Asarco bonds steady at 114 area; Remy stabilizes; Delta rises; Adelphia higher; Brookstone off

By Ronda Fears

Memphis, Jan. 4 - Activity in distressed bonds cooled significantly Thursday and traders were remarking of feeling somewhat skittish about the New Year's opening so far.

"Yesterday we started strong and it seemed like we were off to the races. In the afternoon [Wednesday] that petered out and today it's about the same," said one trader.

There was trading going on but nothing spectacular and not a lot of bonds in any particular name, he said.

"A lot of people are looking for paper, the same bonds," the trader said.

"So, if you have something on the table, everyone else does, too."

In a great deal of cases, he said, the buyers and sellers are pretty far apart. Such was the case with the MedQuest Inc. 11 7/8% bonds due 2012, he said. "Someone cared at 82 but they were offered at 87, the trader said.

Overall, traders said they were sensing some nervousness creep into the distressed market, most likely a reflection of the skittishness seen in the first two sessions of stock trading in 2007.

Another trader remarked that with distressed strategies returning somewhere in the neighborhood of 13% to 15%, according to early reports from hedge funds, and with default rates at historic lows "there is a scary level of euphoria that you have to think is going to come crashing down." He said expectations that default rates could remain between 2% and 3% seem overly optimistic.

On bank desks, power project names Teco Panda and Southaven experienced a pop in Thursday's trading session on some private-side news, according to a trader. The Teco bank debt was trading around the 163 context, up about 3 points on the day, the trader said. And, the Southaven bank debt closed the day at 126.5 bid, 128 offered, up about 6 points from where it was quoted last week, the trader added.

Asarco interest increasing

Even with copper prices reeling, there is significant interest in Asarco LLC bonds, another trader said Thursday, pegging the paper in the 114 area.

"There's a good chance the bondholders will get equity," the trader said.

"With copper prices where they are, the bonds are worth a lot. Even if copper drops to $2 the producers will make a lot of money."

On Thursday, U.S. copper futures settled at the lowest level in nine months, extending a string of losses amid a resurgent dollar and ongoing concerns over demand growth for the industrial metal. Copper for March delivery ended down 4.70 cents at $2.6020 a pound on the New York Mercantile Exchange - the lowest since early April.

Asarco bonds have held up rather well throughout the slide in copper prices, having lost just about 1.5 points in the past six weeks, while copper prices have dropped from about $3 over that time frame. Onlookers have said that mergers in the metals sector, such as Freeport-McMoRan Copper & Gold's proposed $25.9 billion bid for Phelps Dodge Corp., have helped as well.

Tucson, Ariz.-based Asarco, one of the largest copper producers in the world, was acquired by Grupo Mexico in 1999 and filed for bankruptcy in August 2005 in Texas. Grupo Mexico SA de CV has been named by several Wall Street pundits as a potential takeover target in the wake of the Phelps Dodge deal.

Remy holders holding on

Remy International Inc. bonds are holding up, and holders appear to be holding on without any rash moves, but one trader said Thursday that there is some underlying edginess related to a lack of visibility on whether it will file bankruptcy or whether, in a turnaround scenario, if an asset sale is made regardless of a filing, what debt issues might be taken out.

"Remy bonds have stabilized," he said, pegging the step-up 11% bonds due 2009 at 43 bid, 45 offered and the 8 5/8% bonds due 2007 at 87 bid, 87.5 offered.

"People are nervous at these levels," he added, however.

There is still said to be heavy short positions in the Anderson, Ind.-based automotive electrical components maker's bonds, and still some expecting that a short squeeze is inevitable. That, of course, still depends on whether one sees the company filing bankruptcy.

Another trader said he thinks that more time passing without any news on Remy's restructuring front suggests that it is not finding good buyers for assets. Thus, he believes that even if it manages to make an asset sale and pay down one or more of its bond issues, the company will eventually file bankruptcy. At that point short covering would be a moot point, but he said the nervous sentiment suggests the tide of thought has shifted to a less optimistic outlook for Remy.

In other automotive-related names, there was more follow-through buying in Federal-Mogul Corp., with those bonds adding another point to 76 bid, while Dana Corp.'s 6½% bonds due 2008s lost a point to 76 bid, 78 offered and Delphi Corp.'s 6.55% bonds due 2006 were unchanged at 111.25.

Delta, Northwest on the rise

Delta Air Lines Inc. and Northwest Airline Corp. bonds got a boost Thursday as oil prices declined sharply for a second consecutive session, with crude futures falling $2.73 to $55.59 on the New York Mercantile Exchange.

A trader saw Delta and Northwest initially move lower but then bounce off their early lows to finish up about a point at day's end.

Delta's 8.30% notes due 2029 lost 1 point to around 65 before ending up 1 point at 66 bid, 67 offered, he said, adding that Northwest's 10% notes due 2009 dropped to 94 bid, 95 offered and then recovered to close at 96 bid, 97 offered, also up a point.

Traders noted that the lack on any fresh news flow on either airline's reorganization plans caused the paper to be steered by oil and fuel prices, for lack of any other impetus.

Adelphia plan removes restrictions

Adelphia Communications Corp.'s fifth amended reorganization plan getting court approval freed several desks that had been restricted in the paper to begin trading it, and the paper moved up about 1 to 1.5 points.

After nearly five years in bankruptcy, the defunct cable company is scheduled to exit bankruptcy in the next 30 to 45 days, and there will be a distribution from selling the cable assets to Time Warner Inc. and Comcast Inc. The company's reorganization plan was approved Wednesday despite ongoing objections from some creditors.

"People are [now] unrestricted and are bidding the paper up," one trader said, quoting the 7 7/8% bonds at 92, up 1.5 points. At another desk, Adelphia's 10¼% bonds due 2011 were seen up 1 point at 97 bid, 98 offered and the 10¼% bonds due 2006 up a point as well at 93 bid, 94 offered.

Brookstone lower

Elsewhere, another trader noted that Brookstone, Inc.'s 12% notes due 2012 traded off about a point Thursday on a lackluster holiday sales report from its biggest competitor, Sharper Image Corp.

Merrimack, N.H.-based Brookstone is closely held and did not report same-store sales for December on Thursday like most of the pack of retailers.

San Francisco-based Sharper Image, however, on Thursday said its same-store sales fell 20% in December. In general, retail sales figures for the holiday shopping season just past were disappointing, and the same is expected to be the case for Brookstone.

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