Distressed auto loans, bonds up despite GM, Ford woes; Elan up on debt paydown news

By Paul Deckelman and Sara Rosenberg

New York, June 1 - Autos and power were the stars of the day in distressed loan and bond trading Wednesday, with auto sector names like Meridian Automotive Systems Inc. and Federal-Mogul Corp. getting a boost - even though General Motors Corp. and Ford Motor Co. reported lower sales in May versus a year ago.

The better tone that helped to lift the auto parts operators despite the underlying weakness in their two largest customers also gave a boost to power names like Mirant Corp. and American National Power Inc.

And holders of beleaguered Irish drugmaker Elan plc's bonds seemed to find a remedy in the news that the company has retired nearly $212 million of 2008 debt and plans to take out another $31 million in open-market purchases.

In distressed automotive bank debt, Meridian's first-lien paper was up to 89.5 bid, 90.5 offered by the end of the day, a sharp improvement from its previous closing levels of 86.5 bid, 89.5 offered, a trader said.

The company is a Dearborn, Mich., supplier of front- and rear-end modules, lighting, exterior composites and other interior systems.

Another troubled automotive name seen higher Wednesday was Federal-Mogul Corp. The bankrupt Southfield, Mich.-based auto parts maker's term loan B bank debt was up about a point on the day with levels closing out in the 89 bid, 89.75 offered context, the trader added.

The rise in those companies' bank debt would seem to be counterintuitive since Ford announced Wednesday that U.S. customers purchased or leased 283,994 cars and trucks from dealers in May - an 11% plunge from a year ago. GM meantime said its dealers in the United States sold 393,197 new cars and trucks in May - down 5% on a selling days adjusted basis.

Despite those poor numbers - and third-quarter production cuts that each announced - the bonds of the supplier companies went up, just as the bank debt did.

A trader, for instance saw Collins & Aikman Products Co.'s 10¾% senior notes due 2011 move up to 44.5 bid, 45.5 offered from prior levels around 41.5 bid, 42.5 offered, although he opined that the movement in the bankrupt Troy, Mich.-based auto interior components maker's bonds was "probably more due to positioning in terms of CDS [credit default swap] contracts rather than any real news."

Another trader saw the Collins & Aikman debt rising even further, at 45 bid, 46 offered, well up from 41 bid, 43 previously.

The company's 12 7/8% subordinated notes due 2012 meantime continued to languish at single-digit levels.

The second trader also saw automotive battery-maker Exide Technologies' bonds push as high as 75 bid, 77 offered from prior levels at 71 bid, 73 offered, while bankrupt Tory Mich.-based vehicle frame maker Tower Automotive's 12% notes due 2013 were at 59 bid, 61 offered, a point better on the day.

Yet another trader saw Foamex International Inc.'s bonds having moved up, with the Linwood, Pa.-based foam rubber products maker's 9 7/8% notes due 2007 two points better at 55.5 bid, 56.5 offered.

That trader also noted that the bonds of Ford and GM themselves were up, despite the sagging sales stats.

"The bonds have a fat yield, and with these interest rates down so low," - 10-year Treasuries pushed further below 4% on Wednesday, their lowest level in at least a year - "it's floating a lot of boats. People are again reaching for some yield, and that puts quite a tone under the market."

Besides announcing their sorry sales, GM said it will cut third-quarter output by over 100,000 vehicles, or 9%, while Ford will lower its third-quarter production by 17,000 vehicles, or 2%.

Calpine continues upward

Elsewhere, the power sector continued to be revved up on Wednesday, with one of Tuesday's big gainers - Calpine Corp. - continuing to rise in the wake of the San Jose, Calif.-based power generating company's announcement that it had agreed to sell its Saltend Energy Centre plant in Britain for the equivalent of $925 million.

A trader quoted Calpine's 8½% notes due 2011 up a point on the day at 60 bid, while its 8½% notes due 2008 "have kind of compressed to the 11s," and were just a step behind them at 60.5 bid, 61.5 offered. He also saw Calpine's 8¼% bonds coming due later this year at 97 bid, 98 offered, up slightly from 96.5 bid, 97.5 offered.

Mirant loans better

Among other utility names, the bankrupt Atlanta-based Mirant Corp. saw its bank debt was up about a point at 75 bid, 76 offered and Marlborough, Mass.-based American National Power saw its term loan B bank debt also move up by about a point to 83.5 bid, 85 offered, a trader said, adding that "just the whole market in general felt firmer."

Elan up on debt cuts

The news that Elan Corp. has been retiring debt - and aims to retire some more - helped push the Dublin-based drug firm's 7¾% notes due 2008 and floating-rate notes due 2008 each up to 88 bid, 90 offered from 86 bid, 88 offered., while its 7¼% notes due 2008 were half a point better at 94.5 bid, 95.5 offered.

Another trader had seen the latter bonds move up from 93.75 bid, 94.75 offered.

Elan said in a statement that it had retired $211.8 million of 2008 debt, and would use cash and equity to take out another $31 million in open market transactions. While it will show a cash balance reduced by some $80 million in its latest quarterly results, the company said its still has some $1.3 billion available.

The company's formerly par bonds were hammered down to distressed levels earlier in the year with the release of news that Tysabri - a multiple sclerosis drug Elan had jointly developed with Biogen Idec Inc. - was linked to the deaths of at least two patients who had developed a rare and usually fatal nerve disease after having taken it during clinical trials and a third patient had also developed the disease, although he had not died. That forced Elan and Biogen to voluntarily pull the drug off the market, to investigate its safety further.

Northwest rises on Merrill report

Elsewhere, a Merrill Lynch report expressing cautious optimism about the future of some of the traditional hub-and-spoke airline carriers sent Northwest Airlines Corp.'s 10% notes due 2009 a point higher at 54 bid, 56 offered, while a trader said the Eagan, Minn.-based carrier's 8 7/8% notes due 2006 "definitely charged up" to 76.5 bid, 78.5 offered, a two point gain. He also saw AMR Corp.'s 9% notes due 2012 at 80 bid, 81 offered and its 9s of 2016 at 78.25 bid, 79.75 offered, each up a point.

But traders said the good sector vibes failed to help Delta Air Lines Inc., and said the troubled Atlanta-based carrier's bonds got no help from the news that GE Capital Corp., Delta's key lender, had agreed to relax the minimum EBITDAR covenant in the company's $1 billion credit facility.

Delta's 7.70% notes due 2005 were little changed at 83.5 bid, 85 offered, and its 8.30% notes due 2029 were down more than a point on the day at 27 bid, 28.5 offered.

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