Adelphia still climbing; Northwest higher as Delta drifts; Delphi steady; Winn-Dixie stubs spike up

By Ronda Fears

Memphis, Jan. 5 - Activity in distressed bonds hit a crescendo Friday with some traders saying they were hard pressed to find any decliners for the session, following a couple of slow days mired by end-of-year paperwork and a sputtering start in the stock market.

"We certainly saw some money come into the market late in the day," said one distressed bond trader. "I think we've made a healthy start to the New Year. There's a positive feeling to the market."

Much of the early session amounted to distressed bonds "sloshing around," as another trader put it, but he said the lack of a surge in activity or definitive moves could be largely attributed to players finishing year-end paperwork following sporadic office time amid the string of holidays in the last half of December.

Amid ongoing disputes about refinancing and regulatory issues, Doral Financial Corp.'s floaters were seen trading up a bit early Friday, a trader remarked, adding that the stock was "melting" on very late to come rating agency actions. Moody's Investors Service and Standard & Poor's both downgraded Doral credit Friday. "The Doral floaters of 2007 that mature in July seem to be in the process of getting some cash and about 90% of the company," the trader said.

While decliners indeed were few and far between, another trader noted a slide in MagnaChip Semiconductor Ltd. bonds because of having to seek waivers on loan covenants from its banks, also pressured by the broad weakness in chip stocks Friday because of Motorola Inc.'s warning that earnings would likely miss its fourth-quarter estimates. MagnaChip bonds were said to have lost 3 points with the 8% issue falling to 63 bid, 64 offered and the 6 7/8% issue dropping to 82 bid, 83 offered.

Calpine Corp. paper was described as higher by a couple of points over the week with the 8½% bonds due 2011 trading up to 85 before easing back to end Friday in the low 80s. The only news of late from the bankrupt San Jose, Calif.-based independent power producer was word from the company Friday that its unit Russell City Energy Co. had entered into a 10-year deal with Pacific Gas & Electric Co. for the delivery of the full output of a 600-megawatt plant. Construction of the natural gas-fired plant in Hayward, Calif., is expected to begin by the spring of 2008.

Iridium LLC bonds were about a half-point higher, in the 29.5 bid, 30.5 offered area, as the lawsuit by the bankrupt satellite phone company's creditors against cell phone giant Motorola is expected to resume Monday. The creditors are trying to extract some $3.5 billion plus interest from the former Iridium backer and majority owner to distribute in the bankruptcy case.

Illustrating the search for paper countered against a slim supply of distressed bonds for sale, another trader said bankrupt maritime group Sea Containers Ltd.'s 10½% bonds gained about a point to 75.5 but at the end of the day there were bids with no offers.

Bankrupt auto component maker Federal-Mogul Corp. also continued to track up the price ladder, with the bonds adding another couple of points on Friday to 78 bid, 78.5 offered. In another auto parts name, Dura Automotive Systems Inc. bonds were up a quarter-point to a half-point with the 7% issue at 4.75 bid, 5.75 offered and the 8 5/8% issue at 34.5 bid, 35.5 offered.

In another name moving sans any news as a catalyst, Winn-Dixie Stores Inc. stubs for the 8 5/8% notes moved up to 3 on Friday from around 1.75, one trader remarked. The company has emerged bankruptcy and distributed stock to the bondholders. The stock rose beyond $15 a share when it was trading on a when-issued basis but since breaking out onto the Nasdaq exchange Dec. 28 has drifted lower, ending Friday with a 3% loss to $12.59.

Adelphia goes as high as 102.5

Adelphia Communications Corp., another company on the verge of emerging bankruptcy, continued to surge Friday, as more traders are able to traffic the bonds now that restrictions have been lifted with the approval earlier this week of its reorganization plan - the fifth amended plan, after some five years in the bankruptcy process.

Traders noted a surge of arbitrage players in the story were adding the most interesting twist to the Adelphia trade.

The Adelphia 10¼% bonds due 2011, for example, traded as high as 102.5 on Friday before falling back to end the session at par, according to one trader. The bonds were still solidly firmer from Thursday's close of 97. And, the Adelphia 10¼% bonds due 2006 were said to be up similarly from 93 bid, 94 offered.

The defunct cable company is scheduled to exit bankruptcy in the next 30 to 45 days, and there will be a distribution of the $17 billion sale of its cable assets to Time Warner Inc. and Comcast Inc., which took place in July 2006. The company's reorganization plan was approved Wednesday despite ongoing objections from some creditors, which onlookers said is not expected to delay its emergence.

Northwest climbs to 94 context

Northwest Airlines Corp.'s bonds got a strong boost Friday, traders said, without much news in its bankruptcy case. The 10% bonds due 2009 traded as high as 96 before easing back to end at 94, still up from 92 the day before, one trader said.

"There isn't much news in the bankruptcy really, tidbits here and there but nothing big," he said. "People are just willing to buy."

On its M&A front, the No. 5 domestic carrier on Friday said it reached a deal to buy bankrupt feeder carrier Mesaba Airlines with its unsecured creditors committee although Mesaba parent Mair Holdings has not said whether it supports the proposal. Northwest has hired Evercore Group LLC to pursue acquisitions.

Mesaba's bankruptcy in October 2005 was sparked by Northwest's the previous month. It serves 88 cities in the United States and Canada from Detroit, Minneapolis and Memphis.

On Thursday, Mesaba's unsecured creditors committee asked for court permission to terminate the exclusivity period during which only Mesaba may file a reorganization plan to pave the way for Northwest to co-sponsor a reorganization plan.

If Northwest buys Mesaba, $145 million will go to Mesaba's bankruptcy estate, of which Mair is a creditor. No other terms have been disclosed.

The trader also mentioned that so far the bankruptcy court has denied a request from its second largest shareholder, Owl Creek Asset Management LP with 4.4 million shares, to create a committee to represent stock owners in the bankruptcy case. He noted the Pink Sheets stock fell more than 5.5% on Friday to $4.44 but has been steadily tracking higher over the past couple of months.

Delta gains, ends steady at 65

Meanwhile it remained rather quiet in the Delta Air Lines Inc. paper with the most active 8.30% bonds trading up to 67 before easing back to close at 65, unchanged from the day before, as the slide in oil prices trailed off Friday, traders said.

Overall, traders said, there is growing optimism about support for US Airways Group Inc.'s $8 billion bid for Delta, even though Delta remains committed to flying solo out of bankruptcy.

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.

While there was still no fresh news flow in the US Airways takeover battle with Delta, Bear Stearns airline analyst David Strine said having Gordon Bethune - which he described as the former, "rather pragmatic" CEO of Continental Airlines Inc. - as a new independent adviser to the Delta unofficial creditors committee is a positive step in advancing the US Airways bid.

"But quick action is necessary," Strine said.

"Given that Delta management has exclusivity to file a reorganization plan through the bankruptcy court until Feb. 15 and that there is a hearing on the adequacy of the disclosure statement on Feb. 7, it is important for US Air to quickly amass support among the nine-member committee."

Strine said that, in his view, "it is not enough for US Air to argue that the valuation in Delta's [stand-alone reorganization plan] is aggressive - the implied equity value is about two times that of United Airlines, American Airlines and Continental.

"But the creditors must also be convinced that the $1.6 billion in synergies are realistic and the antitrust issues are not prohibitive. Our sense is that it is only if both are accomplished that the creditors are likely to pressure management to open up Delta to merger-related due diligence and ultimately apply for an anti-trust review."

Delphi steady on GM remarks

Time is of the essence in the hedge fund and private equity battle over control in auto parts maker Delphi Corp.'s bankruptcy plan, too, but the bonds were described as steady Friday even in the face of remarks from General Motors Corp. that a deal with its former subsidiary could be delayed by the competing reorganization plans.

A hearing later this month will highlight arguments about the rival bids - a $3.4 billion deal the company has submitted with support from a group of investors led by Appaloosa Management LP and Cerberus Capital Management - and a $4.7 billion deal proposed by Highland Capital Management LP that has a bigger payout for Delphi equity.

Timing is a factor in the Appaloosa bid, as well.

Besides Appaloosa Management and Cerberus, others in the Delphi-supported plan include Harbinger Capital Partners Master Fund I, as well as investment banks Merrill Lynch & Co. and UBS Securities LLC.

Former Delphi parent GM is another big player in Delphi's exit from bankruptcy with some $6 billion to $7.5 billion exposure in the bankruptcy case. GM, which spun off Delphi in 1999, has been a key figure in negotiations with Delphi union employees to make concessions, in part to avert a potential strike that would shut down its North American operations.

Also, under the Appaloosa-led plan, if Delphi fails to reach certain agreements with its labor unions and GM by Jan. 31, they can walk away from the deal.

GM chief executive Rick Wagoner said on Friday that union talks as well as anticipated transactions with Delphi as to plants or assets for sale that GM might be a buyer for could be jeopardized by a protracted process of getting a reorganization plan approved in the Delphi bankruptcy.

Highland pushing for answer

Delphi is facing objections to its bid for a six-month extension of its exclusivity period from both Dallas-based Highland and the unsecured creditors committee, and meanwhile, Highland has asked a bankruptcy judge to require Delphi to open its books for due diligence related to its bid.

Consideration of the Delphi-supported plan has already been postponed to Jan. 11.

The unsecured creditors committee has asked the court to only approve a 60-day extension of Delphi's exclusive periods. Because of the limitation on the Appaloosa plan, the committee argues that a shorter extension will force Delphi to negotiate in good faith.

Highland is arguing that Delphi shouldn't be allowed to extend its exclusive right to propose a Chapter 11 plan "in a de facto attempt to limit plan development" to the Appaloosa deal. Delphi has "prematurely put all their hopes for rehabilitation in the proverbial one basket,'" Highland said in court documents.

Highland said that since submitting its proposal to Delphi, the company won't sign a confidentiality agreement unless Highland agrees to be "severely restricted" in its ability to talk to other potential investors.

Delphi is "using the stick of a chilling confidentiality agreement as way to block dialogue with parties who may need to be involved in the restructuring of the debtors, other than through the Appaloosa/Cerberus Group proposal," Harbinger said.

Delphi term loan talk tightened

Delphi Corp. reverse flexed pricing on the first- and second-lien term loan tranches under its $4.496 billion debtor-in-possession financing facility due Dec. 31, 2007, according to a market source.

With the changes, the $250 million first-lien term loan B (Ba1/BBB+/BB) is now priced at Libor plus 225 bps, down from original talk at launch of Libor plus 250 bps, and the $2.496 billion second-lien term loan C (Ba3/BBB-/BB-) is now priced at Libor plus 275 bps, down from original talk at launch of Libor plus 300 to 325 bps, the source said.

Pricing on Delphi's $1.75 billion revolver (Ba1/BBB+/BB) was left unchanged at Libor plus 250 bps, the source added.

JPMorgan, Citigroup and Deutsche Bank are joint lead arrangers and joint bookrunners on the revolver and term loan B, JPMorgan is lead arranger on the second lien, and JPMorgan, Merrill Lynch and UBS are joint bookrunners on the second lien. JPMorgan is the administrative agent on the entire DIP facility, Citi is the syndication agent and Deutsche is documentation agent.

Proceeds from the revolver and the term loan B will be used to repay borrowings under the existing DIP facility and for working capital, and proceeds from the second lien will be used to prepay pre-petition bank debt.

Sara Rosenberg contributed to this article.

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