Collins & Aikman skids lower; Tower Auto DIP loan begins trading

By Paul Deckelman and Sara Rosenberg

New York, Feb. 25 - Collins & Aikman Corp. battered bonds were seen speeding lower for a second straight session on Friday, as market fears about the Troy, Mich.-based automotive plastics component maker's ability to withstand rising raw materials costs and pay its obligations were worsened by bearish media and analyst commentaries.

An automotive supplier which has already tumbled into bankruptcy after proving unequal to that task, Tower Automotive Inc., was active in the bank debt market Friday, as its two-year debtor-in-possession facility allocated and broke for trading.

Collins & Aikman "went up and down, and bounced around all day," a trader said, while another likened it to "a roller coaster."

They saw the company's 12 7/8% subordinated bonds due 2012 - which had fallen about three points on Thursday - falling as much as another five points Friday, into the upper 60s, before pulling at least partway out of their skid and ending only moderately lower.

The company's 10¾% senior notes due 2011, which are much less volatile than the juniors, were also seen bounding around at lower levels before ending down about a point, the same amount they lost Thursday.

One trader saw the 12 7/8s drop as low as 68.5 bid, 70 offered, before coming off those lows to finish up at 72.5 bid, 73 offered, still down several points from Thursday's close. He pegged its 10¾% notes at 96.25 bid, 96.75 offered, after having dropped as low as the 94 area early in the session.

At another desk, the 12 7/8s were seen ending at 70.5, down about three points on the day.

Traders cited a story in Friday's editions of the Detroit Free Press - which extensively covers its hometown auto industry - as having greased the skids under the Collins & Aikman bonds.

That piece noted the recent slide in the company's New York Stock Exchange traded shares and attributed the retreat to financial market fears that rising plastic prices "will make it even harder for the financially challenged Troy [Mich.]-based auto parts company to make money."

The paper noted the odd fact that Collins & Aikman, which has not yet reported its fourth-quarter and year-end financial results, "is being hurt by the dismal earnings and bleak outlook others have reported."

Specifically, the story said another supplier, Dearborn, Mich.-based Meridian Automotive Systems - which, like Collins & Aikman, makes automotive components out of plastic - held a conference call warning investors that high resin prices were hurting them and the entire industry.

And another automotive supplier, Visteon Corp., sounded the same warning in its Jan. 31 conference call, the Free Press said, which has had a ripple effect on companies such as Collins & Aikman.

While Collins & Aikman's CEO, former Reagan budget director David Stockman, "has said that his company has had better success than most at passing along higher resin costs to customers, ... It appears Wall Street doubts that," the paper said.

It further quoted a high-yield automotive analyst for UBS Securities, Jeff Skoglund, as saying that although Collins & Aikman "has said before that they expect any hit from higher plastics to be very modest. The market is clearly saying they disagree."

As if that weren't bad enough, bearish sentiment was further stroked by negative commentary released Thursday by Egan-Jones Ratings Co., which forecast dim prospects for the company.

The ratings service's lead analyst, Sean Egan, said that having only $3.5 million in cash, "the company is hard pressed," adding that "unless conditions dramatically improve in the next quarter, we expect a restructuring." The analyst noted that Collins & Aikman has recorded losses in seven of the past eight quarters, and he sees no reason to expect anything different when Collins & Aikman reports on March 15.

Egan said that buffeted by rising raw material, energy and personnel costs, the company "is not earning enough to pay its obligations."

Published reports quote Collins & Aikman's spokesmen as characterizing Egan's assertions that a restructuring is coming as "unsubstantiated rumors."

Other auto names lower

Other automotive names have recently been dragged down by Collins & Aikman's troubles, and continue to struggle.

Rochester Hills, Mich.-based auto supplier Dura Operating Corp.'s 9% notes due 2009 - which had fallen over a point ion Thursday - were seen down 1 3/8 point Friday, a trader said, quoting the bonds at 92.5, although he saw the company's 8 5/8% notes due 2012 at 100.75, unchanged. Another trader saw the Dura 9s at 91.5

Tower Automotive's RJ Tower Corp. 12% notes due 2013, meantime, were quoted by one distressed-bond trader "pretty much the same" at 62 bid.

Tower DIP above par

Tower's term loan was meantime trading at high of 103 during the session before settling down to 102.25 bid, 102.75 offered at the end of the day, according to one trader.

A second trader said the term loan was around 102 bid, 103 offered on the break and remained in that context throughout trading hours.

The $425 million term loan is priced with an interest rate of Libor plus 325 basis points. Pricing on the tranche was recently reverse flexed from Libor plus 375 basis points.

The DIP facility also contains a $300 million revolver with an interest rate of Libor plus 275 basis points and an unused fee of 50 basis points. Pricing on the tranche remained the same from launch to finish.

On Feb. 4, the Novi, Mich.,-based maker of automotive assemblies received interim approval for its DIP, giving the company access to $125 million of the $725 million commitment. However, a hearing for final approval on the loan is not scheduled to take place until Monday.

The company - which had filed for Chapter 11 on Feb. 2 to address liquidity needs and facilitate a debt restructuring - also received court approval on Feb. 4 for a back-stop commitment from Silver Point Finance, LLC for Tower's pre-bankruptcy second-lien loans. Silver Point is offering to buy the loans of any second-lien lenders that no longer wish to participate at par plus accrued interest.

JPMorgan is the lead bank on the DIP.

Winn-Dixie higher

Apart from the automotive names, a trader, while seeing a generally quiet market in distressed-company bonds, saw "a couple of things move," notably Winn-Dixie Stores Inc.'s 8 7/8% notes due 2008, which pushed up to 58 bid, 59 offered Friday from prior levels around 56 bid.

He also saw the company's real-estate-backed pass-through certificates "up a couple of points," at 75 bid, up from previous levels in the 72-73 bid area for the 7.803% and 8.181% bonds.

On Friday, the bankrupt Jacksonville, Fla.-based supermarket operator's recently appointed CEO was quoted in news reports as having said that his stricken company plans to dig out of bankruptcy by refashioning itself as a more upscale grocer - while avoiding a head-to-head clash with low-price leader Wal-Mart Stores, whose ubiquitous "Super Centers" have sprouted all over venerable Winn-Dixie's traditional turf in the Southern U.S.

Winn-Dixie's president and CEO Peter Lynch told the Associated Press that "Winn-Dixie is going to be similar to Publix," another leading Florida-based regional supermarket operator, adding that "you don't want to get into Wal-Mart's face, you can't compete with that."

Lynch, appointed CEO back in December, said that Winn-Dixie hopes to emerge from bankruptcy as a leaner, more competitive supermarket, closing unprofitable stores and focusing on customer service and using revamped merchandising to sell a better variety of quality products.

"We can and will compete with Publix as a neighborhood store that has quality merchandise and good service," Lynch told the AP. "There is room for both of us."

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