Anchor Glass bonds fall on coupon/covenant warning, trade flat; auto sector bank debt firm

By Paul Deckelman and Sara Rosenberg

New York, July 19 - Anchor Glass Container Corp.'s bonds were bouncing around at sharply lower levels Tuesday after the Tampa, Fla.-based glass container manufacturer's warning Monday that it may not be able to make the scheduled Aug. 15 interest payment on its bonds and that it expects to breach covenants in its bank credit agreement.

In bank loan trading, the auto sector continued to remain firm in Tuesday's session, though on relatively light volume; Federal-Mogul Corp., Meridian Automotive Systems Inc. and Collins & Aikman Corp. were all seen gaining ground since the start of this week.

A trader saw Anchor Glass Container's 11% notes due 2013 "initially drop" to levels as low as 61 bid, 62 offered from Monday's close at 73 bid, 74 offered, after the company warned that its ability pay the $19.2 million of interest due Aug. 15 on the $350 million of 11% notes is "uncertain" and said it is considering various options, including a debt restructuring.

He said that after bottoming at those lows, the bonds bounced back to a closing price of 66 bid, 67 offered, though they are now trading flat, or without the accrued interest. Dealings in Anchor, he said, "were pretty active."

Besides warning about the coupon payment, Anchor further cautioned investors that it expects to violate its bank covenants because of "substantially" lower than expected earnings for May and June. It said that those results mean it does not expect to be in compliance with the fixed-charge coverage ratio covenant on its two revolving credit agreements with Wachovia Bank NA and Madeleine LLC and its capital leases with General Electric Credit Corp. It said that discussions are under way for a waiver or modification of the requirement, and it expects to be able to borrow on the revolvers to pay ordinary course liabilities.

However, the company said the non-compliance would allow the lenders to accelerate the debt if they wished.

Moody's Investors Service said Tuesday that it had downgraded ratings on Anchor by two notches, with both the corporate family rating (formerly senior implied rating) and the rating on the 11% notes falling to Caa1. The ratings have been placed on review for further possible downgrade.

Auto loans heading higher

In distressed bank loan trading, Federal-Mogul's paper was quoted in the 92 bid, 92.75 offered context by the end of the session, pretty much unchanged from Monday, but up from the end of last week when the bankrupt Southfield, Mich.-based automotive parts company's loan closed around 91.5 bid, 92.5 offered, according to a trader.

Meridian's bank debt was quoted at 95 bid, 97 offered by the end of the session, up from the end of last week, when the bankrupt Dearborn, Mich.-based auto components supplier's paper closed around 92 bid, 94 offered, the trader said.

And, Collins & Aikman's bank debt closed out the session at 84 bid, 85 offered, up from Monday's levels when it was seen hitting a low of 80 bid, 83 offered and closing out the day at 83 bid, 85 offered, the trader said. Last week, the bank debt was trading primarily in the 82 bid, 83 offered context and it closed out last week at 83.5 bid, 84.5 offered.

"Ford [Motor Co.] reported numbers today. Kind of a non-event but auto suppliers in general have been better over the past few weeks," the trader explained.

On Tuesday, Ford announced second-quarter numbers that included net income of 47 cents per share, or $946 million, down from net income of 57 cents per share, or $1.2 billion, in the second quarter of 2004. Total sales and revenue in the second quarter was $44.5 billion, compared to $42.9 billion in the year-ago period.

Back in the bond trading arena, Collins & Aikman's 10¾% notes due 2011 - which bounced around on Monday at sharply lower levels on news of its European units seeking court protection before coming off those lows to end the day just slightly lower - were nowhere nearly as volatile Tuesday.

The bankrupt Troy, Mich.-based automotive components supplier's bonds were quoted by one trader at 27.75 bid, 28.5 offered, up from 26.625 bid, 27.625 offered on Monday, while another one saw the bonds unchanged at 27 bid, 28 offered.

Foamex continues to bounce back

Foamex International's bonds were seen continuing their rebound from the lows they hit last week after the Linwood, Pa.-based maker of foam rubber products form the automotive industry and other industrial customers warned that its second-quarter results would come in sharply weaker than previously expected, and said that it was hiring an investment bank to help it to explore strategic options.

That bad news threw the bonds for a sharp loss, but those oversold notes have been bouncing back for the past three sessions. On Tuesday, its 10¾% senior notes due 2009 were being quoted up another two points to 88.5 bid, 89.5 offered, while its 9 7/8% notes due 2007 - beaten down to recent lows around 22 bid - firmed to 35 bid, 37 offered, a trader said, well up from 29 bid, 31 offered previously. However, the trader did not see any movement in the company's 13½% notes slated to come due on Aug. 15. Those bonds - recently traded around 90 bid - are currently worth about half that, last quoted at 45 bid, 55 offered.

Calpine bonds higher

Outside of the automotive area, a trader saw Calpine Corp.'s 8½% notes due 2008 up two points on the session at 69.5 bid, 70.5 offered, although he saw "no news there" on the San Jose, Calif.-based power generating company.

A source at another desk pegged Calpine's 8 5/8% notes due 2010 half a point higher at 66, while its Calpine Canada Energy Finance 8½% notes due 2008 were up 1¼ point at 67.5 bid.

Northwest lower on labor troubles

A trader saw Northwest Airlines Corp.'s bonds "a little weaker" on the news that the Eagan, Minn.-based air carrier had rejected a request for arbitration of its labor dispute with its mechanics' union. He quoted those bonds at 63.5 bid, 64.5 offered.

Another trader, seeing Northwest's 10% notes due 2009 retreat to 42 bid, 43 offered from 43 bid, 45 offered previously, opined that "everyone knew this was gonna happen." Northwest's 7 7/8% notes due 2008 lost 1½ points to 40.50.

Northwest is seeking $176 million of permanent wage concessions from the mechanics - a concession that is so far not forthcoming - as part of its efforts to stay out of the bankruptcy courts by chopping labor costs by a permanent $1.1 billion. Now that the airline has rejected the arbitration bid, the next step could be the federal government's National Mediation Board declaring an impasse, which starts a 30-day "cooling off" period which could conclude with the union striking the airline.

The news that Winn-Dixie Stores Inc. has reached agreement on the sale of 102 of the 326 stores that the bankrupt Jacksonville, Fla.-based supermarket operator has slated for closing hit the tape too late for any appreciable trading Tuesday, although it could be a catalyst for some bond price action on Wednesday, traders said.

Earlier this month, the company's 8 7/8% notes due 2008 firmed solidly on the preliminary news that it had sold 79 of the 326 locations. The additional sales came about during the court-ordered auction held Monday in New York. The results of that auction are subject to a bankruptcy court hearing that gets under way on July 27.

Those bonds, unseen Tuesday, had most recently been quoted around 73 bid, a market source said.

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