Bonds little moved by Delta's exit facility launch; Federal-Mogul up on Tower deal

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., March 29 - Delta Air Lines Inc. launched its $2.5 billion exit financing credit facility Thursday, moving the distressed airline one step closer to emerging from bankruptcy.

Still, the financing news, coupled with February's operating figures, did little to move the airline's bonds either way, though a trader said the lack of activity could be due to rising oil prices.

Meanwhile, Cerberus Capital Management LP's recently announced deal with Tower Automotive Inc. could be helping Federal-Mogul Corp.'s bonds as well.

A trader called the company's bonds up as much as 6 points "across the board" as investors are wondering if Cerberus - which is also helping out fellow distressed automotive parts producer Delphi Corp. - will move its mojo over to Federal-Mogul.

Primus Telecommunication Group Inc. announced its subsidiary had issued $51 million in second-lien notes to use for cash - a move aimed as enhancing liquidity. The deal sparked movement in the company's bonds, a trader said, which he called up a couple of points.

Elsewhere, traders were wondering what the deal was with Hines Horticulture Inc.'s bonds, when a trader saw the notes suddenly move up several points at the end of the day. Another trader, however, called the lower quoted trades "odd."

Delta flying steady

Distressed airline Delta held a bank meeting on Thursday to launch its proposed $2.5 billion exit financing credit facility, and with the launch, price talk on the transaction emerged, according to a fund manager.

The $1 billion five-year revolving credit facility and the $500 million five-year first-lien term loan A were both presented to lenders with talk of Libor plus 200 to 225 basis points, while the $1 billion seven-year second-lien term loan B was presented with talk of Libor plus 350 bps, the fund manager said.

JPMorgan, Goldman Sachs, Merrill Lynch, Lehman Brothers, UBS and Barclays Capital are the lead banks on the deal, with JPMorgan the left lead on the first-lien debt and Goldman Sachs the left lead on the second-lien debt.

Security will be substantially all of the first-priority collateral in the existing debtor-in-possession facility.

Proceeds will be used to repay the Atlanta-based airline's $2.1 billion DIP facility led by GE Capital and American Express, to make other payments required upon exit from bankruptcy and to increase its cash balance.

In other Delta news, the company reported a net income of $55 million for February, compared to a net loss of $209 million in February 2006. The company also showed a net loss of $43 million, a $95 million improvement over the prior-year period.

Still, the better figures did little to move the company's bonds, a trader said. He called the 8.30% notes due 2029 "maybe up a point" at 56 bid, 56.5 offered. A market source pegged the notes at 56, up half a point from the previous day's close.

At another desk, a trader saw the bonds move as high as 57 bid, 57.5 offered during the day. He added that the notes gave up most of those gains, still ending up a half point on the day at 55.5 bid, 56.5 offered.

A trader, who pointed out that the usually active airline paper was rather quiet, did say that rising prices in oil could be affecting the bonds.

The price of crude oil spiked up to more than $66 a barrel, a six-month high attributed to growing tensions with Iran and seven weeks of declining U.S. gasoline inventories.

Delta is expected to emerge from bankruptcy on April 30.

In other distressed airline paper, Northwest Airlines Corp. gave up an early 1.5-point gain on its 10% notes due 2009 to end unchanged at 84 bid, 85 offered.

Federal-Mogul drives up

A trader saw Federal-Mogul's bonds firm 5 to 6 points "across the board," attributing the increase to the news that the company had signed a licensing agreement with Johnson Controls. He said he saw the notes coming in at 85 bid, 90 offered.

Using Federal-Mogul's Champion brand, Johnson will introduce a line of batteries to the automotive aftermarket sector beginning in April.

The trader also said the notes could be "up on the back of the Cerberus deal" with Tower Automotive.

Distressed automotive parts maker Tower announced earlier this week that it had entered into a $1 billion deal with Cerberus to purchase all of its assets. The deal, expected to close July 31, will pay off Tower's $725 million DIP loan and $41 million in second-lien loan obligations.

Tower's bonds have seen little to no activity since the beginning of the year. Even the buyout news has done little to move the notes, which a trader pegged at trading in the 9 levels. At another desk, a trader said the 12% notes due 2013 "didn't trade much," but "might have been quoted lower," at 6 bid, 9 offered.

Tower is not the first distressed automotive parts company Cerberus has gotten involved with. The private equity firm is also part of a $3.4 billion recapitalization deal with Delphi Corp.

Primus Telecommunications edges up

A $51 million notes-for-cash deal boosted Primus Telecommunication's bonds, according to a distressed trader. He quoted the 12¾% notes due 2009 up a couple of points at 92 bid. He said the bonds closed the previous day in the high-80s.

The new 14¼% second-lien notes due 2011 will be used for cash, giving the company more liquidity.

"Earlier this week, we announced the refinancing of a credit facility in Canada which extended until mid-2009 the earliest material principal maturity on the company's outstanding debt. As a result of the Canadian credit facility refinancing and this $50 million cash raise, our liquidity position has been substantially enhanced," said Thomas R. Kloster, chief financial officer, in a press release. "This should now allow the company the flexibility not only to improve its balance sheet but also to make investments to grow its profitable business lines."

Hines Horticulture trades 'odd'

Meanwhile, traders saw "odd" occurrences in Hines Horticulture's bonds Thursday after the cancellation on Wednesday of a conference call and following a second delay in filing the nursery operator's fourth-quarter results.

A trader said he saw the 10¼% notes due 2011 around 74 at midday and then saw them close the day at the 78 bid, 80 offered context.

"No one knows why," he said.

But another distressed trader called the low trade an "oddball." He pegged the notes at 77 bid.

The company has yet to reschedule its conference call and file its 10-K.

Calpine closes on DIP facility

Calpine Corp. closed on its new $5 billion two-year DIP credit facility consisting of a $4 billion senior secured term loan and a $1 billion senior secured revolver, with both tranches priced at Libor plus 225 bps.

The revolver has a 50 bps unused fee.

Credit Suisse, Goldman Sachs, JPMorgan and Deutsche Bank acted as the lead arrangers on the deal.

Proceeds will be used to refinance the company's existing $2 billion DIP facility and repay about $2.5 billion of secured debt at Calpine Generating Co., LLC. Remaining funds will be used for working capital and other general corporate purposes, including repayment of debt.

Major benefits of the DIP facility include the ability to provide liens to counterparties to enhance the company's hedging program, a $2 billion expansion option to refinance existing project level debt, lower annual interest costs and an option to roll over the DIP facility into an exit facility.

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

Broad market mixed

A trader saw Technical Olympic USA Inc.'s 10 3/8% notes due 2012 up as much as 5 points on the session at 72 bid, 73 offered.

He also saw Salton Inc.'s 12¼% bonds due 2008 up 3 points at 99 bid, 101 offered, presumably on the news that Harbinger will invest another $100 million into the Applica/Salton merger. The investment will reduce the amount of debt the new company will carry to about $325 million versus earlier projections of $350 million to $400 million.

Bally Total Fitness Holding Co.'s notes went down 1 to 2 points, traders said. The 10½% notes due 2011 came down 1 point to close at 94 bid, 96 offered, while the 9 7/8% bonds due 2007 fell 2 points, coming in at 80 bid, 82 offered.

Paul Deckelman contributed to this article.

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