Delphi bank debt, bonds easier; airline bonds continue to drop on fuel price jitters

By Paul Deckelman and Sara Rosenberg

New York, Sept. 2 - Delphi Corp.'s bank debt saw some trading activity during Friday's shortened pre-holiday session at lower levels than were seen Thursday afternoon, while the Troy, Mich.-based automotive electronics manufacturer's bonds were also lower; debtholders awaited word on whether ongoing talks with former corporate parent General Motors Corp. and the United Auto Workers union might produce any labor-cost relief for the company, which seeks to avoid a bankruptcy filing.

Meanwhile, the bonds of Northwest Airlines Corp. and Delta Air Lines Inc. - both of which are also trying to avoid a crash landing in the bankruptcy courts - continued to fall Friday in the wake of sharply higher energy prices in the U.S. in the wake of Hurricane Katrina. Mounting energy costs have been a key factor in the erosion of the airline industry's traditional financial strength.

The latest easing in Delphi's bank debt was seen bringing the week's total losses to approximately 1½ points on both the company's revolving credit facility and its term loan.

On Friday, Delphi's term loan was quoted at 101.75 bid, 102.25 offered and its revolver was quoted at 94 bid, 95 offered, according to a trader. That was down from levels seen late Thursday afternoon, when the term loan had been was quoted at 102.25 bid, 103 offered and the revolver was quoted at 94.5 bid, 95.5 offered.

However, "at the very end of the day" Thursday, both tranches had actually come in to the new lower levels that were exhibited on Friday, the trader remarked.

Delphi is currently looking to former parent GM for some sort of financial bailout from the high employee costs it inherited when it was spun off from the giant carmaker several years ago, and it has warned that it could be forced into Chapter 11 if it does not get concessions from the UAW and help from GM.

So far, though, the union has been wary about extending concessions to either Delphi, or to GM, which is also in its own separate talks with the labor group, seeking to lower its costs.

Delphi's chief executive officer, turnaround specialist Robert S. "Steve" Miller, has indicated that a bankruptcy filing could come before the Oct. 17 change in the U.S. Bankruptcy Code that makes it less advantageous to filing debtors.

Delphi's bank debt had opened this past Monday around 103 bid, 104 offered on the term loan and around 95.5 bid, 96.5 offered on the revolver, but has been grinding lower all week on recent media reports that the UAW wouldn't support all the concessions being sought by the companies, which sparked concerns over Delphi's future.

Although this week's heightened bankruptcy concerns have shone the spotlight on Delphi, the bank debt has actually been on everybody's radar ever since early August, when the company announced that it drew down $1.5 billion under its revolver in order to have cash readily available to finance operations if needed.

After that drawdown was announced, all three rating agencies downgraded the company's loans - Moody's Investors Service to B3 from B1, Standard & Poor's to B- from BB- and Fitch Ratings to B from BB-.

However, shortly after the revolver draw and the rating downgrades emerged, the company assured investors that it was and is working towards making a deal with UAW and GM, sparking hope in investors that a Chapter 11 filing was actually the most unlikely course that Delphi would need to take, and creating a short-lived rebound in bank debt levels.

Delphi's bonds, meantime, have been trending downward in tandem with its bank debt, and on Friday a trader saw Delphi's 6.55% notes due 2006 two points lower at 79 bid, 81 offered, as were its 6½% notes due 2009, which closed at 74 bid, 76 offered. Its 61/2s due 2013 were a point lower at 71 bid, 73 offered, while its 7 1/8% notes due 2029 were unchanged at 68 bid, 70 offered.

Another trader saw the bonds "down a point, maybe a little more" from Thursday's levels, with the 6.55s easing to 80 bid, 82 offered from 81.5 bid, 82.5 offered previously, and the 7 1/8s at 68 bid, 69 offered.

A week earlier, Delphi's 6.55s were trading at 92 bid, its 6½% 2009 notes were at 85.5, the 61/2s due 2013 were at 80.5, and the 7 1/8% notes due 2029 ended at 76.125.

Traders said that the market this past week had been rife with rumors about the progress - or lack thereof - in the Delphi/GM/UAW discussions, including talk that the UAW might rely on the carmaker to bail its big supplier out, rather than offer concessions of its own, and another rumor making the rounds that spoke of a research report by one of the major investment banking houses, which once put the chances of a bankruptcy filing at no better than 30%, now seeing an 80% chance of a Chapter 11 case.

Collins & Aikman steady

Elsewhere in the troubled automotive sector, Collins & Aikman Corp.'s 10 ¾% senior notes due 2011 were seen holding steady at 37 bid, 38 offered. The bankrupt Tory, Mich.-based automotive interior components supplier's bonds had moved several points higher during the week, a trader said, amid speculation that the company had prepared a business plan, as previously announced, although there had been no news out from the company during the week to either confirm or deny this

Collins & Aikman's director of corporate communications David Youngman clarified the situation Friday for Prospect News, noting that the company had in fact completed its business plan, which is not the same thing as a reorganization plan that it ultimately intends to file under its ongoing Chapter 11 case before the U.S. Bankruptcy Court for the Eastern District of Michigan, in Detroit.

While the latter document, when it is completed, will contain information about exit financing and procedures and the like, the former strictly deals with how Collins & Aikman plans to run its business.

It is not a court-required document per se, but rather was compiled under an agreement Collins & Aikman made with half a dozen of its largest customers - Detroit's Big Three plus the top three Japanese carmakers - who have agreed to extend to the company a package of interim financing while it reorganizes. This financing package includes $82.5 million in up-front cash and another $82.5 million of higher prices for the components Collins & Aikman provides to them, among other provisions.

Youngman said that the there had been no public announcement about completion of the business plan because its details cannot be publicly disclosed, since these include confidential information Collins & Aikman would not want to reveal to its competitors. Instead, he said, the business plan will be "rolled out to our different audiences over the next several weeks," via one-on-one presentations with the lending customers, as well as the company's bank lenders and its creditors committee.

Youngman said that he is working with the management group on "an overview" of the business plan that would provide "general details, but no specifics" in terms of the confidential data, which could then be distributed publicly.

Northwest, Delta lower

Outside of the autosphere, the major movement in distressed bonds seen in an otherwise very lightly traded, abbreviated pre-holiday session Friday was among airline bonds, notably Northwest and Delta.

Northwest, the Eagan, Minn.-based Number-Four U.S. airline carrier, continued to get slammed on jet fuel prices, while investors digested its latest dire warning, issued Thursday, that outlined just how much damage those price hikes have caused for the company as it fights to stay out of bankruptcy. Rival carrier Delta, which also seems to be edging ever closer to a Chapter 11 filing, was likewise lower.

The immediate catalyst for their lower movement was continued concern about rapidly rising jet fuel prices and possible supply disruptions. Those fuel problems, immediately caused by Hurricane Katrina, which closed several petroleum refineries along the U.S. Gulf Coast, are exacerbating an already serious fuel price problem that the two struggling airlines - and even other, non-struggling carriers - have been having all year, making their respective fights to avoid Chapter 11 even that much more difficult.

A trader saw Atlanta-based Delta's bonds coming inexorably earthward Friday, with the problem-plagued Number-Three U.S. airline carrier's 7.90% notes due 2009 down a point on the day at 15.25 bid, 16.25 offered, while its 8.30% notes due 2029 lost a quarter-point to 15 bid, 16 offered.

"There wasn't a hell of a lot of stuff to go on," he proclaimed. "The amount of business being done is a little spotty."

Another trader saw the 7.90s as low as 14 bid, 16 offered, down two points on the day, while the 8.30s were also two points down, at 13 bid, 15 offered, and its 10% notes due 2005 were at 16 bid, 17 offered, off a point. The company's benchmark 7.70% notes coming due on Dec. 15 were a point lower at 20 bid, 22 offered, as the bonds continue to compress their various trading levels - something observers believe is a sure tip-off that a Chapter 11 filing is likely to come sooner rather than later, since the bonds would all trade on top of one another in the event of a restructuring scenario. Delta is seen as a slightly more likely candidate than Northwest to seek protection from its bondholders and other creditors, though not by much.

A trader in distressed bonds meantime said that Northwest's benchmark issue, the 8 7/8% notes due 2006, retreated to 48 bid, 52 offered Friday from 56 bid, 58 offered on Thursday. Its 9 7/8% notes due 2007 dipped to 41 bid, 43 offered from 44 bid, 46 offered, while its 10% notes due 2009 retreated to 36 bid, 38 offered from 39 bid, 41 offered.

A trader at another desk, who also saw the 8 7/8s drop to around 48 bid, 50 offered, estimated they were down six points on the session, and saw the 10s three points lower at 35 bid, 37 offered.

Also suffering were the convertibles of Northwest and Delta.

"It's weaker, but not much is trading, which is typical for a Friday before a holiday weekend. They were a couple of points lower," a sellside trader said of Northwest's 6.625% convertibles and 7.625% convertibles.

The trader put Delta's 8% convertibles down another 0.50 point at 14.5.

On Thursday, Northwest's 6.625s traded at 43.50, and the 7.625s traded at 36.75. And Delta's 8s traded at 15.

Northwest was one of the few market features the distressed bond trader saw at all, with the market having "pretty much shut down by noon time [ET]."

Market participants tried to gauge the impact of Northwest's disclosure in a Thursday filing with the Securities and Exchange Commission, that rising jet fuel prices were eating away at its financial stability, and predicted that its total fuel expense in 2005 will be approximately $3.3 billion, versus the $2.2 billion spent in 2004 and more than double the $1.6 billion spent on fuel in 2003.

Northwest also said in that filing that it expects to lose some $4 million a day, or between $350 million and $400 million for the current quarter, which ends on Sept. 30, and warned that its cash balance has fallen to $1.7 billion, down from $2.1 billion on June 30.

As if those weren't headaches enough, Northwest also noted in the filing that it has a $3.8 billion shortfall in its pension plans, and is required to pay in $800 million next year and $1.7 billion in 2007.

Northwest's Nasdaq-traded shares lost 34 cents (8.56%) Friday to end at $3.63, on volume of 16.2 million, more than three times the usual turnover.

Fuel price worries also pushed American Airlines parent AMR Corp.'s 9% notes due 2012 down 1½ points, a trader said, to 77 bid, 78 offered.

© 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.