Auto bonds mostly better; Dura loan softer; Charter paper firms

By Paul Deckelman and Sara Rosenberg

New York, Sept. 26 - Junk bonds in the distressed automotive sector were seen revving up and for the most part moving higher, helped by a generally firmer high yield market, as well as by - for a change - some positive news coming out of the badly battered sector.

That came from Lear Corp., which said it expects to sell its interiors business to billionaire financier and sector consolidator extraordinaire Wilbur L. Ross, and Delphi Corp., which announced that most of its eligible United Auto Workers-represented hourly workforce had opted for taking early retirement or buyout offers - a key step in reducing its labor costs over the long run.

That positive news more than offset any negative vibes the sector generated when Visteon Corp. became the latest parts company to issue an earnings warning, blaming its anticipated lower revenues and earnings on the output cuts announced by its primary customers, Detroit's Big Three carmakers. But even against that gloomy backdrop, there was some encouraging news about Visteon, as a large shareholder gave the company a vote of confidence by increasing its stake.

However, in the bank loan market, Dura Automotive Systems Inc.'s second-lien loan was again seen softer, and junk bond traders also saw late erosion in the price levels of its senior notes.

Outside of the autos, Charter Communications Inc.'s bank loan firmed, although on technical factors. Sea Containers Ltd.'s bonds were seen lower, while air carrier bonds like Delta Air Lines Inc. and Northwest Airlines Corp. hung in around their recently firmer levels.

Autos mostly drive higher

A trader in distressed bonds said that "there was strength in the distressed auto parts sector."

He saw such names as Dana Corp. and the recently hard-hit Dura "up a couple of points, one to two, so there's strength there."

But while another trader acknowledged that bankrupt Toledo, Ohio-based partsmaker Dana was better - he saw its 6½% notes due 2008 up 1½ points at 65 bid, 66 offered, while its 7 1/8% notes due 2028 were 1¼ points better at 62.5 bid, 63.5 offered - he saw Dura taking its lumps - again - late in the session.

"Dura has been active," he said of the day's trading in the troubled Rochester Hills, Mich.-based parts company's bonds - but after holding pretty much steady for much of the day around Monday's closing levels, its 8 5/8% notes due 2012 "got hit this afternoon" and ended down 3 points at 42 bid, 43 offered. Dura's 9% subordinated notes due 2009 were off ½ point at 5 bid, 6 offered, "so there definitely was some selling."

In the bank debt market, Dura's paper was softer again on Tuesday, with no credit-specific news seen pushing the paper lower, according to a trader.

He saw the second-lien debt closing out the day quoted at 87.5 bid, 88.5 offered, down from Monday's closing levels of 89 bid, 91 offered, the trader said.

Dura's bank debt has been sliding lower on a fairly steady basis ever since rumors emerged that a potential bankruptcy filing may be in the company's future, and that it is having a hard time lining up debtor-in-possession financing on favorable terms. As is company policy, Dura has not commented on the bankruptcy speculation.

Other factors that have been affecting the paper have been the overall negative feeling towards the auto sector in general lately.

Lear is king

Back among the bonds, a trader saw Lear's securities up ¾ point across the board, its 8.11% notes due 2009 at 95.5 bid, 96 offered, and its 5¾% notes due 2014 at 80.25 bid, 81 offered.

At another desk, a source quoted the latter bonds up 1¼ points at 81.25.

The Southfield, Mich.-based automotive seating, interiors and electronic components maker's bonds, and its shares, got a boost as the company said that it expects to complete a deal to contribute its European auto interiors business to a joint venture with financier Ross sometime in the next several weeks.

Lear chief executive Robert Rossiter also told participants at a J.P. Morgan automotive investor conference at the Paris Auto Show that Lear still believes that it will find a solution for the rest of its struggling interiors business which probably would also include ties to Ross as well.

The billionaire investor has in recent months been buying auto components operations here and there - selectively, rather than willy-nilly - hoping to meld them into one powerful entity, much the same way he did with distressed steel and coal industries several years ago.

Lear's New York Stock Exchange-traded shares also revved up on the hopeful scenario, gaining $1.64 (8.96%) to end at $9.94. Volume of 4.8 million shares was nearly triple the usual turnover.

Delphi bonds get buyout boost

Delphi's bonds meantime firmed as the bankrupt Troy, Mich.-based parts maker announced the results of its buyout incentives campaign late in the session.

A trader saw the former General Motors Corp. unit's 6½% notes due 2009 up a point at 86 bid, 87 offered, and its 7 1/8% notes due 20209 at 82 bid, 83 offered, up about 1¼ points.

Delphi - which offered buyouts to its unionized workforce in hopes of cutting its heavy labor costs going forward - said that some 12,400 employees, representing roughly 85% of the retirement-eligible UAW workforce, elected to retire by Jan. 1, 2007. Approximately 1,400 employees elected the buyout option.

Delphi said that nearly all of its U.S. hourly employees represented by the UAW were eligible for the buyout program, with about 14,600 of those employees eligible to participate in the retirement and pre-retirement program. Some eligible U.S. hourly employees accepted a lump sum incentive of $35,000 to retire, while other eligible employees under the program elected buyout packages ranging from $40,000 to $140,000.

Much of the cost of the retirement incentives is being picked up by GM, Delphi's former corporate parent.

Visteon virtually unmoved

The positive news coming out of Lear and Delphi more than upset whatever qualms sector investors had after Visteon said that it won't meet its previously announced 2006 financial targets, thanks to big output cutbacks by key customers GM, Ford Motor Co. and DaimlerChrysler AG's domestic Chrysler Group.

Also taking some of the edge of the earnings warning - which had been widely expected and thus came as no shock to bondholders of the Van Buren, Mich.-based former Ford parts unit - was the news that large shareholder Pardus Capital Management had upped its Visteon stake to 14.1% from 11.7%, and is considering nominating a candidate for the Visteon board of directors. Pardus further said in a Securities and Exchange Commission filing that it is continuing talks with management about the latter's strategy and plans.

The net effect of all of that news was pretty much a wash. A trader saw Visteon's 7% notes due 2014 up ¼ point at 88.75 bid, 889.25 offered, while its 8 ¼% notes due 2010 were unchanged at 97 bid, 97.5 offered.

Charter up, no news

Apart from the autos, bank loan traders saw Charter Communications' term loan B slightly stronger during Tuesday's market hours on technicals, according to one of them.

The debt-laden St. Louis-based broadband communications company's term loan B closed out the day at 100.5 bid, 100.875 offered, up from prior levels of 100.375 bid, 100.75 offered, the trader said.

Sea Containers sinks

A bond trader saw Sea Containers' bonds off by 1 or 2 points, although there was a dearth of news on the Hamilton, Bermuda-based maritime shipping company.

He saw the company's 10¾% notes scheduled to mature on Oct. 15 lower by about a point at 81 bid, 83 offered, while its 10½% notes due 2012 were seen holding out around 84. "I guess they aren't redeeming them next month," he said of Sea Containers' 103/4s.

The company has recently sold assets to cut debt, and to try to stay afloat and ultimately turn things around.

Airlines hold altitude

The trader also quoted air carrier bonds unchanged to a bit better, with bankrupt Eagan, Minn.-based Number-Four domestic carrier Northwest Airlines' notes at 55, up a point or so.

However, bankrupt Atlanta-based Number Three carrier Delta's bonds were seen not much changed, in the high-20s to upper 30s.

Airline bonds have firmed lately as world crude prices - seen in some quarters as an indicator of future jet fuel prices - have softened. In Tuesday's dealings on the New York Mercantile Exchange, light crude oil settled down 44 cents a barrel at $61.01 - a little above recent lows under $60, but well down from the late-summer highs in the upper 70s.

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