the holders of a majority of each of the 2000 and 2002 notes to accelerate the maturity of such notes and would result in an event of default under the new credit facility."

The report also said that if the default were not cured within 30 days, "acceleration of the 2000/2002 notes would result in an event of default under the amended 2004 Notes, the 2004 notes and the 2003 notes [i.e. Pliant's 11 5/8% senior secured notes due 2009, its 11 1/8% senior discount notes due 2009 and its 11 1/8% senior secured notes due 2009].

It also pointed out, though, that the company is in "active discussions with an ad hoc committee of the holders of the 2000/2002 notes that hold, in the aggregate, a majority of the notes in each series. Although there can be no assurance that discussions will continue, we do not expect those holders to accelerate the 2000/2002 notes as long as our discussions are continuing."

It further warned that if it is unable to successfully conclude a transaction with the 13% noteholders "on a timely basis or if the company's available cash resources are not sufficient to fund our ongoing operations, then the company will have to consider other contingency plans that have been developed, including the possibility of seeking protection afforded by Chapter 11 of the United States Bankruptcy Code and pursuing a plan of reorganization to allow it to continue operations and minimize disruption to its business."

Pliant said it could not at this time determine what values, if any, would be ascribed in any out-of-court restructuring or in any bankruptcy case to the holders of the various classes of its securities.

Asbestos loans higher

Elsewhere, a trader in distressed notes said that he thought he saw the bank debt of asbestos-challenged companies such as Armstrong World Industries and Owens-Corning move up - but said the bonds were unchanged, with bankrupt Lancaster, Pa.-based floorcovering maker Armstrong's 6-handle bonds staying at 71 bid, 73 offered, its 9-handle notes at 73 bid, 75 offered, bankrupt Toledo, Ohio-based insulation manufacturer Owens Corning's 7½% notes due 2018 at 77 bid, 79 offered, and its 7% notes due 2009 at 77 bid, 79 offered.

In the automotive sphere, bankrupt Troy Mich.-based auto electronics maker Delphi Corp.'s bonds were seen little changed at 55 bid, 56 offered.

The bonds of Delphi's former corporate parent, GM, firmed smartly in the early going on in response to company plans to close nine manufacturing plants and three other facilities and to cut its North American workforce by 30,000 in the next three year - but they couldn't hold the gains and surrendered most of them by the time the market closed, ending up only marginally.

GM jumps, falls back

GM's flagship 8 3/8% notes due 2033 were seen having jumped about four to five points in initial dealings, on the news that the recently beleaguered automotive giant will close a dozen manufacturing plants and parts facilities, accounting for about one-quarter of its North American manufacturing capacity, and will downsize its work force by some 30,000 hourly jobs from now through the end of 2008, mostly through attrition and by offering early retirement buyouts to employees in selected areas.

That took those bonds up to around the 75 bid area, well above the levels in the mid 60s at which they were trading about a week ago, and up from Friday's closing levels around 70.5.

However, market participants said, the GM bonds came back down and ended bid at about 71, up maybe half a point on the day.

"They were up four or five, points on their high for the day" a trader said, "but then they dropped back. I guess to some extent what [GM chairman and chief executive officer Rick] Wagoner said was already in the market," which had risen in Friday's dealings partly on the news that GM was going to announce a round of plant closings and job cuts this week.

"Plus, they still have to do something on the health side," he said. "Just cutting back production is only one shoe. They still have to do something with the benefits." Bloat in this area is calculated to be costing GM hundreds of millions, if not billions of dollars, helping the world's largest carmaker to lose nearly $4 billion some time this year.

Also complicating things, potentially, is the clear unhappiness of the United Auto Workers union with the plans that GM announced Monday. The union called the projected job cuts "unfair," saying that its members were being punished for bad decisions made in the executive suites. Union cooperation will be needed if GM is to be allowed under its current labor contract to offer buyouts to any of its employees, so with the UAW less than thrilled by the planned job cuts, such buyouts are by no means a sure thing. The announcement, the trader said, thus was "just one more step in the process."

"GM opened very strong," another trader said, "on the anticipation more than the news, of what the CEO had to say," but after trading as high as 75, he said, it was all downhill from there for the 8 3/8s, which ended up half a point better at 71 bid, 72 offered. "As people read [the news], there was some meat in there, but nothing you could really sink your teeth into, because it was all time delayed, so they retracted" from the highs.

Other GM bonds rode the same roller coaster, with the carmaker's 7 1/8% notes due 2013 seen having initially risen about three or four points before coming off the high to end up just a point at 71 bid.

At another desk, a market source saw the 7 1/8s firm to 71.5, up from 69.75 on Friday, but he also saw the 8 3/8s end at 71, which he called unchanged on the day.

"I think they moved up during the day, but they ended up coming back down and closed little changed," he said.

Another possible negative that soured investors after the heady early gains may have been Wagoner's admission that although GM, as previously announced, was sounding out potential buyers interested in taking a controlling stake in its General Motors Acceptance Corp. financing arm, it was "far from certain that a deal will get done".

A trader saw GMAC's 8% notes due 2031 push up to 103 bid from around the par level, before coming back down to actually close down half a point. Another trader saw those GMAC 8s get as good as 105 before regurgitating their gains to finish unchanged at par bid, 101 offered. And yet a third trader saw the bonds rise to 104 from a 99 bid, par offered opening, but then end right back where they started from.

He also saw GMAC's 6¾% notes due 2014 take a similar journey to nowhere, falling back to around their opening levels at 91 bid, 92 offered, after having firmed up to 95 in morning dealings.

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