Collins & Aikman bank debt off, bonds gyrate; Mirant debt eases

By Paul Deckelman and Sara Rosenberg

New York, March 21 - Collins & Aikman Corp.'s bank debt traded lower Monday after Moody's Investors Service downgraded the Troy, Mich.-based automotive components maker's ratings, although its Collins & Aikman Products Co. bonds gyrated around at lower levels before ending pretty much unchanged. Mirant Corp. bank debt was also seen on the downside.

Collins & Aikman's loans traded lower by about half a point after the Moody's downgrade, with levels closing out the day at 99.875 bid, 100.125 offered, according to one trader, while a second trader placed the paper down only about 25 basis points, with trades taking place on top of par.

The weakening was sparked by Moody's decision to downgrade the company's bank debt to B3 from B1, its 12 7/8% guaranteed senior subordinated notes due 2012 to Caa2 from B3 and its 10¾% guaranteed senior unsecured notes due 2011 to Caa1 from B2.

In addition, Moody's downgraded the company's speculative grade liquidity rating to SGL-4, indicating that the company now has weak liquidity, and assigned a negative rating outlook.

"The rating downgrades reflect that a series of challenging industry and company-specific developments are driving meaningful deterioration in C&A's near-to-intermediate-term revenues, margins, and liquidity," Moody's explained.

Late last week, Collins & Aikman announced that it missed the filing deadline for its fiscal 2004 10-K and filed for a 15-day extension to try to complete a review of accounting issues regarding supplier rebates that may have led to premature or inappropriate revenue recognition. It warned at that time that it might not be able to complete the job in that time frame, even with the extension.

The company expects to restate its results for the nine months ended Sept. 30, 2004 - reducing its previously reported operating income by $10 to $12 million - and is evaluating whether a restatement of its 2003 results will be necessary.

Collins & Aikman also said that it is in the process of evaluating its financial covenant compliance under its senior credit facility, as well as other compliance issues under other financing arrangements, because of the potential restatements and financial reporting delay.

"The downgrade brought out more paper," one trader said. "But recent trouble in the sector has been pushing it lower. It's been sliding lower over the past month."

In the bond trading pits, meantime, the Collins & Aikman 12 7/8% notes were seen having dropped as low as 42, down at least 5½ points on the session from Friday's close in a 47.5-48 context according to one market source, who saw the 10 7/8s having fallen 2 3/8 points to about 81.75.

But another trader said later in the session that while the junior bonds had opened around 43-44, "they regrouped" later on in the day, and were back up to around a 47-48 context by the close, not much changed from where they had been on Friday. He meanwhile saw the senior bonds not having come back from their initial dip, pegging them at 81.5, down from around 84 on Friday.

Yet another trader did see the senior notes "bouncing a little," and although he had seen no real levels on the subordinated bonds, "it would make sense that they bounced off their lows as well."

A trader said that the downgrade "came as no surprise" in view of everything that has been happening to the company and to the automotive sector. He saw "a lot of trading" going on in the 10 7/8% notes in the 81-82 area, before seeing them go home at 82.5. He saw the junior bonds trading in a 44-46 context.

The company's New York Stock Exchange-traded shares fell 20 cents (17.39%) to 95 cents - technically putting them into penny-stock territory - on volume of two million, about four times the usual.

Other auto names fall

Elsewhere in the automotive sector - being dragged down by the parade of bad news from Collins & Aikman, as well as developments in the larger industry, such as General Motors Corp.'s earnings warning last week - bankrupt Novi, Mich.-based automotive frames maker R.J. Tower Corp.'s 12% notes due 2013 were seen down a quarter point at 54.5 bid.

Bankrupt Troy, Mich.-based automotive metal stamping company Intermet Corp.'s 9¾% notes due 2009 were likewise down ¼ point at 65.75.

Foamex International Inc.'s 9 7/8% subordinated notes due 2009 were being quoted at 50.5 bid, and its 10¾% senior notes due 2009 at 85.25 bid, both down 1½ points from recent levels, while its 13½% senior notes due 2005 were at 89, down a point.

Last week, the Linwood, Pa.-based manufacturer of foam rubber products for automotive and other industrial uses announced that it had filed for an extension on reporting its fourth-quarter and 2004 results.

North American Trading plunges

Elsewhere, North American Trading Co.'s 9¼% notes due 2012 were seen down more than five points on the session to 78.875 bid; there was no fresh news immediately seen out about the New York-based importer of rolling papers, tobacco, and other smoking and chewing products.

Salton Inc.'s 12¼% notes due 2008 lost more than two points to 64 bid in the early going, a market source said. At another desk, a trader quoted those bonds as low as 62 bid, 63 offered, with "sellers out there."

There was no fresh negative news seen about the Lake Forest, Ill,-based maker of the George Foreman line of grills and other small home appliances.

Airlines soft

A trader saw weakness in the airline sector as an effort to push through higher fares ended with at least two carriers - Continental Airlines Corp. and Delta Air Lines Inc. - backing down, and the other big carriers expected to follow suit.

Northwest Airlines Corp.'s 8 7/8% notes due 2006 dropped to 82 bid, 84 offered from last week's 87 bid, 88 offered. A trader saw those bonds offered at 85, and looking for bids.

Delta's 7.70% notes due 2005 were seen at 67 bid, 69 offered, and its 8.30% notes due 2029 were at 30 bid, 32 offered, "pretty much unchanged."

Mirant loans down

Back in the bank debt market, traders in distressed loans said things overall felt heavier and lower Monday, with Mirant Corp. and Federal-Mogul Corp. being two of the most noticeable names to feel the pressure.

Mirant's 2003 and 2004 bank debt fell off about a point, with levels going down to 74 bid, 75.5 offered from 75 bid, 76 offered on Friday, according to a trader. The Atlanta-based energy company's paper was down about a point on Friday's session also because of market heaviness.

Meanwhile, Federal-Mogul's pre-restructuring revolver was off about half a point, with levels moving down to 93.5 bid, 94 offered from 94 bid, 95 offered on Friday, the trader said, adding that the weakening in the Southfield, Mich., auto parts supplier's paper is just a function of "the whole market being down".

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