Collins & Aikman bank debt, bonds lower on DIP problems; asbestos bonds bounce around

By Paul Deckelman and Sara Rosenberg

New York, June 30 - Collins & Aikman Corp.'s bank debt and bonds were trading at lower levels Thursday as a company filing with the Securities and Exchange Commission revealed the depths of its financing problems.

Elsewhere, bonds of asbestos-challenged companies were gyrating around at lower levels on market uncertainty over the prospects for the $140 billion claims payment mechanism, which seems to be stalled in the Washington gridlock.

Bankrupt Troy, Mich.-based automotive interior components maker Collins & Aikman's bank debt was heard to be down about two points on the day, a trader said, closing out the session at 72.5 bid, 74.5 offered.

"The company's just a mess. The bonds were down about two or three points," the trader added.

One trader saw the Collins & Aikman 10¾% senior notes due 2011 fall sharply from Wednesday's closing levels in the upper 20s, although, they said that later on in the session, the bonds came off their lows for the day to end only moderately lower.

A trader pegged the bonds down six points at the opening, at around 21 bid and then saw them bounce back up to around 24.5.

A second trader saw the bonds fall even lower - as low as an 18 bid, 21 offered context, well down from their previous levels in the mid-20s - but saw them then rally back from that nadir to end bid around 22.5-23.5.

A third trader described them as having "gone on a wild ride," driven by the negative news about the company's financing situation. He said Collins' notes, after having closed at around 27 bid, 28 offered on Wednesday, opened lower on Thursday and fell as low as 21 early in the session, before coming back up a little to bid levels around 23-24, and then closing around 22 bid, 24 offered.

The traders attributed those gyrations to the news that Collins & Aikman's banks have chosen not to provide the company with the other half of the $300 million debtor-in-possession financing initially agreed upon, which thus forced the company to put in an emergency motion last week for $30 million in bridge financing from its lending customers as a stop-gap measure, until it can line up some kind of replacement financing.

That information was in an 8-K filing Collins & Aikman made late Thursday, in which it first announced that the company had received judicial approval for up to $30 million in post-petition, unsecured bridge financing from certain of its customers for working capital and operational purposes.

The filing said that the company's DIP lenders have agreed to the bridge loan, which was necessitated by those lenders' decision not to fund any more than $150 million and other impacts on the company's liquidity.

The Troy, Mich.-based designer, engineer and manufacturer of automotive interior components said in its filing that "[b]ecause the bridge financing will only satisfy the company's short-term needs, the company is seeking additional financing to replace the portion of the $300 million DIP loan originally contemplated that is no longer forthcoming and to satisfy its ongoing liquidity needs."

"We a currently working with all of our major constituents to develop a longer-term financial mechanism that will allow us to continue to operate while we formulate an implement our business plan," Collins & Aikman's director of corporate communications, David Youngman, told Prospect News.

Collins & Aikman was originally supposed to have presented its request for access to the rest of the DIP money at a hearing Thursday in Detroit; however, in view of the new developments with the financing, that hearing was postponed until July 7 - about the time that the $30 million of bridge loan money is expected to run out.

An informed market source meantime said Thursday that it was his understanding that the money had come from two of Collins & Aikman's three biggest customers - General Motors Corp. and the Chrysler division of DaimlerChrysler.

The source also said that it was his understanding that "the OEMs [i.e. the company's carmaker customers] are going to offer the company up another $200 million on a similar basis to the $30 million" - although he cautioned that this could just be rumor rather than solid fact.

How did matters deteriorate as far as they have?

The source said of the already-spent $150 million in DIP money, that "I expected them to burn through a lot of cash, because they lost their liquidity source in the A/R [accounts receivable] financing in the fast-pay program - but this seems a little faster than we anticipated."

While some people might attribute the high DIP cash-burn rate to the pricing of resin - a key petroleum-based plastic used in the making of many of the interior components the company produces - "resin pricing across the board is coming down. It peaked, maybe, in the first quarter. So I'm not sure what's driving this [cash-burn]. I think a lot of people are kind of in the dark on this still."

He suggested that J.P. Morgan, the lead bank in the DIP syndicate, may have had an issue "with the borrowing base [that would determine how much money would be lent to the company] and how much A/R is really available for the borrowing base." He said that he had read statements from the bank in the court filings that "they could not put together a borrowing base that would support much more than the initial $150 [million]."

Junk bond traders said they saw little fallout from Collins & Aikman's woes across a generally quiet high yield sector, with the bonds of fellow automotive suppliers Visteon Corp. and Delphi Corp. holding steady.

Asbestos names lower

There was activity, however, in the bonds of bankrupt companies with asbestos liability issues, such as Toledo, Ohio-based insulation maker Owens Corning and Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc., with Owens' bonds falling to 69 bid, 71 offered from opening levels at 73 bid, 75 offered, a trader said, only to recover all of their lost ground and end where they started, at 73 bid, 75 offered.

Armstrong's bonds meantime widened out to 75 bid, 79 offered from 77 bid, 79 offered, but then tightened up a little to 76 bid, 78 offered.

The bond movement seemed to have been driven by news out of Washington, with Senate Judiciary Committee chairman Arlen Specter, R.-Pa., suggesting that some insurance companies may be trying to back away from their industry's pledge of $46 billion of the $140 billion fund, which would take claims of asbestos-related medical problems out of the courts and establish a faster claims payment mechanism. Specter met Wednesday in Washington with several insurance company CEO's and billionaire investor Warren Buffett, whose Berkshire Hathaway controls General Re, one of the insurance companies that has criticized the approach Specter's bill takes.

The bill has been meandering through the Judiciary Committee since the start of the year, and Specter, who hopes to get it finally to the Senate for a vote some time in July, said Thursday that he might try to use subpoenas to get the asbestos companies to disclose how they would finance their portion of the $140 billion fund, but later backed away from that implied threat. He also told reporters that he would try to get the information from companies in a meeting on Friday.

Mirant loans better

Back in the bank debt market, Mirant Corp.'s paper was up about a point on the day, with levels closing out the session at 77 bid, 78 offered, compared to a trading level of 76 that was seen at an auction on Wednesday, according to a trader.

"Who knows why it's up. It's month end," the trader added.

Mirant is an Atlanta-based energy company.

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