Tembec mixed; Sea Containers rises; Delta quiet; Auto paper mixed

By Stephanie N. Rotondo

Portland, Ore., Feb. 2 - Tembec Industries Inc. bonds were mixed in trading on Friday, according to two traders, but reported up strongly over the last few weeks as a weaker Canadian currency and a reported C$138 million in quarterly earnings have attracted investors to the name.

Separately, Sea Containers Ltd. continues its swim upstream, though traders are at a loss to explain why. The gains come despite news earlier in the week that a major stakeholder sold half of his stake in the bankrupt company.

Meanwhile, things are quieting down in bankrupt airline paper. Delta Air Lines Inc. filed a second amendment to its reorganization plan Friday, which included the terms of its recently established $2.5 billion exit facility. The news did little for the bonds, however, and they remained unchanged.

In bankrupt automotive parts supplier news, traders saw Remy International Inc, Delphi Corp and Dura Automotive Systems Inc. down across the board. One shining light in the industry was Hayes Lemmerz International Inc. - whose notes saw heavy trading.

Tembec moving

Tembec has made an "enormous rally" over the last few weeks, according to one trader, as weakness in the Canadian dollar and posted earnings have made the company's debentures more popular with investors.

The trader noted that the company's 8 5/8% bonds due 2009 were a point lower on the day at 84 bid, 85 offered. Another, however, quoted Tembec's 8 5/8% notes due 2009 at 85 bid, 87 offered, up a point on the session. Its 8½% notes due 2011 were seen up 1½ points at 76 bid.

One trader said that despite the company's good first-quarter performance, Tembec has "never fixed its problems internally." He added the day's trades were "nothing spectacular."

Tembec management said in it annual and special shareholders meeting Wednesday that the company planned to address its high debt levels in 2007. Chief executive officer James Lopez said issues such as increasing liquidity, selling non-core assets and loan maximizing would be the focal point of improving the company's overall financial health.

Tembec is a Montreal-based forest products company with operations principally located in North America and France.

Sea Containers keeps afloat

Hamilton, Bermuda-based Sea Containers is "continuing to surge higher," one trader said. Another distressed trader agreed, placing the debt up about 3 points across the board on the day, adding, "I don't know why."

The trader pegged the bankrupt maritime and railroad transportation company's 10¾% notes due 2006 at 87 bid, 88 offered, a figure echoed from another desk, and showing the notes up from 84 bid, 85 offered earlier. Its 7 7/8% notes due 2008 were at 84 bid, 85 offered, up from 81 bid, 82 offered, and its 10½% notes due 2012 were at 86 bid, 87 offered, up from 83 bid, 84 offered.

Elsewhere, a trader showed the 103/4s were seen up 1¾ point on the session to 87, the 101/2s were a bit easier at 86, while the 7 7/8% notes were up perhaps half a point at 80.5. Trading volume was described as thin.

The recent activity in the bankrupt company comes despite a major stakeholder selling his shares of the company. Last week, Appaloosa Partners Inc.'s David Tepper reported selling 1.5 million shares - more than 50% of his stake - at $1.6167 per share, according to a form 4 filed with the Securities and Exchange Commission.

Before the sale, Appaloosa owned 2.96 million shares, about 11.3% of the company's stock. The investment firm retained 1.46 million shares.

Sea Containers filed for bankruptcy in October.

Delta quiet

Delta had a quieter day in trading, remaining unchanged at 62 bid, 63 offered, as it filed a second amendment to its reorganization plan.

In the amendment, Delta said its creditors' committee approved a $2.5 billion investment deal to help the company exit bankruptcy.

According to a press release issued Wednesday, the exit facility will be co-led by six financial institutions - JPMorgan, Goldman Sachs & Co., Merrill Lynch, Lehman Brothers, UBS, and Barclays Capital - and will consist of a $1 billion first-lien revolving credit facility, a $500 million first-lien term loan A and a $1 billion second-lien term loan B. The facility will be secured by substantially all of the first-priority collateral in the existing debtor-in-possession facilities.

The amendment, which also included some technical changes, gave some insight into the official unsecured creditors' committee's deliberations on the now-withdrawn U.S. Airways Group Inc. bid. The revised bid was discussed several times by the group, yet as the board took no action, the bid was pulled.

A confirmation hearing will be held in April on the proposed plan.

Remy weak, Delphi steady

After several days of gains, automotive parts maker Remy weakened, losing up to 3 points, according to one trader. The 9 3/8% notes due 2012 came in at 35 bid, 36 offered.

The Anderson, Ind.-based company's bonds jumped several points since Wednesday, when the company announced the sale of its light- and medium-truck diesel engine and component manufacturing business to Caterpillar Inc. The sale, at a purchase price of $150 million, was made as Remy attempts to pay down some of its debt.

In other distressed auto news, Delphi Corp. was one of the "most active" of the day, though there was "not a lot of trading," a trader said. The trader said the notes saw "wide" price fluctuations throughout the day. Still, the 6½% notes due 2009 closed unchanged at 110.50. The Troy, Mich.-based auto parts maker's 6.55% notes due 2006 eased a bit, off a half-point at 110 bid, 111 offered.

Meanwhile, another trader saw Dura's 8 5/8% notes due 2011 "trickling back down," to 31.5 bid, 32.5 offered - giving up gains they had notched on the rebound Thursday from Wednesday's nosedive. The bankrupt Rochester Hills, Mich.-based automotive components maker's senior bonds tumbled as much as 10 points during Wednesday's session, down into the mid 20s, before coming back from those lows to finish in the low 30s - still down 5 points on poor earnings data and market rumors that a large bondholder had bailed out.

The biggest mover, according to traders, was Hayes Lemmerz, whose 10½% notes due 2010 rose about 3½ points in heavy trading, to 96.75. Despite the gains, the notes finished off from the day's peak levels around par.

The Northville, Mich.-based maker of automotive wheels saw its bonds shoot up after the company said it was asking its bank lenders to consent to a proposed equity-for-debt swap to take out those bonds. It also announced the sale of several facilities and the closing of yet another.

Loan news good for Tech Olympic

Technical Olympic amended its $800 million revolving credit facility due 2010 on Tuesday, extending the deadline by which the company and its subsidiaries must deliver mortgages on completed but unsold homes, according to an 8-K report filed with the Securities and Exchange Commission on Thursday.

The deadline was previously pushed back to Jan. 30 from Dec. 31 and may now be pushed back to March 1, according to the credit agreement.

News of the extension prompted the company to jump in both the equity and bond markets, though one trader called the news "not interesting."

The company's 10 3/8% notes surged about 3 points, according to the trader, closing the day at 93. On the stock side, the company's shares jumped 55 cents, or 5.74%, to $10.13.

"They are coming from a low base," the trader said. "They were hit down hard for a while."

Technical Olympic is a Hollywood, Fla.-based designer, builder and marketer of single-family residences, town homes and condominiums.

Analyst: Ainsworth good long term

Ainsworth Lumber has seen its ups and downs. As many in the forest products industry have experienced downturns, Ainsworth is no exception.

The Vancouver, B.C.-based company is a major manufacturer of oriented strand board (OSB), a plywood substitute that has become increasingly popular over the years. Over 60% of demand for the product comes from new housing starts.

But, housing starts have faced a significant decline of late. In 2006, new housing starts totaled 1.8 million, a 13% decrease from 2005.

And, in a "classic supply and demand squeeze," prices for OSB have been slashed almost 50%, according to an unnamed analyst.

"[The housing slump] has kind of wrecked havoc on the OSB industry," said the analyst. "Ainsworth has gotten crushed by the dynamics in the industry."

According to Random Lengths, an information service for the forest products industry, the price of North Central 7/16-inch OSB was $289 per 1,000 square feet a year ago, compared to $142 per 1,000 square feet last week.

Ainsworth has taken measures to fight off a bankruptcy, including shutting down plants in an effort to stay EBITDA-positive.

In August 2006, the company reported "strong liquidity" of more than C$300 million, including C$124 million cash on hand.

"So I think we have quite a little bit of fat on our bones to be able to survive an extended period of downturn," said Bob Allen, chief financial officer, during the company's second-quarter conference call.

The analyst said the company's liquidity remains strong, but faced with industry weakness, the company will "probably burn a lot of cash and liquidity." The company's mid-sized debt, which includes 7¼% notes due 2012, 6¾% notes due 2014 and a few "stub pieces," is still seeing "significant recovery," according to the analyst.

The company's security rests on industry conditions, present and future. One of the questions the analyst asked is if the company would halt expansion, though he said that has not been seen.

"It's an interesting company," the analyst said. "They have valuable assets. There is a case to be made that OSB will supplant plywood as the material of choice."

In an overall sense, the analyst said Ainsworth might not be comparable to other forest-products companies. Other companies, such a Port Townsend Paper Corp. and Pacific Lumber Co., are "just getting crushed," not only because of industry conditions, but other issues, such as product diversity.

"Some say consolidation of these companies would put them in a better position on the back end," the analyst said. "Then they could cut excess supply and have better pricing."

Paul Deckelman contributed to this article.

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