Collins & Aikman bonds gyrate on financing news; Mirant bank debt continues rise

By Paul Deckelman and Sara Rosenberg

New York, July 6 - Collins & Aikman Corp. bonds and bank debt were heard to have firmed smartly Wednesday in response to the news that the troubled automotive parts supplier will get another bankruptcy financing package - its second since filing for Chapter 11 - this one provided by its six largest customers. The $165 million of price increases and loans the customers agreed to should tide the company over while it restructures itself.

However, while those bonds shot up in the early trading, they were seen having come back down from those early peaks and were quoted up only modestly late in the session.

Mirant Corp.'s bank debt meantime continued to trade up during Wednesday's session, although there was no particular news out on the Atlanta-based energy company that might explain the rise - other than more follow-through from last week's announcement that Mirant will have to change its method of evaluating its enterprise value.

And Northwest Airlines Inc. paper continued to descend - while other airline paper was seen little changed, despite oil prices hovering above $61 per barrel at the close, a record; the Eagan, Minn.-based Number-Four U.S. air carrier's woes were seen linked to its deteriorating labor situation.

Collins & Aikman Products Co.'s 10 ¾% senior notes due 2011 were seen traveling at sharply higher levels, at least initially, on the news that the company and its six biggest customers - General Motors Corp., Ford Motor Co., the Chrysler division of DaimlerChrysler AG, Honda Motor Corp., Nissan Motor Corp. and Toyota Motor Co. - had come to an agreement on an emergency funding plan, which they will present to judge Steven W. Rhodes of the U.S. Bankruptcy Court for the Eastern District of Michigan at a hearing Thursday in Detroit.

A trader saw those bonds having zoomed as high as 34 bid from levels late Tuesday in the 24-25 area, before they backed off those highs. He saw them going out at 31 bid, 33 offered, and saw the company's 11 7/8% subordinated notes due 2012, which have recently languished at around four cents on the dollar, rise to about 6 bid, 7 offered.

Another trader pegged the bids up around five points on the day, at 30 bid, 31 offered.

However, a third trader, speaking a little later, said that after the bonds had jumped up, "they came right back down" and gave up most of their gains.

While he saw the bonds having popped up as high as 33.5 bid from opening levels in the 25 bid area earlier, by the end of the day, he said, those bonds had backed down to around 28 bid, 29 offered - still up three or four points on the day but well off the eight-to-10 point gains seen in earlier trading.

In the bank debt market, Collins & Aikman's paper moved up to an 82.25 bid, 84.5 offered context from around 74 on the financing package news, according to a trader.

Collins' bonds and bank debt originally rose, the third bond trader said, on the news that the six big customers - who collectively account for 85% of Collins' estimated $4 billion of annual sales - had agreed to extend the struggling company $82.5 million in loans, and also agreed to a 15% price increase for the next 90 days, which will put another $82.5 million into Collins & Aikman's depleted coffers, for a total of $165 million.

Court documents said that those customers fronting Collins & Aikman the latest injection of money also agreed to provide an additional $140 million in relief over the next 90 days from expenditures required for startup costs for existing contracts and new-product launches.

Collins & Aikman is having severe liquidity problems after its bank-loan syndicate, led by J.P. Morgan, refused to release the final $150 million installment of its $300 million of debtor-in-possession financing. That forced it to turn to its customers late in June for $30 million of emergency financing, which is expected to run out around Thursday, just in time for the hearing on the new financing.

Late-day nerves

Despite the initial pop in the bonds on the good news that the Troy, Mich.-based parts maker will be getting new financing, the trader saw the bonds fall back down into the 20s later on.

"The bonds started trickling back down [from their highs], but at the end of the day, within the last hour or two, there was a rumor of a bank call [involving the bank lenders and the company] and the bonds weakened and went back down again. I wouldn't even want to speculate on what it was [on the rumored call] but certainly, there were some nervous people out at the end of day, for whatever reason. Maybe they knew something that we don't, and therefore, the bonds weakened up,"

According to court documents, the $165 million of financing would expire on Sept. 30, and the new loans from the customers - essentially, a second debtor-in-possession financing - would be subordinate in the capital structure to the company's pre-petition loans and to the $150 million of DIP money which the bank syndicate already provided the company following its May 17 bankruptcy filing.

While there was supposed to be a second $150 million tranche coming, banks backed out in late June, after seeing the way Collins burned through the first $150 million in little more than a month, which forced Collins to borrow the $30 million in emergency bridge financing from its customers.

The bankers and other creditors have criticized the customers, saying their contracts with Collins are unprofitable to the company and are making it impossible for it to get out of its financial hole. The price increase the big customers agreed to and the reported subordination of the new loan to the original DIP could be seen as moves by the company and its customers to mollify the banks and keep them from opposing the new financing plans in court.

The Collins & Aikman motion seeking court approval for the new financing said that the steering committee of bank lenders had participated in the negotiations for the new financing package and would support it.

Besides the temporary price increases, Collins & Aikman said in its filing that the company would work with its respective customers on permanent price adjustments, as the banks and other creditors had urged. It is to present a comprehensive strategic business plan to the court by Aug. 30.

Mirant loans gain

Elsewhere, Mirant's bank debt was being quoted Wednesday basically wrapped around 82, versus the 79 level at which it had been seen trading during the previous session, according to a trader.

The trader saw the move as follow-through from the earlier gains stemming from the judicial order to recalculate Mirant's value.

Mirant and its financial counselors, The Blackstone Group, will have to reassess its method of determining the company's value, under last week's order from judge Dennis Michael Lynn of the U.S. Bankruptcy Court for the Northern District of Texas.

Equity holders had complained that the previous methods severely underestimate the enterprise value of Mirant, maybe by as much as $1.74 billion, essentially preventing them from getting any kind of a recovery.

The judge said that rather than merely relying on projected results, Mirant should use a number of different standards in calculating a range of values, including the use of recent financial data.

He further stated that should the top end of the range of valuations be above $10.7 billion, he would consider the shareholders to be entitled at least to some recovery.

Mirant's bonds were also feeling more powerful, with its defaulted 7.40% notes that were to have come due in 2004 and 7.90% notes due 2009 both advancing to 88 bid, 90 offered from prior levels at 83 bid, 85 offered, a trader in distressed securities said.

He also saw its 2½% convertible notes due 2021 improve to 83 bid, 85 offered from 80 bid, 82 offered, while its 5¾% converts due 2007 firmed four points to 85 bid, 87 offered.

Northwest hits new lows

Northwest Airlines bonds "were weaker," a trader said, noting that the carrier reported its monthly traffic, which rose 5.6% from a year-earlier- but it did nothing for the bonds.

He saw the 8 7/8% notes due 2006 down about 1½ points to 59 bid, 60 offered, "testing new levels, in the 50s, where these bonds have never been before. That's psychologically significant.

He also saw the 8.7% and 9 7.8% notes both due 2007 down about half a point to a point at 44 bid, 46 offered and 45 bid, 47 offered, respectively. The company's 10% notes due 2009 "traded in the same context where they've been," at 39.5 bid, 41.5 offered, he said.

Speaking about the better traffic numbers, "I don't know much of a shock that is to anyone at this point," the trader continued. "A lot of airlines were expected to report, or have already reported better traffic numbers than the comparable [period] last year. It was kind of 'baked in' [to the bonds' price], and people were expecting that the spring and summer seasons are going to be obviously busier, and people are going to be flying. That's kind of a given - the seasonality factor," he said.

"The fact that the mechanics' union has asked for the [federal] mediation board to declare an impasse, and the threat of a strike can occur 30 days afterwards, certainly weighed on the market.

He noted that all of the other airlines were "just about unchanged, maybe a quarter-point or a half-point weaker on higher oil [prices]. But Northwest Air is just moving on its own pace downward."

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