Delphi bonds lower on bankruptcy buzz; Ross emerges as possible player

By Paul Deckelman and Sara Rosenberg

New York, Sept. 16 - Delphi Corp.'s bonds continued to trend lower Friday, amid new speculation that the troubled Troy, Mich.-based automotive electronics manufacturer may be headed for the bankruptcy courts sooner rather than later. That possibility has also raised the interest of a well-heeled financier looking to become a major player in that industry.

Elsewhere, the bonds of bankrupt Northwest Airlines Corp. were seen having come in a little, while equally bankrupt rival Delta Air Lines' bonds were seen pretty much unchanged on the day.

A trader saw Delphi's 6.55% notes due 2006 retreating to 75 bid, 77 offered from 78 bid, 80 offered, while its 6½% notes due 2009 fell three points to 71 bid, 73 offered, its 61/2s due 2013 fell to 69.875 from 71 bid, 73 offered, and its 7 1/8% notes due 2029 were down a point at 65 bid, 67 offered.

Another trader had the 6.55s going down to 76 bid, 77 offered from 78 bid, 79 offered, and its 7 1/8s down half a point at 66 bid, 66.5 offered.

Delphi's '06 notes, he said, are "just compressing slowly, catching up with the other ones, in case there really is a bankruptcy - which I still doubt, but at this point, who knows?"

The company's bank debt, meantime, was seen holding steady, as its revolving credit loan traded around at 98.125 during the session, and closed out the day quoted at 98 bid, 98.5 offered - unchanged from Thursday's levels, according to traders.

Delphi's term loan was quoted at 101.75 bid, 102 offered - also unchanged from prior levels, traders said.

Delphi's bonds were seen affected by overall weakness in the automotive sector, still reeling from the unexpected announcement Thursday by Dana Corp. that its full-year earnings for 2005 will come in substantially below previously predicted levels due to high energy and raw materials costs, and sagging sales to the major automakers - the same problems that have Delphi and a number of other component suppliers on the ropes.

Delphi - a former unit of General Motors Corp. - has asked its erstwhile parent and the United Auto Workers union for some help with its high labor costs, which it inherited when GM spun Delphi off several years ago. At that time, Delphi assumed ownership of a number of former GM factories - but also took on the existing labor contracts for those facilities, where workers received the prevailing automaker contract wage, which is considerably higher than the prevailing wage at Delphi's peers in the automotive components supplier sector.

Delphi is hoping that GM gives it the same kind of relief that Van Buren Township, Mich.-based Visteon Corp. got from its former corporate parent, Ford Motor Co. Visteon faced a similar situation after it was spun off by Ford several years ago, and Ford earlier this year agreed to take back about two dozen high-cost, unprofitable factories, with an eye toward selling them. Details on which factories will be taken back were finalized this week.

Delphi has said that it must have the help from the union and GM before Oct. 17, or else it will file for bankruptcy. That's the deadline when the federal bankruptcy code is made tougher on debtors, giving them less time to come up with a reorganization plan, and traders see it as a looming factor in any decision Delphi makes.

More fuel was added to the fire on Friday when HSBC Securities in New York issued a research report that stated that "the possibility of a Delphi Corp. bankruptcy-law filing remains more likely than not."

However, the analysts noted that right now, "it is impossible to know with any reasonable degree of certainty where negotiations [with GM and the UAW aimed at saving Delphi from bankruptcy] stand."

Ross watching

Watching all of this with a keenly interested eye is billionaire financier Wilbur L. Ross, and the industrialist's interest in Delphi - and in the bankrupt Tory, Mich.-based auto interior components supplier Collins & Aikman - became clearer on Friday, when he was quoted in a lengthy piece in the Detroit Free Press as saying that he would be interested in acquiring Delphi should the company go into bankruptcy or put itself up for sale.

Ross told the paper that "for the moment, Delphi has not invited people to do anything." He said that "we would anticipate if and when Delphi did open the process, we would try to get involved."

Ross has also indicated that he would like to buy Collins & Aikman's U.S. operations. He already has a strong foothold at Collins & Aikman, since he owns a majority of the company's $750 million of bank debt, and will thus have an enormous say in what a post-bankruptcy Collins & Aikman looks like.

Ross, 67, is the principal of WL Ross & Co. - the investment firm which earlier in the decade rolled up assets of bankrupt steel companies like Bethlehem Steel Corp., LTV Corp. and Weirton Steel Corp., buying their mills at near-fire-sale prices in the bankruptcy courts, negotiating new contracts with the stricken companies' unions, and getting concessions that would allow the steelmakers to operate profitably. He welded those assets into his new International Steel Group, which he profitably sold last year to Dutch-based Mittal Steel Group SA, now the world's largest steelmaker. Ross has also pursued similar consolidation strategies in the coal and textile industries.

He told the Free Press on Friday that his firm has $4.5 billion available to invest - and could access even more, if need be.

"I don't think size is any particular problem," Ross said. "We're willing to put a lot of effort and a lot of capital into this consolidation program."

The financier also said that he expects to be able to work with the UAW to put his industry-consolidating company together, just as he did with the United Steel Workers and other industrial unions when he consolidated the steel industry.

Northwest bonds dip

Elsewhere, Northwest Airlines bonds - which had firmed a little following the Eagan, Minn.-based Number-Four U.S. air carrier's Wednesday bankruptcy filing, were seen a little lower. While noting that there was "still some short-covering, so still a technical bid to its bonds," particularly the company's 2006 notes, a trader quoted all of the company's bonds as pretty much trading in a 21.75 bid, 22.75 offered context, down about half a point on the day.

At another desk, the company's 7 7/8% notes due 2008 were seen having fallen to about 22 bid after having previously moved as high as 24 on short-covering, and perhaps a perception that the debt might be a favorable place to park funds, since it is likely to be converted into equity in the reorganized company, which could emerge as a leaner, more efficient, and relatively low-debt company.

However, some observers caution that unsecured creditors are not likely to get much equity for their stakes, with the bonds now trading at less than a quarter on the dollar.

The first trader meantime saw the bonds of bankrupt Delta Air Lines Inc. all at 16 bid, 17 offered, unchanged on the day.

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