R.J. Tower bonds up on new credit facility; Delta rises but Continental off

By Ronda Fears and Sara Rosenberg

Nashville and New York, Jan. 4 - Tower Automotive Inc. announced on Tuesday a liquidity injection of about $50 million and, while it was 25% to 50% smaller than what the market speculated three months ago, it was enough to drive R.J. Tower Corp. bonds higher. Overall, traders described the day as a mostly "up-trending" session for distressed paper although the broader stock market continued to backslide in the early days of 2005.

Other notable gainers mentioned by distressed bond traders included RCN Corp. and Intermet Corp., though without any news.

Mirant Corp., too, was still trading up on positive reactions to news last week that Marce Fuller, CEO for the Houston-based bankrupt power company, will be stepping down. A trader said the Mirant bonds were up about 2 points with the 7.9s at 77 bid, 79 offered and the 2½% convertible at 76 bid, 78 offered. The Mirant convertible trust preferreds gained, as well, adding 1¾ points to a last trade of 123/4.

On bank loan desks, Mirant's 2003 paper also continued to rally on Tuesday, moving up to 73 bid, 74 offered from 72½ bid, 73 offered on Monday, according to one trader. Another trader had the bank debt at 72 bid, 73 offered on Monday. Those levels are up from 70 bid, 71½ offered at the close of 2004.

Back in bonds, airline paper was again busy Tuesday with Delta Air Lines Inc. issues rising 2 points across the board on continuing rumors that the recently rebounding carrier would cut fares by 50% to 60%, which has not been confirmed by the Atlanta-based company.

Continental Airlines Corp., meanwhile, fell sharply after reporting a much deeper decline in December traffic revenues even while passenger demand rose - a phenomena many fear would be exacerbated by a fare war. As a result, other major legacy airlines like American Airlines parent AMR Corp. and Northwest Airlines Corp. paper dropped as well.

Trending lower, however, was Calpine Corp. "They have had such a run recently. And the whole sector was kind of weak. Calpine stock was off pretty big," one trader said, pegging the 8½% due 2008 at 81 bid, 82 offered after hitting a high bid of 83 bid. "Ever since they got up to that 83 bid, that bid got tapped and they have been down ever since."

Tower bonds up 2-5 points

On Tower's news the R.J. Tower 12% bonds due 2013 gained 2 points to 81¾ bid, 82¾ offered while its convertible 5¾% due 2024 gained 5¼ points to 73½ bid, 75½ offered, traders said. The Tower 6¾% convertible preferred rose, too, by 1½ points to 11.

Tower announced that it had obtained a $50 million accounts receivable securitization facility through GE Commercial Finance. It described the facility, which closed on Dec. 30, as a critical component of its strategy to offset the adverse impact to its short-term liquidity from the termination of the early payment programs by most of its North American automotive OEM customers.

In October there had been market chatter that the Novi, Mich.-based auto parts and components maker was working to increase its collateralized financing package to the neighborhood of $100 million or as high as $200 million.

"As part of that strategic plan, Tower Automotive has worked with its customers to find additional solutions to deal with the elimination of the early payment programs," Tower said in a statement. "Additionally, Tower Automotive will continue to pursue a European factoring facility, and expects to complete this later in the first quarter of 2005."

The liquidity crunch cause by discontinuance of the early payment programs also prompted Tower in early December to defer the dividend payment of about $4.4 million on its 6¾% trust convertible preferreds issue that came due Dec. 31. Tower reportedly made the Dec. 15 interest payment on its new 5.75% convertible bonds due 2024, however.

Deferring the preferred dividends and obtaining the new credit facility improved short-term liquidity, Tower said, and helps bring liquidity in line with its projections for Dec. 31 that was outlined in its third-quarter earnings review.

Standard & Poor's said Tuesday, however, that the new credit facility would have no impact on Tower's single-B ratings or the negative watch for the credit, which was initiated on the dividend deferral. S&P in fact cut Tower's ratings on the deferred interest, saying it viewed the event tantamount to a default even though the convertible indenture permits such a deferral of dividends for up to 20 quarters.

Continental dives on revenue dip

Continental reported late Monday that December unit revenue slumped even as passenger demand rose and it was a major contributor to other airline paper declining. Other carriers also reported passenger demand was on the rise, but Continental is the only major U.S. carrier to disclose monthly unit revenue data.

Continental bonds were described as about 3 points lower, with similar declines in AMR and Northwest bonds. Bankrupt UAL also posted higher traffic figures along with its legacy peers, but traders said its bonds were basically unchanged at 9 bid, 10 offered.

"Airline revenues are feeling pressure from a glut of capacity and fierce price competition. Continental's numbers suggest the situation isn't getting any better," one trader said.

Continental said its estimates for December mainline unit revenue decreased 4.5% to 5.5% from a year earlier, blaming shifts in outbound and return traffic for the Thanksgiving and Christmas holidays. That was much worse than some analysts anticipated. Merrill Lynch analysts, for instance, had anticipated a revenue decline of 2.5% to 3.5%.

Yet, Continental said revenue passenger miles increased 6.5% year over year with capacity up 6.1% on a 77.3% load factor. The load factor, which measures the percentage of seats filled on its planes, was up 0.2 points from a year earlier.

Delta up again on fare buzz

Meanwhile, ongoing chatter that Delta is considering a new fare scheme that would cut ticket rates by 50% to 60% sent its bonds flying.

Delta is reportedly considering expanding a new fare scheme recently introduced in the Cincinnati market that has resulted in lower ticket prices, moving into a business model similar to Southwest Air Lines Corp.

Lehman Brothers analyst Gary Chase said Tuesday that if Delta rolls out this new fare program aiming to shore up customer loyalty, it would further depress what is already expected to be weak revenue pattern for the airline industry in 2005.

"This risk further reinforces our view that the risk-reward in airline shares has deteriorated," Chase said in a research note.

That provided pressure for Delta competitors but lifted the Delta issues by around 2 points across the board. The short-dated 7.7% bonds were quoted at 94 bid, 96 offered and the long 8.3% bonds at 50 bid, 52 offered by one trader. Another pegged the 8.3s of 2029 at 50½ bid, 51½ offered, up from 48¼ bid, 49¼ offered on Monday, and he put the 7.9% bonds due 2009 at 64¼ bid, 65¼ offered versus 62¼ bid, 63¼ offered on Monday.

On the bank desks, Delta's 2005 paper was seen at 93 bid, 94 offered, up from 91¼ bid, 92¼ offered on Monday.

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