Rotech, Muzak gain on no news; Collins & Aikman bank debt steadies

By Paul Deckelman and Sara Rosenberg

New York, Aug. 28 - Bonds of Rotech Healthcare Inc. and Muzak Holdings LLC were each seen higher in Monday's junk bond market dealings - although traders said they had seen no fresh news out about either company that might explain the bonds' rise.

In the automotive area, Collins & Aikman Corp.'s pro rata bank debt stabilized a bit Monday, after having been hard hit last week as investor hopes for a quick sale of the bankrupt Troy, Mich.-based automotive interior components maker seemed to fade.

Going the other way were the bonds of Ford Motor Co. and its financial arm, Ford Motor Credit Co., which gained traction on Monday on continued speculation - first raised late last week - that the embattled Number-Two domestic carmaker might follow the recent lead of arch-rival General Motors Corp. and sell a sizable stake in the credit unit.

Rotech on the rise

A trader in distressed bonds saw Rotech's 9½% notes due 2012 up 2 points on the session at 70 bid, 72 offered, although he was not aware of any new developments that might be pushing the Orlando, Fla.-based medical products and services provider's bonds up.

A trader at another shop likewise saw the bonds up "a point, maybe two points," to 70 bid, 71 offered, though on "no news."

Yet another trader saw those bonds as good as 70.75 bid, 71.75 offered, up from prior levels at 68.5 bid, 69.5 offered. He said that there had been no fresh news out about the company since last week that might explain the rise.

Last week, Rotech's bonds had held steady in the upper 60s, while its Nasdaq Global Market-traded shares blipped up to $1.55 from prior levels around $1.30, after the company's president and chief executive officer, Philip Carter, said in a statement that Rotech's recent troubles were temporary, and that the number of patients served and the number of products sold have increased for six consecutive quarters. A company spokesman added that Rotech's overall strategy remains unchanged and that no layoffs were anticipated.

Those troubles included a warning from the Food &Drug Administration accusing Rotech and several other companies of operating as a manufacturer rather than a pharmacy in providing its own versions of commercially available respiratory drugs. Rotech and the others were ordered to cease and desist. Rotech said last week in filings with the agency that while it disagrees with the FDA's assertions, it will comply with the regulators' request and would switch some 30,000 of its patients off its own formulations and into brand-name drugs.

The stock surge - and the belated bond movement as well - may also be linked to speculation, voiced on investment-oriented internet bulletin boards, that the company, with its stock under $2, could be ripe for a takeover; one name that was mentioned was Praxair, a producer of industrial gasses which has a home healthcare operation that supplies patients with oxygen. Others, more skeptical, pointed to Rotech's troubled finances and its need to refinance some $275 million of debt that it took on in 2002, when the current Rotech emerged from the ruins of its bankrupt predecessor company, Rotech Medical Corp., then a unit of Integrated Health Services Inc.

In its recent regulatory filings, the company acknowledged that its current liabilities outweighed its current assets and cautioned that if it does not secure refinancing by mid-September, Rotech "will be in default under the credit agreement."

Muzak sweet to investors' ears

While there has been some recent news out about Rotech that could be the catalyst for the higher bond levels, traders said they have seen nothing recently on Muzak. In fact, there hasn't been much activity at all in recent months in the bonds of the Fort Mill, S.C.-based provider of recorded music.

But on Monday a distressed-debt trader quoted its 10% notes due 2009 and its 9 7/8% notes due 2009 as having each moved up 2 points on the day, to 87 bid, 89 offered on the senior 10s and to 60 bid, 62 offered on the subordinated 9 7/8s.

Another trader saw the 10s up just ½ point at 88 bid, 89 offered, and saw the 9 7/8s at 61 bid, 63, a 3 point gain. But he said that while there was a fair amount of quoting going on, he didn't see much in the way of actual trades. "They were up a couple of points," he said of the latter issue, "but they rarely trade."

As to what was behind the Muzak movement, he just shrugged: "Who knows?"

Collins & Aikman steadies

Traders are a little more definite about the bank debt and bonds of Collins &Aikman. Its bank debt - after having been beaten down last week - seemed to stabilize on Monday, with levels actually closing out the day unchanged, according to a trader.

The pro rata paper went out at 48 bid, 50 offered, in line with Friday's closing levels.

A junk bond trader meantime saw the company's 10¾% notes due 2012 unchanged at 6.5 bid, 7 offered.

The bank debt and the bonds have been getting banged around recently on negative speculation about potential bids for the company's domestic operations.

A trade publication reported last week that Wilbur L. Ross - the billionaire financier who had been widely mentioned as the candidate most likely to come along and scoop up Collins & Aikman - no longer sees buying Collins & Aikman's operations in North America as the "lynchpin" of his strategy of assembling a super-company out of the ruins of the hard-hit auto supply sector, similar to what he did in the steel industry and the coal industry - even though he has already bought Collins & Aikman's European and Brazilian units.

Instead, it suggested, the tycoon will sit back and await the shakeout in the domestic auto supplier industry, which has already seen bankruptcies by companies like Collins & Aikman, as well as Dana Corp., Delphi Corp. and Tower Automotive Inc.

Elsewhere in the sector, a trader saw Dana Credit Corp.'s 8 3/8% notes due 2007 a point better at 93 bid, 95 offered, but saw the rest of the bankrupt Toledo, Ohio-based auto parts maker's bonds off a point, like its 6½% notes due 2008, at 78 bids, 80 offered.

He also saw Tower's 12% notes due 2013 a point better at 39 bid, 41 offered, but saw "nothing" doing with Delphi.

Ford firms on credit unit deal talk

Also among the autos, Ford gained, as did Ford Motor Credit Co., in the wake of intensified speculation that the struggling carmaker might look to sell a stake in Ford Credit. Such a move - similar to one made by GM several months ago - would kill two birds with one stone, bringing the money-losing auto giant some badly needed cash and, assuming the stake is sold to a major bank or other financially solid company, bringing up Ford Credit's ratings, now languishing deep in junk territory (Ba3/B+/BB-).

A trader quoted Ford's 7.45% notes due 2031 up ½ point at 78.5 bid, 79.5 offered.

"The short end of the Ford market did better today," another said, noting that credit default swaps contracts in the five-year area tightened by around 40 basis points from their levels on Friday - which would make it $40,000 less costly to protect the contract holder against a default of $10 million of Ford debt. Other CDS market sources estimated a 20 bps tightening.

The second trader added, however, that "strangely enough, the longer end of the market didn't improve that much" - he saw the 7.45s essentially unchanged at 78 bid, 78.5 offered, "so most of the appreciation was in the shorter end, not so much in the longer end."

Another market source echoed that assessment, quoting the 7.45s going home around 77.5, a point lower than their Friday close and well down from their opening on Monday at 79.5.

The Ford Credit 7% notes due 2013, on the other hand, moved as high as 94 bid during the session from their close Friday at 91.5. Yet another source pegged those bonds up a point on the day at 93.

A trader saw the bonds of Visteon Corp. - whose fortunes are linked with those of Ford, its former corporate parent and still its largest customer - up as well, with the Van Buren Township, Mich.-based auto parts maker's 8¼% notes due 2010 up a point at 97 bid, 99 offered, and its 7% notes due 2014 seen up 2 points on the day at 88 bid, 90 offered.

Paper says Ford eyes sale

Ford linked bonds - which had already been heading higher at the tail end of last week - got an additional jump start when the Detroit News reported over the weekend that Ford may be considering selling "a significant stake" in the Ford Credit arm. The paper quoted an analyst as saying that such a sale could bring $6 billion into the carmaker's coffers, which have been sapped by big losses caused by tumbling sales - Ford has lost $1.4 billion in the first half of the year alone.

Besides the proceeds, the paper noted that such a sale could result in a higher rating for Ford Credit, which would greatly lower the unit's cost of borrowing money.

The paper further noted that while in the past, "Ford has said it had no interest in selling a stake in Ford Credit, which has been a cash cow for the automaker even in lean times. But more recently it has said that everything is on the table as it prepares a restructuring plan expected to be announced shortly after Ford's Sept. 14 board meeting."

Pressure on Ford to sell at least part of the valuable credit unit has intensified ever since GM successfully sold 51% of its General Motors Acceptance Corp. financial unit to a group of private equity buyers in a deal that closed earlier this year. That sale brought $14 billion into GM's till.

Friday's news of Citigroup Inc. executive Robert Rubin's resignation from Ford's board of directors was being interpreted by some in the market as a sign that major moves are afoot, since it avoids a potential conflict of interest for the former Treasury secretary, who also sits on Citigroup's board. The Detroit News noted that Citigroup was a "key player" in the GM sale of control of GMAC, and quoted an analyst as having observed that a big stake in Ford Credit could prove to be "an attractive target for investment firms like Citigroup."

Apart from sale of a stake in Ford Credit - which the News story does acknowledge is at this point just "an option" and "isn't Ford's primary focus as it concentrates on operational issues in the wake of losses and declining market share" - Ford management has been reported in various media to be considering such moves as taking the company private, partnering up with one or more foreign automakers, or selling some of its nameplates. News reports Friday said that Ford was in talks with a JP Morgan Chase unit led by former Ford CEO Jacques Nasser on a possible sale of its prestigious, but money-losing, Jaguar unit, and perhaps its Land Rover operations as well.

GM's benchmark 8 3/8% notes due 2033 were seen up ¼ point on the session to 83.5 bid, 84 offered, while the top automaker's 7¼% notes due 2013 were also up ¼ point at 85.75. GMAC's 6 7/8% notes due 2012 were likewise up ¼ at 97.75.

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