Dura drops on liquidation; asset sale revs Remy; Delta loses altitude; Ziff-Davis default widely rumored

By Stephanie N. Rotondo

Portland, Ore., Jan. 31- Dura Automotive Systems Inc. bonds got "whacked" in trading Wednesday as a large investor liquidated its Dura position on the company's "crap" fourth quarter numbers.

The Rochester Hills, Mich.-based designer and manufacturer of driver control systems latest financial report was an increase from the previous month's operating loss, but its cash and equivalents were considerably less.

Meanwhile, another distressed auto parts maker was seeing a turn up. Remy International Inc.'s bonds were higher across the board as the company announced the sale of one of its divisions, and said it would use proceeds from the sale to pay down some of its debt.

US Airways Group Inc. dropped its hostile takeover bid for Delta Air Lines Inc. a day ahead of the deadline for creditors to respond. The official committee of unsecured creditors' had until Thursday to deliberate the offer. After a lot of back and forth speculation on the outcome, the committee released a statement saying it would support Delta's stand-alone reorganization plan. In reaction to the news, Delta bonds were down early in trading, but an afternoon rally left the bonds only slightly off from the previous day.

The Federal Reserve eased some investors' worries after it announced it would keep interest rates steady. The unanimous decision to maintain the 5.25% rate pointed to an improved economy and a slowdown of inflation. Equity markets jumped on the news, the Dow Jones Industrial Average gaining over 98 points.

Still, traders in the distressed market said the day had a familiar tone: "Pretty soft."

Home Products International Inc. dropped about 8 points Wednesday, despite the company receiving court approval of the disclosure statement for its reorganization plan that sets out a 4% recovery for noteholders. According to one high-yield trader, the proposed valuation is "just junk." The company's 9 5/8% senior subordinated notes fell to 32 by the end of the day.

Tembec Inc. bonds were 2 points lower across the board, extending the profit-taking induced losses seen Tuesday. Its 8 5/8% notes due 2009 were at 82 bid, 84 offered, while its 8½% notes due 2011 dropped to 72 bid, 74 offered.

Reacting to a less-than-stellar fourth-quarter earnings report MagnaChip Semiconductor Ltd.'s 8% junior notes fell another point, landing at 62.5. The company posted a net loss of $45.6 million compared with a net loss of $22.9 million in the fourth quarter of 2005.

In other news, Solutia Inc. reported a $9 million operating loss for December. The chemical company sought an exclusivity extension earlier this week. Currently, the company has until Feb. 13 to file a reorganization plan, but is hoping to push the deadline back to April 30. Traders said the bonds have seen little activity and no price movement.

The rumor mill is abuzz with talk that Ziff Davis Media Inc. is expected to miss its coupon payment due in February. One trader said no trades occurred on the notes, but there is a lot of speculating.

Fund liquidates Dura

Dura bonds were "whacked," by one distressed bond trader's account, as a buyside shop put its entire position in the bankrupt auto parts supplier's 8 5/8% bonds up for sale in a Dutch auction. The issue was down by as much as 9 points early in the session but managed to close out the day with a loss of just 5 points.

Traders declined to comment whether there were big buyers.

But one trader noted the 8 5/8% bonds opened around 34 bid, 35 offered. It took a dive in early morning trading, sliding down to 26.5 but ticked back up to 30 bid, 31 offered by noontime, one trader said. He said the firm had started the auction at a higher price but the bids came in sharply before heading north.

At close, another trader placed the notes at 31.5 bid, 32.5 offered, while a third said the bonds stayed at 30 bid, 31 offered. The 8 5/8% issue had traded down a point on Tuesday, when the December operating results were reported, to 35.5 bid, 36 offered.

Dura's 9% notes due 2009 fell as low as 4 bid before ending Wednesday at 5 bid, 6 offered, down a point on the session.

"We saw a lot of drive-by buyers," remarked one distressed bond trader.

He said the fund was selling off Dura because of its latest financial report, saying, "The numbers were absolutely crap."

Dura's reported operating loss of $1.95 million for December had put pressure on the bonds Tuesday, even though the number was an improvement from an operating loss of $12.01 million in November. The net loss for December was $20.02 million, improved from a $38.23 million November net loss, with an uptick in sales to $80.6 million from $70.3 million.

Cash was the kicker in the latest Dura operating report, however, according to traders. The company reported that cash and equivalents at Dec. 31 plunged to $14.88 million from $54.2 million a month before.

Remy driven up by asset sale

Auto parts supplier Remy notes were "all better," according to one trader, who at the end of the day was working overtime moving the bonds. The market had been widely anticipating asset sales as a key component in the company's efforts to shore up its operations and thereby avoid the bankruptcy that many onlookers have predicted.

The trader said the company's bonds were up about 3 points across the board, with the 11% notes due in 2009 and the 8 5/8% notes due in 2007 seeing the most activity. He put those bonds closing at 42.5 and 89.5, respectively.

At another desk, a trader saw the 11% notes up 5 points on the session, to 42 bid, 43 offered. Yet a different trader saw the 11s at 40 bid, 42 offered, which he called up 2 points, and saw its 8 5/8% issue a point better at 88 bid, 90 offered. He put the Remy 9 3/8% notes due 2012 better by 3 points at 37 bid, 39 offered.

The drive upward was attributed to Wednesday's announcement the company had sold its light and medium truck diesel engine and component remanufacturing businesses conducted by Franklin Power Products, Inc. and International Fuel Systems to Caterpillar Inc. for a cash price of $150 million. The price is subject to adjustment for net investment in the business, including working capital, at closing, expected before the end of the first quarter.

In a press release from the company, Remy's president and chief executive offer, John Weber, said, "The sale to Caterpillar represents a strategic opportunity to realize value for our stakeholders."

Distressed debt participants have been eyeing Remy closely, wondering if the company would file Chapter 11 or manage to turn around its balance sheet with asset sales.

According to the press release, $50 million of the sale proceeds will be held in a restricted account, to be used as collateral to senior lenders and withdrawn only with consent of the lenders under its senior credit facility. Outstanding revolver borrowings under the senior secured revolving credit and term loan facility and the revolving lender commitments under the facility, valued at $160 million, will be reduced by $40 million.

Remaining proceeds will be held in the restricted account, and will be available for capital expenditures, to repay revolver borrowings (with a corresponding reduction in the revolver commitment) and general corporate purposes.

Delta, Northwest extend losses

Delta was seen lower earlier in the trading day as US Airways announced it was pulling its takeover bid. The company's 8.30% notes bounced back later in the day, though still down from the previous day, trading around 61 bid, 62 offered. The bonds gyrated during the session between a high print of 64 and a low print of 58, a trader said.

After Delta's official committee of unsecured creditors' issued a statement in support of a stand-alone carrier, Tempe, Ariz.-based US Airways issued their own statement.

"We are disappointed that the committee, which has been chosen to act on behalf of all Delta creditors, is ignoring its fiduciary obligation to those creditors. Our proposal would have provided substantially more value to Delta's unsecured creditors than the Delta stand-alone plan," said US Airways chairman and chief executive officer Doug Parker.

In a press release, Delta's chief executive officer Gerald Grinstein called it a "proud day."

"This is a proud day for the thousands of Delta people, customers, communities, civic leaders and others who stood up for our standalone plan and said, emphatically, 'Keep Delta My Delta,'" he said.

Grinstein said he appreciated the effort the creditors committee had put into evaluating Delta's reorganization plan and recognized those who contributed to the plan.

"Using the bankruptcy process the right way, Delta people have transformed their company's business model. Our focus now is on the work still before us to emerge from Chapter 11 this spring as a strong, healthy, and vibrant global competitor," Grinstein said.

The proposed US Airways-Delta merger has made headlines since first being put forward in November. Delta has maintained its desire for independence, despite a 20% increase in the bid earlier this month.

"It will be what it will be," said one trader. In an interview with Prospect News, the trader said while the news may not be good, it was not necessarily bad.

"We need to take some capacity out of the system," he said. "A Delta-U.S. Airways merger would not have taken a lot of capacity out of the equation. We probably still would have too many airlines."

The trader also said that maybe a different consolidation would have been better for Delta.

To that end, there has been considerable speculation that Northwest Airlines will be the subject of a big merger. The company got court approval in December to hire Evercore Group LLC as an advisor in acquisitions; Northwest is sponsoring feeder carrier Mesaba Airlines in its bankruptcy emergence. But the big talk was that Delta and Northwest would link up in a post-bankruptcy merger as Northwest plans to exit bankruptcy around the same time as Delta. Chatter regarding the Delta merger, however, has been repeatedly denied by Delta.

Northwest's bonds were off 2 points on Wednesday, a trader said, with the 10% notes due 2009 ending at 93 bid, 95 offered, and its 8 7/8% notes closing at 91 bid, 93 offered. Northwest bonds have dropped 9 to 11.25 points over the past week, according to a high-yield bond pricing service.

CalGen loan paper eases

Calpine Generating Co., LLC's (CalGen) first-lien bank debt levels tightened up a bit as the offer side came in by about half a point, according to a trader.

The first-lien bank debt closed the day at 101 bid, 101.5 offered, compared to 101 bid, 102 offered on Tuesday, the trader said.

The adjustment in levels continued to revolve around parent company Calpine Corp.'s plans for a new $5 billion debtor-in-possession financing facility that would be used to refinance its existing DIP and repay $2.516 billion of CalGen secured pre-bankruptcy debt.

Calpine is a San Jose, Calif., power company.

Sara Rosenberg, Ronda Fears and Paul Deckelman contributed to this article.

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