Doral, Fedders mixed; Calpine up on bondholder agreement; Threats not hurting Delphi

By Stephanie N. Rotondo

Portland, Ore., April 19 - Speculation could have been behind a mixed day for Doral Financial Corp.'s structure Thursday, as market buzz chattered that a settlement in the bank's class action lawsuit could be near.

Followers of the name said earlier in the week that there was little knowledge on what kind of progress the company was making in its refinancing talks. A trader said it could be possible that a settlement agreement would need to be reached before bondholders would agree to any sort of deal.

Meanwhile, Fedders Corp. also saw a mixed day in its structure, something a trader thought to be a little odd.

Calpine Corp.'s bonds - as well as its equity - got boosted as the company announced a preliminary deal with holders of some of its defaulted notes. The deal, which still needs approval by U.S. and Canadian courts, could eliminate $8 billion in claims. The $8 billion was a disputed claim, totaling the amount of interest bondholders would have received if the notes were carried through maturity.

Threats that a key investor could pull out are having little impact on Delphi Corp.'s bonds. A market source said that, while the notes may have weakened of late, many investors still see value in the company's debt.

Delphi has also said that regardless of Cerberus Capital Management LP's decision to stay or go, the distressed automotive parts supplier will move forward with its current investment group, possibly adding another investor - Dallas-based Highland Capital Management LP, perhaps?

Doral mixed on rumor

In May 2005, Doral was hit with a class action lawsuit, which alleged that the financial institution had violated the Securities Exchange Act of 1934, making false and misleading statements regarding the business.

The suit has dragged on, but market buzz is speculating that a settlement is near.

The company has been discussing with its bondholders a potential refinancing deal on its notes. A trader said that a settlement would most likely be necessary before "any bondholders agree to accept equity in any form."

Another trader sees that being a definite possibility.

"Something's going on, so that makes sense," he said.

Whether prompted by the rumor or not, Doral's equity came in 1 cent, or 0.55%, to close at $1.80. One trader called the bonds unchanged, adding that the notes have hardly traded. Still, another trader called the bonds up a quarter of a point at 94.75.

Prospect News has been unable to reach the company for comment.

Fedders structure mixed

Fedders structure seemed out of whack to a trader, who said the bonds were unchanged, the equity was up and the preferred paper was down.

"You would think the preferreds would go up [with the stock], but it's just not," he said.

He quoted the 9 7/8% notes due 2014 at 45 bid, 47 offered, and the preferreds - which he called "bad" - at $4.10 bid, $4.20 offered. The stock closed up 5 cents, or 7.69%, to 70 cents.

Calpine bonds, stock surge

Bankrupt independent power producer Calpine's bonds surged as the company announced a preliminary agreement with bondholders holding defaulted ULC1 bonds of its bankrupt Canadian unit that, if approved, would eliminate more than $8 billion of claims. The deal is subject to approval from the U.S. bankruptcy court and courts in Canada.

"This is an extremely creative resolution and I am grateful for the hard work of everyone involved in achieving this mutually beneficial outcome," said Calpine chief executive Robert May in a news release.

"If approved, the settlement will reduce multiple bankruptcy claims relating to these bonds to a single claim."

On the news, a trader called the 8¾% notes due 2007 up as much as 3 points earlier in the day, pegging the notes in the 121 levels. At another desk, a trader noted that the company's bonds are "trading north of par, apart from a few convertibles."

Elsewhere, a trader saw the 8½% bonds due 2008 at 123 bid, 123.75 offered and the 7¾% notes due 2015 at 123.5. Another trader saw the 8½% notes due 2011 and 8 5/8% bonds of 2010 at 122.75 bid, 123.75 offered, up from 119 bid, 120 offered on Wednesday.

Yet another trader called the 8½% notes of 2011 up 4.5 points at 123 bid, 124 offered.

Under the proposed settlement, more than $12 billion of claims will be replaced by a single nominal claim of about $3.5 billion, Calpine said. The bondholders have agreed that their actual recovery will be no greater than principal, accrued pre-petition and post-petition interest at the contract rate, plus fees, according to Calpine.

A trader, who said the company's situation is "really an equity story now," noted it seemed likely that the bonds will be paid off, but the company will need to come through with an equity rights offering.

"What you are purchasing right now is really a right to partake in a future rights offering," he said of investors who are grabbing up the company's debt. "The total valuation I have heard is pretty high."

"I think there is accumulation going on in the bonds and the stock by people looking for a juicy distribution," an equity trader said. "Yesterday and last week I would have disagreed, because the bonds were trading at par plus 18 months of accrued interest. For example, the 10.5% bonds were trading for 116 while the 7.625% bonds were trading for 112. But today I see that many of the bonds, regardless of coupon, have shot up over 121."

Delphi bonds steady on threats

Market players are saying that it seems likely Cerberus will pull out of its bid for Delphi, but that is definitely not the end of the story for the struggling automotive parts maker.

Others are saying that a deal, whether with Cerberus or Highland, will be made and investors are seeing "quite a bit of value here," according to one market source.

A trader called the company's bonds unchanged, but another source claimed the notes could be "up a couple of points." The 8¼% junior notes due 2033 were pegged at 116.5 bid, while the 6½% senior notes due 2009 closed at 110.875 bid.

Though Cerberus has not yet officially back away from the deal, Delphi said Thursday that other investors are slated to fund its $3.4 billion exit facility. The deal will proceed with an investment group of Appaloosa Management LP, Harbinger Capital Partners Master Fund I, Merrill Lynch & Co. and UBS Securities LLC.

Cerberus is said to be backing out due to ongoing difficulties with union workers. Delphi has been discussing wage and benefit concessions with its unions for several months.

But Highland also said Thursday that it would like to discuss alternatives to the current reorganization plan. The second-largest shareholder in the company also offered a rival bid against Cerberus & Co.'s. In a letter sent to the company's board, Highland said Delphi should consider its offer based on Highland's financial strength and knowledge of Delphi.

At close of market, Delphi's stock was up 6 cents, or 2.21%, to $2.77.

Merisant loan terms set

Merisant Co.'s $85 million three-year term loan B add-on (B3) is being talked at Libor plus 350 bps, according to syndicate document.

Credit Suisse is the lead arranger and bookrunner on the deal that was launched with a bank meeting this past Tuesday.

Proceeds from the add-on will be used to prepay all outstanding obligations under the company's second-lien loan.

In addition, the company plans to amend and restate its existing senior credit facility to provide more flexibility to continue to stabilize and then grow its business and to strengthen its balance sheet.

Merisant is a Chicago-based marketer of low-calorie tabletop sweeteners.

Broad market mixed

A trader saw Remy International Inc.'s subordinated notes up 5 points at the end of day but did not know why. He pegged the two subordinated issues at 38 bid, 40 offered, saying, "The subs moved up a lot, someone got interested in them."

He also saw the 8 5/8% senior bonds up a half point to 92.5 bid, 94 offered.

Meanwhile, Foamex Inc. posted a first-quarter profit, and traders saw its debt all in the high-90s. The company is getting nearer to exiting bankruptcy.

In distressed airline paper, Delta Air Lines Inc.'s 8.3% notes due 2029 were quoted up at 62.5 bid, 63.5 offered. A trader said Northwest Airlines Corp.'s bonds did not move much, but another source called the 7 7/8% notes due 2008 down a point to 92.

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

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.