Collins & Aikman bonds and debt on the slide; UAL bonds lose altitude

By Paul Deckelman and Sara Rosenberg

New York , June 24 - Collins & Aikman Corp.'s senior notes plunged about a dozen points Friday and its bank debt plummeted by about 15 points as the company held a private bank call in the morning that - based on the paper's performance - obviously didn't go that well, according to a bank loan trader.

Elsewhere, the bonds of bankrupt United Airlines' parent, UAL Corp. were seen at lower levels amid apparent market angst over the troubled carrier's pension situation.

And there seems to be no stopping Winn-Dixie Stores Corp., as the bankrupt Jacksonville, Fla.-based supermarket operator's bonds continued their amazing rise in the wake of the company's plans to reinvent itself as a leaner, smaller company.

Collins & Aikman's bank debt "started this morning at 89," the trader said. "Then it jumped down to 80, 78, 75, 73. Now it's kind of at its lows at 73 [bid], 75 [offered]," he said, late in the day.

Another trader saw the bankrupt Troy, Mich.-based automotive components company's paper actually even lower than that late in the day, pegging it at 71.5 bid, 73.5 offered.

That carnage was replicated over in the junk bond market, where the sharp fall in the company's bonds was seen by one trader as having accounted for "90% of the activity" in high yield Friday.

He saw the company's 10¾% senior notes due 2011 swoon to levels as low as 24.5 bid from Thursday's close around 40-41, before coming off the lows to end at 29 bid, 30 offered, still down nearly a dozen points on the day.

Meanwhile, Collins & Aikman's 12 7/8% subordinated notes due 2012 lost nearly half of what little remaining value they have, dropping to bid levels of around 3½ to 4 cents on the dollar, a steep drop, at least percentage-wise, from prior levels around 6 or 7 cents on the dollar.

"It was torpedo city today," another trader said, also noting the chatter that the bank meeting had apparently not gone well. "It was a reason to sell. Nobody wanted to buy, I guess."

Collins & Aikman "got murdered," the first bond trader said, linking the fall in the bonds to the call with the bank lenders. "Unbelievable annihilation."

"I wasn't on the call," he added, "but obviously, something was said that was quite disheartening."

Yet another trader said that he had heard that the bloodletting was at least partly attributable to rumors that the company's $300 million debtor-in-possession loan "is struggling" - especially since the company had reportedly told its lenders Friday that its annual EBITDA would likely fall short of expectations in the $200 million to $220 million range, though no one yet knows by how much.

"CKC got killed," he said, also quoting the senior notes as having fallen to 29 bid, 33 offered.

An analyst broached the idea that the fall may be linked to market sentiment that the company's near-term liquidity position is precarious, noting the fact that on Wednesday Collins & Aikman had filed a motion with the Detroit bankruptcy court hearing its case, requesting $30 million of bridge financing from its lending customers to tide it over until the bigger loan package kicks in.

Collins & Aikman also sought - and got - an expedited schedule for hearing its bridge financing motion, with Judge Steven W. Rhodes shortening the usual period for filing objections to the motion to noon on Thursday and scheduling that hearing on Thursday afternoon. There was no immediate word from the court or from the lawyers involved as to the outcome of that hearing.

In its brief, Collins & Aikman's said that the money would be used to "bridge the debtors' short-term funding needs. The debtors have an immediate need to maintain business relationships with vendors, suppliers and customers and to satisfy other immediate working capital and operational needs."

A trader took a broader view of the whole matter, suggesting that bad economic news, especially of the sort that has hit the automotive supplier sector recently in the form of gloomy predictions from the sector's two biggest customers, General Motors Corp. and Ford Motor Co. - "tends to hit distressed paper disproportionately."

He also noted that the auto sector is "taking a beating," with world crude prices having risen to the $60 per barrel level - a likely indicator of higher gasoline prices, which will surely further depress sales of sport-utility vehicles and pickup trucks, which have been the bread-and-butter of the U.S. auto giants over the past several years.

There was also some talk in the market that the bonds were affected by the announcement Friday that they are being dropped from the widely followed CDX index maintained by Dow Jones & Co. and a coalition of major investment banks as a consequence to the company's May 17 Chapter 11 filing with the U.S. Bankruptcy Court for the Eastern Division of Michigan.

But the analyst opined that he didn't know whether that would move the market as much as the other rumored factors, such as the bearish EBITDA outlook or the need for quick additional cash, which address the company's fundamentals.

"There was some advance warning of that [the CDX announcement]. Certainly it coincided, and perhaps it hurt, but I don't think it was an event that was a surprise."

The first trader said that Friday's fall in the Collins & Aikman bonds was doubly surprising because they had been in the 40s for like a "month and a half," or ever since stabilizing at that level following its entry into Chapter 11.

In fact, he noted the bonds, which earlier in the week had weakened to around 39, had shot back up to a 40-41 context around mid-week, actually rising in the face of Moody's Investors' Service's warning that it might downgrade Ford's bonds to junk from their present Baa3 level.

"There was a lot of blood on that one," he said of the latest Collins collapse.

UAL lower

Elsewhere, a trader saw UAL's bonds - which had recently flown as high as 14.5 bid - as having descended to 11 bid, 12 offered from altitudes of 13.5 bid, 14.5 offered. He cited market buzz that the bankrupt Elk Grove Village, Ill.-based airline operator's effort to emerge from Chapter 11 later this year might be jeopardized by Washington wrangling over whether UAL can off-load its heavy pension burdens onto the federal government's Pension Benefit Guaranty Corp. - a key element in UAL's turnaround strategy.

House lawmakers voted Friday to keep PBGC from taking over $6.6 billion in pension obligations from UAL, noting that the agency is running a huge deficit. It has already taken over one of the United pension plans and is set to take over two more June 30.

But that House action, in the view of some observers, is essentially a useless gesture, with more bark than bite to it (see related story elsewhere in this issue).

Apart from UAL, the airline sector was quiet, traders said, with Delta Air Lines Inc.'s normally volatile bonds holding at the same levels they've had this week.

Salton steady

There was likewise little movement seen in the bonds of Salton Inc., whose 10¾% notes slated to come due on Dec. 15 had jumped to levels just below 70 bid on Thursday from 50 previously, on the news that the cash-strapped Lake Forest, Ill.-based maker of the popular George Foreman electric hotdog and hamburger grills and other small appliances will exchange new debt, plus preferred and common stock for those bonds, eliminating the need to line up financing to redeem them.

Winn-Dixie keeps rising

One issue doing anything but holding still, however is Winn-Dixie's 8 7/8% notes due 2008, which continued to rise for a fourth straight session, to 64 bid, 65 offered from prior levels at 61.5 bid, 62.5 offered.

Those bonds had started last week around the 50 bid level, but appreciated handsomely after the venerable supermarket company to close down over 300 of its stores - about one third of its total - and eliminate over 22,000 positions. Analysts said the cuts are necessary to bring the company's operations in line with its revenue base, which has been shrinking in recent years under heavy pressure from competitors like rival Florida-based supermarket chain Publix as well as retailing behemoth Wal-Mart, which have opened stores in many traditional Winn-Dixie markets across the southern United States in recent years.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.