Northwest bonds see little reaction to plan; Delphi bonds also quieter; MAAX sinks; Danka finds interest

By Ronda Fears

Memphis, Jan. 12 - It was a short day of trading for bonds and just as well, traders said, as players needed more time to digest a sketchy reorganization plan filed ahead of schedule by Northwest Airlines Corp. and a bankruptcy ruling in favor of Delphi Corp.'s plan with support from a group of investors led by Appaloosa Capital Management rather than a competing bid from Highland Capital Management.

Northwest players were widely speculating that its plan could face opposition from its big investors, such as Owl Creek Partners, and possibly a rival plan if the plan details are not to their liking. Northwest did not file a disclosure statement with its plan so the details were very sketchy; the company got an extension until Feb. 15 to add those details.

As a result of the news in a holiday-shortened session, with the market also closed Monday in observance of Martin Luther King's birthday, the bonds of Northwest and Delphi saw very little activity on Friday.

It was rather quiet all around Friday, traders said, because of the early close, but there was a decent flow of news. Yet, traders said the market still felt firm.

"The reach of the market is astounding," as one trader put it.

On shaky ground, however, bankrupt auto components name Tower Automotive Inc., which led the stream of auto parts suppliers into Chapter 11 in late 2005. The company continued to fall a day after losing 5 points on its rights offering support to exit Chapter 11 falling through. On bank desks, the first-lien term loan under its debtor-in-possession facility closed at 98 bid, 99 offered, down from 98.5 bid, 99.5 offered.

In another big downer, MAAX Corp. held a conference call with investors Friday, but the bonds plunged 10 points on weaker-than-expected results, with traders saying there may be more downside potential even as the Montreal-based bathtub and shower supplier got a new $215 million credit facility.

Elsewhere, market sources said negotiation by Doral Financial Corp. to refinance its $625 million of floating-rate notes continued to stall. Talks had been thought to be close to resolution earlier in the week, but a source familiar to the discussions with the Puerto Rico mortgage bank said Friday there continues to be several points of contention, so the parties appear to be taking a break, or a cooling-off period. The floaters, which come due in July, however, traded up another 2 points to 98 on Friday.

On more solid ground, as well, Danka Business Systems plc bonds were finding renewed interest in perhaps a fresh example of the astounding reach of the market, as one trader observed, or thinking that debt reduction plans spouted by the company last fall are finally coming to fruition.

Northwest plan could see rival

It was widely concluded that Northwest Airlines filed its reorganization plan ahead of the deadline next week to preempt a takeover bid, but also widely speculated that a rival plan could still emerge.

"There will be a plan with a higher valuation coming out," said one distressed bond trader.

Northwest Airlines did not identify any major supporter in its plan nor many details but it did suggest its plan would include a rights offering possibly backed by private equity firms and that, as unsecured claims would not be paid in full, the reorganization would include new debt and equity.

Because unsecured claims would not be paid in full, current stockholders would not get a distribution.

Owl Creek Asset Management LP, Northwest's second-largest shareholder, is expected to protest the plan or possibly come up with a rival plan, several onlookers said. Owl Creek has asked the bankruptcy court to establish an official equity committee in the case, saying in court documents that it believes Northwest's reorganization could include enough money to pay off all creditor claims plus shareholders.

Owl Creek did not comment on the situation Friday.

Northwest filed the plan ahead of the Jan. 16 deadline but asked for and received an extension until Feb. 15 to file the disclosure statement, which has all the details.

Of the few tidbits Northwest offered up in the plan, it will have the option to convert its existing DIP financing into an exit financing facility consisting of a $175 million revolving credit facility and a $1.05 billion term loan, including a $75 million letter-of-credit facility, each of which has a maturity date of August 2013. Northwest also may elect to proceed with alternative exit financing if more attractive terms than those under the existing facility can be obtained.

The plan proposes to restructure Northwest's balance sheet through the elimination of all pre-petition unsecured debt in exchange for common stock of the reorganized Northwest Airlines and the right to purchase additional common stock in a rights offering.

Terms of the rights offering will be provided in the disclosure statement.

Unsecured creditors whose claims are guaranteed by certain other Northwest entities will receive an additional distribution of common stock on their claims. But because all unsecured creditor claims will not be satisfied in full, pre-petition common equity and preferred stock will be cancelled, and those holders will not receive a distribution.

Owl Creek has said that Northwest shares could be worth between $18 to $33 apiece in the event of a buyout. Northwest has been rumored to be in post-reorganization merger talks with bankrupt Delta Air Lines Inc. but like Delta has maintained plans as a stand-alone carrier.

Delta has a hostile bid on the table, however, from US Airways Group Inc., so players in Northwest suggest it's reasonable that it could attract one. Delta and Northwest filed bankruptcy within days of each other in the fall of 2005 and both target emergence around midyear 2007.

Delta bonds quiet, off a bit

Like Northwest and much of the distressed market, Delta bonds traded thin Friday and were last seen with a 70.5 bid, which is about a point weaker from Thursday's close.

Delta bonds moved up several points this week as US Airways sweetened its hostile bid for the Atlanta-based bankrupt carrier by roughly $2 billion.

US Airways raised its offer for Delta to $5 billion in cash plus 89.5 million shares of US Airways stock from a previous offer of $4 billion in cash and 78.5 million shares of US Airways stock. Delta creditors would hold a 49% stake in the combined airline versus 45% previously.

US Airways made its original bid for Delta on Nov. 15, which Delta has continued to fight. Last month, Delta submitted a stand-alone reorganization plan, valuing the post-bankruptcy carrier at $9.4 billion to $12 billion.

Under Delta's stand-alone plan, debt recoveries are estimated between 63% and 80%, with unsecured creditors getting new common shares plus the opportunity to participate in a rights offering, and current stockholders receiving no distribution.

Delta creditors must react to the latest US Airways bid by Feb. 1; also, there is a Feb. 7 bankruptcy hearing scheduled to start bankruptcy court process on Delta's stand-alone plan.

Delphi bonds seen waffling

Amid very little activity, Delphi bonds were said to be waffling on the news from bankruptcy court, with the 6.55% issue at 110.75 versus 112 on Thursday while the 6½% bonds due 2013 moved up about a point to 110.75.

In what was described as a watershed event, Delphi got bankruptcy court approval Friday to pursue its $3.4 billion reorganization plan backed by Appaloosa, Cerberus Capital Management and Harbinger Capital Partners and investment banks Merrill Lynch and UBS Securities, rather than a $4.7 billion plan offered by Highland Capital Management.

Delphi still has to seal deals with former parent General Motors Corp. and its major union by the third quarter, and the bankruptcy judge gave the company until July 31 to work that out without interference.

Highland, the second top Delphi stockholder, had wanted more access to Delphi's books to finalize its offer. The Delphi-supported plan also had been contested by the U.S. Trustee in the case and the equity committee, as Highland's plan would distribute a bigger chunk of reorganized Delphi to current stockholders.

Under Delphi's plan, Appaloosa, Cerberus, Harbinger, Merrill and UBS have pledged $1.4 billion to $3.4 billion for 30% to 70% of reorganized Troy, Mich.-based Delphi. It includes a rights offering at $45 per share and an option for those investors to participate at $35. GM also would hold a big stake in Delphi.

MAAX bonds sink on figures

Montreal-based bathtub and shower company MAAX failed to convince bondholders in a conference call Friday that they should hold on while it weathers the stagnation in U.S. and Canada homebuilding. As a result, the 9¾% bonds due 2012 fell to 77 bid, 78 offered from a recent bid of 87.

"They are highly dependent on the U.S. housing market and nobody knows where's that's going," said one onlooker.

Canadian housing starts fell 7.8% in December from November, Canada Mortgage and Housing Corp. said earlier in the week. The U.S. Commerce Department is slated to report housing starts for December on Jan. 18, but in November that statistic was down 3% from October.

But many economists and pundits, along with major homebuilders, are saying that the slump in homebuilding has hit bottom and will level off or improve somewhat in 2007.

Meanwhile, MAAX reported that its fiscal third-quarter ended Nov. 30 showed a decrease in net sales of 5.9% to $113.2 million from $120.3 million a year earlier while operating income dropped 86% to $1.0 million from $6.7 million.

Free cash flow for the quarter, however, grew to $17.8 million from $10.7 million, which it attributed to lower investment in working capital due to seasonal factors as well as specific initiatives undertaken to improve its working capital.

On the latter, the company said it and certain subsidiaries of Beauceland have entered into a new $215 million credit agreement with Brookfield Bridge Lending Fund Inc. consisting of a $175 million term loan and a $40 million revolving credit facility. Proceeds, the company said, are earmarked to pay off its senior secured credit facility, approximately $178 million.

Danka asset sale a plus

Danka Business Systems bonds were finding new interest Friday, which some traders said could be due to an anticipated pay down in debt from recent asset sales, which have taken a little longer to consummate than was originally conceived when the copier distributor inked a deal last fall.

The Danka 10% bonds due 2008 gained about a point to 99.5 bid, 100.75 offered while the 11% bonds due 2010 were offered at 103.25, traders said.

"Generally, the company is progressing on the sale of is European division and that should be finalized in the next month," said a buyside source involved in Danka.

"That is definitely a positive. They got a decent price, nothing great, but decent."

In October, the company announced the sale of its European businesses to Ricoh Europe BV for $210 million in cash. The deal was scheduled to close by Dec. 31 at that time. Danka said proceeds would be used to pay down long-term debt.

"The sale of the European division limits Danka's upside potential, but for the most part the European division has been losing money and a drag on Danka's earnings," the buysider said.

"We have been told that Danka will use a portion of the proceeds to completely eliminate the 11% bonds and significantly reduce the 10% bonds. This could amount to a total of $21.75 million in annual interest savings.

"The $332.8 million 6.5% convertible preferred issue is accumulating at a rate of $21.6 million annually, so the interest savings from the elimination of the notes provides enough cash flow to cover the interest on the preferred shares, and Danka's remaining cash flow can then either be used to grow the company or reduce the outstanding preferred."

Adelphia up before delay news

In the cable TV arena, Adelphia Communications Corp.'s recently resurgent paper was seen tacking on another point across the board, a trader said, with its 10¼% notes due 2011 at 102 bid, 103 offered and its 2006 101/4s rising to 98 bid, 99 offered.

At another desk, a market source saw Adelphia's 9 7/8% notes due 2007 at par bid, up 2 points on the session.

The Greenwood, Colo.-based company's bonds have been rising of late on expectations of its imminent emergence from Chapter 11 after more than four years spent in a messy, complicated reorganization that has often featured contentious disputes over the spoils between various creditor classes.

Adelphia, once the fifth-largest cable operator in the U.S., sold virtually all of its assets to TimeWarner Cable and Comcast Corp. for $17 billion last year, and has been attempting to divide that asset pie to the satisfaction of all of its creditors. The plan was approved by the court on Jan. 5.

However, that emergence will have to wait at least a week longer, with the company announcing late Friday, after the market close that it had been informed by its official committee of unsecured creditors that the parties had extended the deadline for the effective date of its plan from Jan. 12 to Jan. 19.

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