More Collins & Aikman bond and loan carnage; Calpine fall also continues

By Paul Deckelman and Sara Rosenberg

New York, May 13 - Collins & Aikman Corp.'s bank debt and bonds continued their downward spiral - along with pretty much everything else in both the loan and the junk markets - on Friday as the Troy, Mich.-based automotive components manufacturer was rumored to be edging closer to what some market participants said was an imminent - and inevitable - Chapter 11 filing.

Activity in the markets outside the automotive sector was generally restrained, although Calpine Corp.'s bonds continued to erode away, with the San Jose, Calif.-based power generating company beset with its own liquidity concerns.

Not much was seen going on in the airline sector - even as the chief financial officers of two major airlines, including the troubled Delta Air Lines Inc., separately said they would consider asset sales to beef up their respective companies' liquidity.

But the main event at just about every shop Friday - one bond trader termed it "the big one" - was Collins & Aikman.

In the bank loan market, the company's paper was quoted as having fallen off about two to three points on the bid side to levels of 89 bid, 91 offered from prior levels of 91 bid, 95 offered, according to one trader, and levels of 88 bid, 90 offered from previous levels of 91 bid, 92 offered, according to a second trader.

It was the second straight day the loans were lower; on Thursday, the bank debt had fallen into the low 90s from previous levels of 96 bid, 98 offered - an unusually large drop for the usually sedate bank loan market - after the company revealed that it is facing liquidity challenges, announced the resignation of its chief executive officer, and said that it needed to seek loan waivers. And, downgrades by Standard & Poor's on Thursday and by Moody's Investors Service on Friday didn't help the situation either.

The bank debt fall-off was mirrored by the collapse Thursday and Friday of its already battered junk bonds; On Thursday, the company's 10¾% senior notes due 2011 had nosedived down to bid levels in the 45-46 area from previous levels around 66, while its 12 7/8% subordinated notes due 2012 completely collapsed down to bid levels around seven or eight cents on the dollar from the lower 20s previously.

On Friday, a trader saw the 103/4s at 38 bid, 39 offered, from 44 bid, 45 offered at the opening, while the 12 7/8s eroded down to 6 bid, 7 offered, acknowledging that with the issue already in the single digits, they can't fall very much further.

"It's pretty much over," he said of Collins & Aikman's fight to avoid going into Chapter 11, and a belief that a filing will come sooner rather than later "is pretty much our feeling as well."

Another trader saw the senior bonds closing at 38.5 bid, 40 offered, down from their mid-40s level previously, and opined that this "probably dragged down the rest of the auto sector."

He said that "there were a lot of rumors circulating about bankruptcy, after the bonds tanked yesterday [Thursday], and what happened today [Friday] was just a continuation of those fears and more rumors about bankruptcy - maybe that it would happen within a week's time."

After the steep fall Thursday, he said, "at first, you had some short-covering, but as soon as that disappeared, or at least quieted down, in the early afternoon on a slow Friday, the bids started fading back."

A trader in distressed securities saw the juniors trading as low as 5.5 bid, 7 offered, with the senior bonds at 38 bid, 39 offered, and said that he was hearing that the company would file soon - and that the bonds "sure are trading like that."

On Thursday, the company had said that it would be seeking a waiver under its credit facility of the consolidated leverage ratio covenant because it anticipates being unable to comply with this requirement based on estimated first-quarter 2005 performance.

Collins & Aikman went on to say that it continues to face significant near-term liquidity challenges. Its credit facility is fully drawn so it must rely fully on timely access to its receivables facility, foreign receivables factoring arrangement and fast pay financing programs to fund ongoing operations.

The company said it is looking at ways to improve results and enhance liquidity. It is transitioning the General Motors fast pay program administered by GECC to one administered by GMAC that will provide a commitment to October. Also, it is continuing to work with its largest customers and suppliers to enhance commercial terms to improve operating results, cost recovery and liquidity.

As of May 11, Collins & Aikman had cash and availability under its financing arrangements of just $13.4 million - with a $27 million interest payment on its bonds due in June.

In addition to these liquidity problems, the company also revealed a shake up in management. David A. Stockman, chief executive officer, chairman of the board and director, resigned. Charles E. Becker, a former director of the company, has agreed to serve as acting chief executive officer. Marshall Cohen, a current director of the company, was named as non-executive interim chairman of the board of directors.

Following these announcements, S&P lowered its corporate credit rating on Collins & Aikman to CCC- from CCC+ and downgraded Collins & Aikman Products Co.'s senior secured debt to CCC- from CCC+.

The downgrade reflects S&P's belief that the company could be forced to seek bankruptcy protection in the near term because of severe liquidity pressures. The outlook is negative.

Then, on Friday, Moody's Investors Service came out with its own downgrade, cutting Collins & Aikman Products' senior secured credit facility to Caa2 from B3, while the senior unsecured bonds were lowered to Ca from Caa1. The outlook remains negative.

Moody's said that the rating downgrade reflects several adverse new company developments, which have led the rating agency to believe that a reorganization is imminent in the absence of a material infusion of additional funds - ideally in the form of equity.

Auto names lower

The troubles of Collins & Aikman continued to reverberate through the troubled automotive supplier sector, with Dura Operating Corp.'s 9% notes due 2009 seen down five points at 59 bid.

However, a trader said that bankrupt Novi, Mich.-based automotive frames maker Tower Automotive Inc.'s 12% notes due 2013 were pretty much unchanged at 53 bid, 55 offered.

Calpine lower again

Outside of the auto sector, Calpine's bonds continued to head south, with its Calpine Canada Energy Finance 8½% notes due 2008 seen down five points to 48 bid, and parent Calpine Corp.'s 8¾% notes due 2007 down four points on the day to 57.

Earlier in the week, Calpine warned that warned its cash needs over the next year would exceed cash on hand and from operations, and said that maintaining sufficient liquidity would depend on the success of a program to sell assets.

That warning was sandwiched in between ratings downgrades, on Monday from S&P and on Thursday from Moody's Investors Service, which cut the ratings on some $12 billion of Calpine debt. The agency downgraded parent Calpine's senior implied debt to B3 from B2 and subsidiary Calpine Generating Co.'s credit facilities to B2 from B1.

Asbestos debt steady

Elsewhere, a trader saw "no real movement" in the bonds of asbestos-challenged Owens Corning and Armstrong World Industries, the former anchored around 76 bid, 77 offered and the latter around 77 bid 78 offered.

The bonds of both bankrupt companies had moved up earlier in the week on the prospect of legislative action in Washington to curb the asbestos litigation crisis that sent them, and dozens of other companies, into Chapter 11. But while the Senate Judiciary Committee did approve some amendments to the $140 billion claims mechanism bill on Wednesday and Thursday, a final committee vote on the legislation is not likely to occur for another two weeks.

Salton down again

A trader saw more erosion in the bonds of Salton Inc., which had fallen anywhere from six to 10 points Thursday after the Lake Forest, Ill.-based small appliance maker released quarterly results and held a conference call - on which its senior executives took no questions from analysts or the media. The executives said the cash-strapped company is still working on plans to refinance its $125 million of 10¾% notes coming due Dec. 15 - but nothing definite has been lined up yet.

That caused those bonds to fall 10 points to around 50 bid on Thursday, while its 12¼% notes due 2008 fell six points to 44.

On Friday, the trader said, the '05 bonds lost another two points to 48 bid, 49.5 offered, while the '08s retreated further to 38.5 bid, 39.5 offered.

Airlines unchanged

The trader, however, saw little activity in the bonds of Delta, or those of Continental Airlines Corp., even though their respective CFOs, Michael Palumbo and Jeff Misner, each told an analysts' conference Friday that their companies would consider non-core asset sales as a means of increasing liquidity.

Liquidity is a more urgent concern for Atlanta-based Delta, which warned earlier in the week that it did not have sufficient liquidity on hand right now to meet its upcoming needs. That caused its bonds to collapse down to what traders considered all-time low levels. But after several days on the slide, those bonds were steady on Friday, with Delta's flagship 7.70% notes due 2005 at 71 bid, 72 offered and its 8.30% notes due 2029 around 22 bid, 23 offered.

Continental's 8% notes due 2005 were likewise unchanged, he said, at 96.5 bid, 97.5 offered.

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