Rotech bonds nosedive on Medicare news; Dura loan bounces around

By Paul Deckelman and Sara Rosenberg

New York, Sept. 15 - Rotech Healthcare Inc.'s junk bonds swooned badly Friday, traders said, after a government oversight unit urged cutting Medicare reimbursement for home oxygen equipment, saying such reductions would save the health insurance program for the elderly billions of dollars.

Elsewhere, Dura Automotive Systems Inc.'s second-lien term loan was all over the place, bank debt traders said, as various opinions and rumors were circulating on a potential bankruptcy filing by the troubled Rochester Hills, Mich.-based automotive parts maker. Dura's senior notes, meantime were seen down further, continuing their week-long slide, fueled by the same bankruptcy scuttlebutt that the loan market was hearing.

Ford Motor Co.'s bonds were lower, as were its shares, on apparent investor disappointment that the troubled carmaker did not go far enough in its latest cost-cutting plans, announced Friday.

Rotech routed

Rotech's 9½% notes due 2012 "got destroyed today," a trader said, in pegging the bonds down at least 7 points on the session at 64 bid, 65 offered.

Another trader called the Orlando, Fla.-based healthcare services and products provider "the market's big loser," estimating the bonds down at least 8 points on the day, at that same 64 bid, 65 offered level.

Still another trader, while seeing the bonds at 64.5 bid, 65.5 offered, called that a 9 point loss.

Equity holders were just as dismayed, as the company's Nasdaq Global Market-traded shares collapsed 38 cents (22.35%) to $1.32. Volume of 1.2 million shares was better than three times the usual turnover.

Shares of other companies such as Apria Healthcare Group and Lincare Holdings Inc., which, like Rotech, supply oxygen equipment to invalid patients in their homes, were also lower on Friday in response to the news.

The bonds and shares plummeted, the first trader said, after the U.S. Office of Inspector General of the Department of Health and Human Services recommended limiting rental payments for certain oxygen equipment to as little as 13 months. The inspector general's office estimated that such cuts could save Washington as much as $3.2 billion over the next five years.

However, observers pointed out, the idea is politically controversial - especially in a federal election year - since the senior citizens lobby is a potent political force and would be expected to strongly oppose the proposed limitations. Critics of the idea warn that such sweeping cuts could force some of the smaller industry players out of the oxygen business, raising the potential that thousands of seniors or disabled patients might be left without oxygen therapy down the road.

Dura debacle continues

Dura's bank debt was bouncing around Friday, traders in that market said, as participants speculated on what might potentially happen in a bankruptcy scenario.

One trader quoted the company's second-lien loan closing out the day quoted at 96.75 bid, 98 offered, wider and slightly lower when compared to Thursday's closing levels of 97.5 bid, 98.25 offered, the trader said.

During Friday's market hours, trades on the paper were seen going off at 97 and 97.25 the trader added. By comparison, on Thursday, the bank debt traded as high as 98, but as low as 96.5

"Different people are taking different views on what's going to happen. That's why this has been all over the place," the trader remarked.

Over in the junk bond market, Dura Operating Corp.'s bonds "went straight down," a trader said, quoting its 8 5/8% senior notes due 2012 at 62.5 bid, 63.5 offered, down from 64 bid, 65 offered on Thursday.

Dura's senior bonds had been sliding for most of the week, as "the Grim Reaper was getting closer," as one trader said, with bankruptcy speculation swirling around the troubled company.

On Wednesday, Lehman Brothers said in a research note that the company was likely to file for protection within the next few months, eliminating future coupon payments in order to conserve cash. On Thursday, market rumors - strictly unconfirmed at this time, a trader said - indicated that the company was trying to line up debtor-in-possession financing, but was having a hard time finding a lender willing to give it reasonable rates.

Adding to the unease was a court decision earlier in the week in which a Detroit federal judge refused a company request that he order one of the company's vendors to keep supplying it with components - even though Dura owes that supplier $1.3 million.

The trader saw Dura's 9% subordinated notes due 2009 at 9½ bid, 11 offered, which he said was not much changed from where they had been. "They're already down pretty much," he said, with not too much further to fall. "The 8 5/8s dropped the most."

Another trader actually saw the latter bonds up a point at 9 bid, 10 offered - but said the 8 5/8s were down more than a point on the day in the low 60s.

Dana takes cue from Dura

A trader in distressed news said that in general, automotive supplier names were weaker "because the Duras were getting hit so hard" and dragging the whole sector lower.

He said that the bonds of bankrupt Toledo, Ohio-based Dana Corp. were about a point lower, although they were not very active. "It didn't look like a lot, he said.

Another trader also saw those Dana bonds lower, quoting the company's 6½% notes due 2008 down a point at 76.75 bid, 77.75 offered, while its 5.85% notes due 2015 closed down ½ point at 72 bid, 73 offered.

However, he said, "we saw some selling [in the latter issue] in the morning," taking the bonds down to 70.75 bid, 71.75 offered at their low point, "but they came off their lows" to only end down ½ point.

Ford falters as plan fizzles

Also in the auto area, a trader saw Ford's benchmark 7.45% notes due 2031 down 3 points on the session at 76.5 bid, 77.5 offered, while another trader pegged those bonds down 2¼ points on the day at 76.5 bid, 77 offered. The second trader also saw the 7% notes due 2013 of Ford Motor Credit Co., the embattled carmaker's profitable financing arm, down 1½ points at 91.5 bid, 92 offered.

The Ford bonds fell even as the problem-plagued Detroit giant announced plans to offer all 75,000 of its unionized hourly workers buyouts and early-retirement incentives, slash 10,000 more white-collar positions and close several additional plants, on top of those already slated for closing, as it tries to bring its costs more closely in line with its reduced sales.

However, worries about the company's cash position and a general feeling that the steps announced are not drastic enough helped keep the bonds lower, observers said.

Equity investors apparently felt the same way, with Ford's New York Stock Exchange-traded shares plunging nearly 12% in Friday's dealings.

Northwest wings skyward

"The airlines are better," a trader said, quoting Delta Air Lines Inc.'s 8.30% notes due 2029 up 1 to 1½ points at 29 bid, 29.5 offered.

Northwest Airlines Corp., he said, "was up even more," as he quoted the bankrupt Eagan, Minn.-based Number-Four U.S. air carrier's 8.70% notes due 2007 at 54 bid, and its 10% notes due 2009 at 53, each up 2 or 3 points on the day, he said.

A market source at another shop called the carrier's 7 7/8% notes due 2008 up more than 2 points at 55 bid.

Northwest got a lift Friday when a New York federal judge granted its request for an injunction to prevent a threatened strike by its flight attendants.

Judge Victor Marrero of the U.S. District Court for the Southern District of New York issued the injunction, thus reversing an earlier denial of the airline's motion by Bankruptcy Court Judge Allan Gropper.

The 7,300 active flight attendants wanted to walk rather than fly because of their anger at the company's imposition of a 21% pay cut - a step Northwest says is essential if it is to successfully cut its costs and restructure.

The distressed airlines have recently also been helped by continually falling world crude oil prices, which could signal lower jet fuel prices down the road, although oil actually was up 11 cents per barrel Friday in trading on the New York Mercantile Exchange to $63.33.

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