Auto names off on Dura bankruptcy buzz, Ford downgrades

By Paul Deckelman and Sara Rosenberg

New York, Sept. 19 - Bank debt of the distressed automotive sector as a whole felt heavy during Tuesday's session, traders in that market said, as negative vibes were felt throughout the market, helped along by downgrades to Ford Motor Co.'s credit ratings and continued speculation on the potential for a Chapter 11 filing by Dura Automotive Systems Inc.

In the junk bond market, meantime, Dura's bonds continued their slide toward oblivion as the troubled Rochester Hills, Mich.-based automotive components company's senior notes fell several more points down into the mid 50s.

The bankruptcy buzz and the accompanying fall in Dura's bonds and its badly battered shares in turn helped to pull down other auto-related names such as Tower Automotive Inc., Delphi Corp. and Dana Corp.

However, Ford's bonds were seen having gone nowhere Tuesday, even after the twin ratings downgrades by Standard & Poor's and Moody's Investors Service.

Apart from the autos, W.R. Grace & Co.'s bank debt was seen firmer. Rotech Healthcare Inc. - whose bonds had gyrated wildly Monday as bullish news about new financing clashed with bearish sentiment over possible government Medicare limitations - was largely steady.

Dura gets drubbed

Bank debt traders saw Dura's second-lien term loan close out the day quoted at 96.5 bid, 97.25 offered, although one said that the paper was not seen trading much during market hours.

By way of comparison, the bank debt had been quoted during Friday's dealings at a wide 96.75 bid, 98 offered.

The trader explained that, other than Dura, there were no specific auto names that came to mind in terms of weakening bank debt levels, since it was a very quiet day in terms of volume, but the weaker sector tone was unmistakable.

Weakness in the sector was also seen in the junk market, where "distressed autos" was where the bulk of the action was, a trader said. He estimated that some names were down at least "3 or 4 points."

They were led downward by Dura, whose 8 5/8% senior notes due 2012 were seen having lost at least 2 points, the trader said, to 57.5 bid, 58.5 offered, while another trader saw the bonds at that same level - but called them down as much as 4 points on the day.

At another desk, a trader said he'd seen the bonds fall as low as 56 bid, 58 offered, as "all of the autos went straight down."

Dura's subordinated 9% notes due 2009 meantime, which have already been beaten down into the single-digit neighborhood, were seen little changed, with several traders pegging them at around 9 bid, 10 offered, though one called them 8 bid, 10 offered. Most of the recent trading in Dura has been in the 8 5/8% notes, which are seen by market players as still having at least some value.

Those 8 5/8s have plunged precipitously in the last week; they were trading in the high 70s for much of August, although they closed out that month having eased to around 73. The bonds stayed in that context for the first roughly two weeks of this month - but slipped several points into the upper 60s, around the middle of last week, when Lehman Brothers warned that a bankruptcy filing in the next couple of months was likely.

That was followed by market rumors that the company was having difficulty lining up the debtor-in-possession financing it would use to keep going after a filing, as well as a judge ruling against Dura's attempts to force one of its suppliers to continue selling parts, even though Dura owes the supplier more than $1 million.

Those negative developments continued to hammer the bonds a few points every day down to the current upper-50s levels.

Dura's Nasdaq Global Market-traded shares meantime fell another four cents (10.86%) to 33 cents apiece, although volume of 462,000 was only slightly higher than the average turnover in that name.

In a further blow, the Nasdaq informed Dura late Tuesday that it was in danger of being de-listed from the Nasdaq Global Market, since its price has been below $1 per share for at least 30 consecutive days. However, the company has six months in which to cure the embarrassing situation - one possibility is a reverse stock split - and even then, it might still prevent total de-listing by transferring to the smaller and less prestigious Nasdaq Capital Market from Nasdaq Global Market.

Other partsmakers follow suit

With Dura leading the way downward, "all told, it was a pretty rough day" for the sector, one of the traders said.

One of the hardest-hit names was bankrupt Novi, Mich.-based vehicular frames maker Tower Automotive, whose 12% notes due 2013 fell 4 points, he said, to 26 bid, 27 offered.

"Tower got smacked," another trader said. "They got hit right from the opening bell."

He quoted the notes at 25.75 bid, 26.75 offered, which he said was a good 10 points below the levels that the bonds held only a few days ago.

On Monday, Tower said in a filing with the Securities and Exchange Commission that it anticipates costs of some $9.2 million to close a plant in Upper Sandusky, Ohio. It expects $1.1 million of employee-related costs, $4.3 million for asset impairment charges, $1.5 million for other non-cash charges and $2.3 million of other costs.

Going forward, Tower expects another $3.4 million of future cash expenditures in connection with the Sandusky plant, which employs 135 people. Tower expects to shift the work now done at the Ohio site to its other plants in North America.

Elsewhere, a trader saw other sizable losers among the auto sector, including bankrupt Troy, Mich.-based parts supplier Delphi Corp., whose 6.55% notes scheduled to come due next month were down 2 points to 90 bid, 91 offered, while bankrupt Toledo, Ohio-based parts concern's 6½% notes due 2008 were off 3 points at 72.5 bid, 73.5 offered.

Cooper-Standard, Lear sink

Among the non-bankrupt auto names still getting clobbered, he said was Cooper Standard Automotive Inc., whose 11% notes due 2012 were down 2 points at 91 bid, 92 offered.

At another desk, a trader saw Lear's 8.11% notes due 2009 down a point at 95 bid, 95.5 offered.

Ford unmoved by ratings cuts

However, all of the traders agreed that Ford's bonds hung in there, even after Moody's cut Ford's B2 rating to B3, with a negative outlook, while S&P lowered Ford's ratings and those of the credit arm to B from B+ previously, with a negative outlook.

A trader saw the Dearborn, Mich.-based number-Two domestic carmaker's signature 7.45% notes due 2031 unchanged at 76.25 bid, 76.75 offered, while Ford Credit's 7% notes due 2013 were also steady at 91.25 bid, 92.25 offered.

Moody's on Tuesday cut parent Ford's corporate family and senior unsecured ratings to B3 from B2 and sliced Ford Credit's senior unsecured rating to B1 from Ba3, both with a negative outlook.

Moody's said that the downgrade of Ford's long-term ratings reflects the intense pressure the company is facing as a result of the shift in consumer preference away from trucks and SUVs, and toward more fuel efficient vehicles.

Moody's noted that Ford's recently announced initiative to accelerate its "Way Forward" restructuring plan will attempt to address all of the key risks arising from this shift in demand - but warned that operating performance and cash flow will likely be very weak through 2009, even if the execution of the plan is highly successful.

Furthermore, Moody's anticipates that it will be challenging for the carmaker to achieve all of the cost, revenue and pricing objectives contemplated by the plan.

Meanwhile, Standard & Poor's lowered its long-term corporate credit ratings on Ford and on Ford Credit to B from B+ previously, with a negative outlook.

S&P said that the downgrade reflects the seemingly relentless deterioration in Ford's North American automotive operations, which are now expected to remain unprofitable until at least 2009.

The one-two punch from the credit agencies was the latest in a series of negative events for Ford, whose bonds, along with Ford Credit's, had retreated last week from their recent highs when Ford - wallowing in red ink amid sagging sales and an alarming loss of market-share - unveiled plans Friday to try to cut its cost structure down to size by offering all 75,000 of its United Auto Workers-represented hourly workers buyouts and early retirement packages, and saying it would cut an additional 10,000 white-collar jobs - about one-third of its professional, technical and administrative employees.

However, analysts generally said that the initiative was a case of "too little, too late" and that more drastic cuts would have to be made - and some factories closed as well, if Ford was to have any chance at all to turn its situation around. Critics of the plan also said that Ford should look to replenish its depleted coffers by selling a controlling stake in the valuable Ford Credit arm, much the way arch-rival General Motors Corp. did earlier this year with its General Motors Acceptance Corp. financial arm in a deal that netted the auto giant $14 billion.

GM's benchmark 8 3/8% notes due 2033 were unchanged Tuesday at 86 bid, 86.5 offered, while GMAC's 8% notes due 2031 were up ¼ point at 102 .75 bid, 103.25 offered.

Grace moves higher

Apart from the autos, W.R. Grace's loan headed higher on Tuesday on no specific news, although the theory is that people are reevaluating the return on the bank debt, pushing it to stronger levels, according to a trader.

The bankrupt Columbia, Md., chemical company's bank debt closed out the day at 144.5 bid, 145.5 offered, up ½ point, the trader said.

Rotech takes a rest

Rotech's 9½% notes due 2012 were seen essentially little changed at 65.75 bid, 66.75 offered, which one trader called down ¼ point.

That was a far cry from Friday, when the bonds of the Orlando, Fla.-based provider of medical products and services fell anywhere from 7 to 10 points down to the lower 60s after a government agency recommended a 13-month limit on Medicare payments for oxygen equipment for disable people as a means of saving several billion dollars.

Such a cap, if enacted, would be bad news for oxygen supplier companies like Rotech, to say nothing of the patients they serve.

On Monday, the bonds bounced back from the lower 60s to around 70, on news that Rotech had successfully negotiated a new $125 million two-year credit line to refinance existing debt - but then they gave up most of the gains and finished around 66, up just about 2 or 3 points on the day, as continued worries over the Medicare cuts possibility undermined the early rally.

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