Collins & Aikman bank debt erosion continues; auto bonds mostly off as Ford cuts output

By Paul Deckelman and Sara Rosenberg

New York, Aug. 18 - Collins & Aikman Corp.'s pro rata bank debt drifted into the low-50's on Friday, a far cry from the 90-plus region that the paper was trading in just last month.

The pro rata was quoted at 50.5 bid, 52.5 offered during market hours, down about 3 or 4 points from previous levels, according to a trader.

No public reason has been seen to cause the bankrupt Troy, Mich.-based automotive interior components maker's bank debt's disastrous tumble over the past few weeks. However, there has been mention in the market that investors are disappointed with the lack of news on potential bidders for the company.

Junk bond traders said Friday that the company's 10¾% senior notes due 2011 also continued to fade, down ½ point at 8.5 bid, 9.5 offered. Its nearly worthless subordinated 12¾% notes due 2012 continued to be quoted at less than a penny on the dollar.

Meantime the big news in the junk automotive sector's bonds was Ford Motor Co., which announced new output cuts for the current third quarter and the fourth, on top of previously announced plans to close plants and reduce the size of its workforce on a more permanent basis.

The announcement pushed most of the money-losing Number-Two U.S. carmaker's bonds up on Friday, though not its most widely traded issue. But the bonds of automotive supplier companies that depend on Ford for a good chunk of their business were seen lower, including former Ford unit Visteon Corp. - the expected loss of business from the Ford cuts overshadowing intensifying takeover buzz about the company - and Lear Corp.

Ford - already in the midst of its previously announced multi-year "Way Forward" turnaround plan calling for the permanent closing of 14 facilities and cutting its workforce by as many as 30,000 people - revealed further steep production cutbacks, aimed at bringing its supply of vehicles in line with sagging demand.

A market source saw Ford's bonds generally firmer in response to the news that the troubled company is trying to turn things around - but with one very notable exception. Ford's most widely quoted and traded issue, its 7.45% notes due 2031, was seen down a point on the day, finishing at 78. One or two other issues were also lower, such as the 9.98% notes due 2047, which eased to 87 bid from 88.5.

But the source said that most other Ford issues seemed to have been propped up by the news, quoting the carmaker's 8 7.8% notes due 2022 at 85.625, up 1½ points on the session, while its 7 1/8% notes due 2025 were a point better at 73.5. The Ford 7½% notes due 2026 seemed to have done especially well, being quoted at 76.25 bid - a gain of nearly 3 points. However, it should be pointed out that most of Ford's other issues are relatively thinly traded compared with the 7.45s.

A trader at another desk saw those latter bonds down 1¼ points on the day at 77.5 bid, 78 offered, while noting that the 7% notes due 2013 of Ford's financial arm, Ford Motor Credit Co., "didn't seem to have moved very much," hanging in at the same 91 bid, 91.5 offered level at which they had finished on Thursday.

Another trader saw the Ford 7.45s down ½ point on the day at 77.5 bid, 78.5 offered.

In the credit default swaps market, the Ford news caused the cost of insuring Ford's debt to widen out by about 25 basis points to about 660 bps, or $660,000 per year to insure $10 million in debt. Ford Motor Credit's swaps were meantime seen around 10 bps wider at 385 bps.

The news of the coming additional cuts under Ford's "Way Forward" turnaround plan, and the likelihood of continued declining sales and falling revenues, caused both Standard & Poor's and Moody's Investors Service to put Ford's credit ratings, and those of its credit arm, under scrutiny for possible downgrades further into junk territory. The company's unsecured bonds, such as the 7.45s, are currently rated at B+ by S&P and B2 by Moody's.

Fitch meantime actually did downgrade Ford and its finance arm's corporate credit to B from B+ previously and lowered the companies' senior unsecured debt to B+ from BB-, warning that "volume declines in Ford's pickup segment, along with continued declines in midsize and large SUVs, are likely to accelerate revenue declines and negative cash flows in 2006."

The venerable Dearborn, Mich.-based automotive giant said it will temporary shut down nine assembly plants in the United States and one in Canada through the end of this year. That will cut its third-quarter production by 78,000 units, or 11%, from last year's levels, and it will slash fourth-quarter output by 21%, or 168,000 units, versus a year ago. For the full year, Ford's anticipated output of just over three million vehicles will represent a 9% decline from its 2005 output levels.

The cutbacks will come primarily at those factories that produce Ford's most profitable products, its high-margin light trucks and sport-utility vehicles. Full details on exactly which plants will be shut for how long will be released next month.

With consumers turning away from traditional big gas-guzzlers as pump prices remain above $3 a gallon in most parts of the United States, those models have borne the brunt of a steep sales decline, which last month saw Ford for the first time surrender its Number-Two U.S. sales ranking to Japanese rival Toyota Motor Corp., with Ford falling into third place. Both companies still trail industry leader General Motors Corp. - although Toyota's sales trajectory is trending upward, while GM, like Ford, has been losing market share.

A trader saw GM's benchmark 8 3/8% notes due 2033 down ¼ point on the session at 83.75 bid, 84.25 offered, while GM's financial arm, General Motors Acceptance Corp.'s 8% notes due 2031 were unchanged at 99 bid, par offered.

Visteon, Lear drop on Ford cuts

But it was a different story among the parts suppliers who service Ford, notably Visteon and Lear, a trader said, calling the two "big losers on the news."

He saw Van Buren Township, Mich.-based Visteon's 8¼% notes due 2010 and 7¼% notes due 2014 each down a point at 98.5 bid, 99.25 offered and 88.75 bid, 89.5 offered. At another shop, a market source saw the '10s at 98.625, down 5/8 on the day, while the '14s were down ¾ point at 89.5.

That retreat followed, and completely negated, a rise in Visteon's bonds seen on Thursday, when both series of notes had firmed by several points on market speculation and news reports indicating that French auto parts maker Valeo SA was eyeing Visteon as a potential purchase. Neither company would confirm that scuttlebutt.

On Friday, the Valeo-buying-Visteon scenario got additional impetus, as the Financial Times reported that Valeo is among bidders for all of Visteon - but may sell some of the company's assets later. This conjecture also remained unconfirmed on Friday. However, the takeover buzz was not enough to offset investor angst over the Ford cutbacks, which are seen heavily impacting Visteon - a former Ford subsidiary which still does a great deal of business selling components to its one-time parent.

Southfield, Mich.-based Lear Corp., which sells automotive interior components to original-equipment manufacturers like Ford and GM, was seen as another potential loser from the Ford output cuts. A trader saw its 8.11% notes due 2009 off a point at 98.25 bid, 98.75 offered, while its 5¾% notes due 2014 were down 1½ points at 81.25 bid, 82.25 offered.

Tower down

Among other names in the troubled auto supplier sector, Tower Automotive's 12% notes due 2013 "got murdered," one trader said, while a second agreed that the bankrupt Novi, Mich.-based vehicular frames maker's bonds were "down a few [points]" on the session, falling as low as 45 bid, 47 offered from its opening at 48 bid, 49 offered, and from its Thursday close at 52.

Dura Automotive Systems Inc.'s bonds were seen holding steady at Thursday's closing levels.

The Rochester Hills, Mich.-based automotive systems manufacturer's 9% subordinated notes due 2009 - which got solidly and soundly thwacked during the week on market rumors, later found to be true, that it had hired the New York restructuring firm Miller Buckfire to advise it on its capital structure - were unchanged at 18 bid, 19 offered, while its 8 5/8% senior notes due 2012, which have pretty much weathered the other bonds' downturn, were likewise steady at 78 bid, 79 offered.

A trader saw the combination of mid-summer lassitude plus the dampening effect of Ford's news on the sector, as holding down Delphi Corp.'s bonds despite the presence of good news, from a debtholder's perspective - the bankrupt Troy, Mich.-based auto parts producer announced that some 83% of the eligible members of one of its unions had elected to take advantage of the company's offer of incentives to take early retirement or to accept a buyout, a key element in the company's attempts to lower its labor costs as it tries to restructure (see related story elsewhere in this issue).

He quoted its 6½% notes due 2009 at 88.5 bid, 89.5 offered, unchanged on the day.

Sea Containers drops further

Outside of the autosphere, a trader said that Sea Containers Ltd.'s bonds - which had fallen a point or two on Thursday as the troubled Bermuda-based railroad and marine transportation company met with its bondholders to outline its shaky finances - continued to sink on Friday, with a trader quoting its close-in 10¾% notes slated to come due on Oct. 15 down 3 points to 88 bid, 89 offered, while its 7 1/8% notes due 2008 were also down a trey, at 87 bid, 88 offered.

There was "no news out" Friday, "so I guess people assume that [the Thursday meeting] didn't go too well - they assume the worst." The company - in the process of selling off its ferry operations and other non-core assets with an eye toward cutting its bloated debt balance - has promised to present a restructuring proposal to its creditors sometime in the next few weeks.

Northwest adds grid to DIP

Back in the bank debt market, Northwest Airlines Inc. added a ratings-based grid to its exit facility on Friday morning that will be created from its debtor-in-possession financing facility, according to a market source.

Under the new exit facility grid, pricing will increase to Libor plus 300 basis points if the facility gets less than four-B ratings, the source said.

The five-year exit facility will be the $1.225 billion DIP facility (Ba2/BBB-) converted into a permanent financing structure once the company emerges from Chapter 11.

The DIP/exit facility is comprised of a $975 million term loan and a $250 million revolver, with pricing on both tranches firming up at initial talk of Libor plus 250 basis points.

Just a few days ago, rumors were going around the market regarding the possible addition of this ratings based grid to the exit financing, which obviously came to fruition, and talk also speculated that there could be a slight increase to DIP pricing, which obviously proved unnecessary.

Prior to the deal's launch, the transaction was expected to carry a size of $1.375 billion consisting of a $1.225 billion term loan and a $150 million revolver.

However, at the actual Aug. 7 bank meeting, lenders were presented with a slightly downsized deal with different tranching.

Citigroup and JPMorgan are the lead banks on the Eagan, Minn.-based airline company's facility, with Citi acting as the left lead.

Proceeds from the DIP facility will be used to repay amounts owed under the company's existing DIP facility, and, at the company's option, some proceeds will be used to replace or provide cash collateral for the first-lien obligations.

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