Collins & Aikman slide continues; Corning better; primary quiet

By Paul Deckelman and Paul A. Harris

New York, May 13 - Collins &Aikman Products Co. bonds continued their stunning freefall for a second consecutive session Friday, with its senior notes falling into the 30s, and its junior paper sinking deeper into single-digit territory - and traders and other high-yield market players are now asserting that it is now no longer a question of whether the Troy, Mich.-based automotive components manufacturer will file for bankruptcy protection, but when.

Other automotive names were seen towed lower in sector sympathy with Collins &Aikman, which has been hard-hit by the downturn affecting the U.S. automotive industry, particularly Detroit's two biggest names, General Motors Corp. and Ford Motor Co.

Elsewhere, the high-yield market was generally lower, though on relatively restrained volume. One of the few gainers was Corning Inc.

Sources marked junk down approximately three-quarters of a point. However, one syndicate official added, selective sectors showed considerably more weakness than that during the session.

For the extremely rocky week ending May 13, one source had junk off two to 2 to 2½ points over the five-session course.

"Say what you will, but this is all about GM," another sell-sider said late Friday, referring to the avalanche of General Motors Corp. bonds, already trading at high-yield levels, which are expected to enter the junk universe this year, when either Fitch Ratings or Moody's Investor Services joins Standard & Poor's in rating General Motors Corp. sub-investment grade.

"The [S&P] downgrade seems to be destroying everything in the market," the sell-sider said, "although I think this is an extreme reaction that we have been seeing this week."

Primaryside activity, meanwhile was seen as virtually non-existent, although there was some talk that Compression Polymers Corp. would be shopping a two-part offering around during the coming week.

Back in the secondary market, Collins & Aikman dominated the proceedings for a second straight day, on the heels of Thursday's stunning - but not altogether unexpected - announcement that the struggling company's chief executive, David A. Stockman, had resigned, Collins had sought financial covenant waivers from its lenders, and was facing an extremely dire liquidity crisis, with just $13 million of cash and credit and $27 million of bond interest payments coming due in a few weeks.

On that news, the company's 10¾% senior notes due 2011 had nosedived on Thursday down to bid levels in the 45-46 area from previous levels around 66, while its 12 7/8% subordinated notes completely collapsed down to bid around seven or eight cents on the dollar from the lower 20s previously.

On Friday, the carnage continued.

"There were a lot of rumors circulating about bankruptcy," a trader said, "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."

He saw the 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."

Another trader also 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."

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."

Market sentiment about the company's imminent insolvency was reflected in the actions of the major ratings agencies. On Friday, Moody's Investors Service downgraded Collins & Aikman's senior secured credit facility and senior implied rating to Caa2 from B3, while dumping the senior unsecured bonds down to Ca from Caa1 previously, with a negative outlook.

That followed by a day Standard & Poor's lowering its corporate credit rating on parent Collins & Aikman Corp. to CCC- from CCC+, and downgrading Collins & Aikman Products Co.'s senior secured debt to CCC- from CCC+, reflecting 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.

Other auto issues lower

Other automotive names were also steering lower Friday, with Dura Operating Corp.'s 9% notes due 2009 seen falling to 59 bid, down five points on the session, while Navistar International Corp.'s 7½% notes due 2011 were down two points, around the 94 level.

Foamex International's 9 7/8% notes due 2007 were three points lower, around 52, after the Wilton, Pa.-based maker of foam rubber products for the auto industry and other industrial users released quarterly numbers.

Also releasing quarterly numbers was Delphi Corp., which swung to a $409 billion net loss for the first quarter from a year-earlier profit, chiefly due to production cutbacks at its biggest customer - and former corporate parent - General Motors, as well as higher raw materials prices and mounting healthcare and pension costs.

The Troy, Mich.-based automotive electronics manufacturer, facing a big maturing bond issue next year and even larger pension obligations, has been working with its banks on amended and enlarged credit facilities to put it on a sounder liquidity footing, its senior executives said on a conference call after release of the numbers (see related story elsewhere in this issue).

Delphi's 6½% notes due 2009 were at 74 bid, 75 offered, and its 61/2s due 2013 at 70 bid, 72 offered, down perhaps a point, a trader said, although the company's New York Stock Exchange-traded shares jumped 40 cents (11.76%) to $3.80, apparently on the financing news, on volume of about 12.6 million shares, three times the norm.

A trader said that overall, the auto names "opened down two or three points on some of these Visteons and some of this other stuff, and it never really recovered.

"I think there was a brief period when it picked up, got back up a little bit, but basically, it all opened up down, and stayed down, and it put the whole market in a tailspin, once again. "

Outside of the autosphere, not much was going on, traders said, with most participants' attention monopolized by the continuing Collins & Aikman car wreck.

Corning higher

One rare gainer seen was Corning Inc., although nobody had seen any fresh new news that would justify the Corning, N.Y.-based fiber optic technology company's bonds firming in an otherwise sour market. But firm they did, with its 5.90% notes due 2014 up ¾ point to 100.5 bid, 101.5 offered and its 6.20% notes due 2016 up a like amount at 101.25 bid, 102.25 offered, and would-be buyers, a trader said, "looking for more."

"It was pretty quiet," a trader said. "Generally speaking, the market was off - a quarter, a half, a point, whatever, depending upon what you were trading, but it seemed like guys were just throwing down bids on stuff and were not really too enthusiastic about buying."

On the customer side, he said, "it was very thin. I think there's cash [around] - but I think people are pretty well resigned that the market's not done going down, so there's no sense in buying it here, particularly if GM gets downgraded [again], and you'll see a lot of this happen again."

He said that at his shop, "the kind of flows we see are a lot of professionals trading a lot of this paper now, and every time they try to run it up," such attempts fall flat. "There's real money selling."

"It seemed like everyone headed for the hills around noon," another trader said, "when things just died down."

Primary quiet

With no issues pricing Friday, the week of May 9 came to a close having seen $525 million price in three dollar-denominated tranches.

That slightly tops the previous week's $495 million, also in three tranches.

All told, $1 billion and change of new issuance has priced during the first half of May 2005. Compare that to the first half of May 2004 which saw $3.8 billion price in 19 U.S. dollar-denominated tranches.

Although the possibility of coming anywhere close to 2004's $142 billion of total issuance in 575 tranches no longer even arises in conversations with sell-side sources, a couple of those sources wondered aloud last week whether the primary market would top $100 billion of issuance in 2005.

One reasoned that it is a possibility is because committed financings for mergers and leveraged buyouts are known to be in the pipeline.

Indeed, several sources in the investment banks took up this theme last week: there are financings, they said, which cannot be completely funded in the bank market, which are now sidelined, waiting for high-yield market conditions to improve.

In any case, at the mid-point of May, 2005 year-to-date new issuance stands at $37.7 billion in 151 dollar-denominated tranches, as the ailing primary market falls further and further behind 2004 on a year-over-year basis. Last year by mid-May the market had seen $62 billion price in 250 dollar-denominated tranches.

Deals in primary pushed back

Although Friday's session was rife with rumors on deals thought to presently be "in the market," the consensus at the end of the session was that deals which had been expected to price during the May 9 week had been pushed back a week.

Those include Borden U.S. Finance Corp./Borden Nova Scotia's downsized $150 million add-on (B3/B-), which was decreased from $250 million.

Credit Suisse First Boston, JP Morgan and Morgan Stanley are the bookrunners.

One informed source expressed the opinion on Friday that Borden would almost certainly have to raise that amount of capital in high-yield, as opposed to the bank loan market.

Also expected to price during the May 16 week is Seneca Gaming Corp.'s $200 million add-on, via Merrill Lynch & Co. and Banc of America Securities. The roadshow wraps up on Tuesday, with pricing expected on Wednesday.

The tunnel is just dark

Finally, both buy-side and sell-side sources seemed to be of the opinion that if there is light at the end of the gloomy tunnel through which the junk market is currently passing that light is not yet visible.

One source pointed to the $400 million-plus outflow of cash from high-yield mutual funds for the week to May 12 - the record-tying 13th consecutive weekly outflow reported by AMG Data Services - and said that the liquidity picture does not look good at present.

Others pointed to credit situations such as those of Collins & Aikman Corp., as well as Maytag Corp., which slashed in half its dividend to shareholders, and said that the list of situations of which investors must be somewhat wary is a growing list as opposed to a shrinking one.

But superseding all else right now is the "fallen angel" story, regarding Ford and GM debt. That was a theme which played repeatedly on Friday, during conversations with market sources.

One source said that it is simply going to take the high-yield market some time to figure that story out.

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