Delphi bank debt, bonds lower as company's problems mount; Delta in modest rebound

By Paul Deckelman and Sara Rosenberg

New York, Aug. 5 - Delphi Corp.'s term loan and revolver both gave up ground during Friday's session as Moody's Investors Service, Standard & Poor's and Fitch Ratings all pushed Delphi deeper into junk status following news of a substantial revolver draw.

That decline carried over to the troubled Troy, Mich.-based automotive electronics manufacturer's bonds, with its shortest maturity - the 6.55% notes due 2006 - losing anywhere from eight to 10 points to finish in the mid to upper 80s.

Elsewhere, the battered bonds of Delta Air Lines Inc. - which had swooned badly earlier in the week before moderating their losses on Thursday - were seen having actually regained some lost ground, ending up several points on the day.

Delphi's revolver was being quoted at 94.5 bid, 95 offered late in the day versus morning levels of 96 bid, 96.5 offered, according to a trader.

Meanwhile, the term loan was quoted at 101.5 bid, 102 offered versus morning levels of 102.5 bid, 103 offered. On Thursday, Delphi's term loan had traded as low as 101 and as high as 102.5 the trader added.

The decline was considerably more pronounced among the company's bonds, which one junk bond trader described as "the only major mover" in the market on the day. He saw the 6.55s at 88 bid, 89 offered, down some 10 points on the session. He said he had not seen any of the company's other bonds, but "you can assume that the longer-dated stuff was going to widen out some more" from recent levels.

Another trader said that Delphi "just couldn't get out of their own way at the end of the day."

He saw the 6.55% '06s, which had finished up around 96.5 bid, 97.5 offered on Thursday, as having plummeted Friday to a closing level around 89.5 bid, and at one point, had traded into an 88 bid, "so those are down a fair amount," he said, with no small degree of understatement.

"Basically, after the news came out this morning, [that Delphi had to dip into its credit facilities to fund its operations, and confirmed the restructuring talks with GM and the United Auto Workers union - see related story elsewhere in this issue], the bonds were quoted down four or five points, then they snapped back a little bit, and then, at the end of the day, another news headline came out [about ratings agency downgrades from Standard & Poor's, Moody's Investors Service and Fitch Ratings], and they just traded through their opening levels this morning" on the downside.

The trader saw Delphi's 6½% notes due 2013 at 77.5 around midday, when the bonds were trying to come back from the initial jolt of bad news; he saw its 6½% notes due 2009 at 82 bid, 84 offered.

"We had some accounts that came in, looking for offerings around midday," he said, "and then they kind of just all went the other way."

A market source saw the 6.55% notes falling to 86 at the end of the day, down from the 94 level at which they had opened the session, and down even further from Thursday's close at 98.5.

The source saw the company's 6½% notes due 2009, though, ending not much changed on the session, at 85. However, during the session, those bonds were spotted as low as 78.

The source also saw the 2013 61/2s ending at 71.625, and its 7 1/8% notes due 2029 at 70.5.

Another source pegged the 6½% 2009 bonds ending down 7½ points on the session at 81.5.

Delphi's New York Stock Exchange-traded shares lost 82 cents (14.19%), to close Friday at $4.96. Volume of 25.4 million shares was more than five times the usual level.

On Friday morning, Delphi announced that it initiated a draw down of $1.5 billion under its $1.8 billion revolving credit facility this past Wednesday.

The draw was in connection with financing operations regarding Delphi's discussions with its principal unions and General Motors about a consensual restructuring of the company's U.S. operations.

In reaction to the announcement, Moody's downgraded Delphi's senior secured credit facility to B3 from B1 and corporate credit rating to Caa1 from B2, with the outlook remaining negative.

"By drawing down under its credit facility the company has placed liquidity on its balance sheet to address what will likely be a period of increased operating and financial risk as it seeks to negotiate a consensual restructuring of its operations in the United States," Moody's said.

"The rating actions reflect the increasing potential that a comprehensive financial restructuring may be necessary if negotiations are not successful in resolving the company's cost issues in the near term," Moody's added.

As for S&P, the rating agency downgraded Delphi's senior secured credit facility to B- from BB- and corporate credit rating to CCC+ from B+, with a developing outlook.

"The rating actions reflect increased concerns about a potential bankruptcy filing by Delphi, in light of recent public comments by its top executives, and the initiation of a $1.5 billion drawdown of its revolving credit facility," said S&P credit analyst Martin King in the ratings release.

"The drawdown of the credit facility, in light of the current discussions Delphi is having with GM and the UAW, could mean that the company is securing its liquidity position should a bankruptcy filing become necessary. We believe the company has sufficient liquidity to meet near-term obligations, but the media attention surrounding the company's difficulties could disrupt Delphi's vendor relations and weaken its liquidity cushion," S&P added.

Lastly, Fitch Ratings downgraded Delphi's credit facility to B from BB-, with the company remaining on Rating Watch negative.

Fitch said the downgrade reflects the implied heightened bankruptcy risk as the company enters a critical stage in its discussions with the UAW.

A trader said that Delphi's distress seemed not to have very much impact on other names in the automotive sector, notably Collins & Aikman Products Co.'s 10 ¾% notes due 2011, which firmed to 29 bid, 31 offered, on "maybe a couple of buyers around."

Delta rises

In the recently staggering airline sector, things were "pretty quiet," a trader said, "nothing really crazy going on. It was just a little bit of weakness, nothing major to report. They kind of went out flat on the day" versus recent levels.

Meanwhile Delta's flagship 7.70% notes due 2005 - which were modestly lower Thursday after having lost over 25 points in the two previous sessions amid renewed bankruptcy fears about the company - moved up to the low to mid 40s Friday from prior levels in a 38-39 context, a trader said.

"They might have some pop at the end of the day, as people try to cover some shorts. Maybe there was some buying going on. There were a couple of prints at 43," although he saw them finishing the day at 41 bid, 43 offered.

The trader saw Northwest Airlines' 8 7/8% notes due 2006 at 57 bid 59 offered, up maybe half a point from the levels to which those bonds had fallen on "people starting to cover up some major shorts."

Those Northwest bonds, as well as the Eagan, Minn.-based fourth-largest U.S. airline company's other issues, had fallen sharply Thursday, after having followed Delta down the previous two sessions, amid investor worry over high fuel prices, heavy pension burdens and a deteriorating labor situation.

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