aaiPharma bonds tumble on coupon warning, bankruptcy fears; Tower, Collins skid on GM woes

By Paul Deckelman and Sara Rosenberg

New York, March 16 - aaiPharma Inc.'s bonds were on the critical list Wednesday after the Wilmington, N.C. -based pharmaceuticals maker said it was delaying filing its annual report with the Securities and Exchange Commission, warning that it would likely not make the April 1 coupon payment on its outstanding bonds and raising the specter of a likely Chapter 11 filing.

Tower Automotive Corp.'s bank debt and bonds, and those of such sector peers as Collins & Aikman Products Co. and Foamex International Inc., were seen lower after General Motors Corp. warned that it will likely post a first-quarter loss and sharply lowered its earnings guidance for 2005, causing Standard & Poor's to eye the once-mighty world's largest automaker for a possible ratings downgrade to junk-bond status.

aaiPharma's 11% notes due 2011 were seen by one trader in distressed issues to have swooned to 55 bid, 60 offered from recent levels at 62 bid, 64 offered.

Another trader saw a slightly less dramatic drop to 57 bid, 59 offered from 59 bid, 60 offered.

However, the trader noted that while those bonds had been trading with their accrued interest up until now, they have begun to trade flat, or without the accrued, as a result of the company's admission in a filing with the SEC that "as a result of the registrant's recurring substantial operating losses, it does not anticipate that it will have available sufficient cash on hand, or the ability to borrow under its senior credit facilities" to pay the $10.5 million of scheduled interest due on April 1 on the $175 million of notes.

The company further warned that it may not have enough liquidity to fund its operations in the near-term, and raised the prospect that it might have to seek Chapter 11 protection if its financial situation continues to deteriorate (see related story elsewhere in this issue).

aaiPharma has been wrestling for the past year with accounting problems growing out of the apparent exaggeration of sales levels for a key product, and has seen a parade of chief executive officers and other senior officials in that time. During that span, its bonds have been progressively beaten down to their present levels from their prior levels a year ago around par.

Tower DIP lower

In bank debt dealing, Tower Automotive's debtor-in-possession financing facility fell about half a point during Wednesday's session as it felt the sting of GM's early-morning earnings warning, a trader said.

The DIP closed out the day at 101.75 bid, 102.25 offered, down from 102.5 bid, 102.75 offered, the trader said.

The bankrupt Novi, Mich.,-based automotive frame maker's 12% notes due 2013 were meantime seen having lost two points to 56 bid, 57 offered.

However, bonds of another bankrupt automotive supplier - Troy, Mich.-based metal stamping operator Intermet Corp. - were seen unchanged at 65 bid, 67 offered.

Collins & Aikman heads lower

But another Troy-based automotive component maker - Collins & Aikman - was on the road downward Wednesday along with Tower in apparent response to the GM news.

GM said that it had revised its first-quarter and calendar year earnings guidance to reflect lower North American sales and production volumes, a tougher pricing environment and a more car-based sales mix.

The Flint, Mich.-based auto giant now expects to report a loss of approximately $1.50 per fully diluted share in the first quarter of 2005, excluding special items, versus a previous target of breakeven or better.

For the calendar year, the company expects to report earnings of approximately $1 to $2 per share, excluding special items, compared to a previous target of $4 to $5 per share.

With that negative news on the tape, Collins & Aikman's 10¾% senior notes due 2011 dropped to 88.5 bid, 90.5 offered at the opening, down from 91.5 bid, 92.5 offered on Tuesday, a trader said. The bonds rebounded a little from their early lows, getting as good as 89.5 bid, 90.5 offered in intra-day trading, before dropping back again to 87 bid, 88 offered at quitting time, down 4½ points on the session. Its 12 7/8% subordinated notes were seen down three points on the day to 65 bid, 66 offered, but "were not as active as the 103/4s," the trader said.

Even before GM's earnings bombshell, those bonds had already been veering into a ditch lately on fears of production cutbacks at GM, Ford Motor Co. and DaimlerChrysler AG and continually rising raw materials costs.

Collins & Aikman had been scheduled to release fourth-quarter and 2004 earnings Tuesday, but it pushed that release back to Thursday, which had caused its bonds, recently cautiously rebounding from prior lows, to go back on the slide.

Foamex declines on delay

An even longer delay in reporting earnings was announced Wednesday by Foamex. The Linwood, Pa.-based maker of foam rubber used in auto seats and vehicle dashboards, among other uses, was supposed to report its 2004 fourth-quarter and full-year results Friday, but sought and got a 15-day extension from the SEC to April 4.

"Yet another company delaying results," a trader said. "A lot of people are running scared to dot those 'i's and cross those 't's without being sure that everything's kosher."

He saw Foamex's 9 7/8% subordinated notes due 2007 drop to 52.5 bid, 53.5 offered from 57 bid, 58 offered. At another desk, its 13½% notes coming due on Aug. 15 were a point lower at 94 bid, while its 10¾% notes due 2009 were three points down at 85 bid, 87 offered.

Delta down on oil surge

Outside of the auto sphere, a spike in world crude oil prices to an all-time high above $56 a barrel had the bonds of troubled Atlanta-based air carrier Delta Air Lines Inc. spiraling earthward.

Its benchmark 7.70% notes due 2005 dropped to 77 bid, 79 offered from 80 bid, 82 offered, a trader said. He saw its 10% notes due 2008 lose two points to finish at 45 bid, 47 offered, while its 7.90% notes due 2009 was likewise down a deuce at 39 bid, 41 offered, and its 8.30% notes due 2029 were a point down at 32 bid, 34 offered.

Crude prices are considered a reliable leading indicator of the future direction of prices of petroleum derivatives, notably including jet fuel, whose sky-high cost has laid low the finances of Delta and such other peers as Northwest Airlines Corp., AMR Corp., Continental Airlines Corp., and has helped to drive other airlines like United Air Lines, US Air, and ATA Airlines, into bankruptcy over the last two years.

On Wednesday, the April contract settled at $56.46 a barrel on the New York Mercantile Exchange, up 2.6%, or $1.41, after trading as high as $56.60. The price shattered the previous record of $55.67 a barrel, set back in October.

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