Doral bonds up amid refinancing talks; Solutia zooms up as noteholders, company clash

By Stephanie N. Rotondo

Portland, Ore., April 30 - Reinvigorated refinancing talks placed Doral Financial Corp. back in the spotlight Monday. The bank posted a wider fourth-quarter loss and re-emphasized the need for an equity infusion.

As one trader put it, it was only natural for the financial institution's structure to see mixed results. The bank's equity fell in trading by almost 19% by the close of the trading day, but the bonds edged up 1.5 points.

But it was Solutia Inc.'s bonds that really saw the action on what was reportedly an otherwise quiet day. The bonds zoomed up 10 points as a group of noteholders clashed with the company, falling off of the bonds' highs to still end 8 points up on the day.

Meanwhile, Delta Air Lines Inc. flew the coop - the bankruptcy coop, that is. The airline emerged from Chapter 11 protection Monday, promising to be a "fierce competitor" in the industry. Its debt, however, slid a little as it waited to be "equitized" come Tuesday.

In other distressed airline news, Northwest Airlines Corp. showed a narrower first-quarter loss, but that had little affect on its debt, which was essentially unchanged. Still, the company said that, excluding restructuring items, it posted a $100 million profit.

But Monday was deemed "quiet" overall, with one trader quipping that the day was "not much fun."

"We must be setting ourselves up for a busy end of the week," another trader said. "That's what I keep telling myself, at least."

Doral boosted on refi talks

San Juan, Puerto Rico-based Doral posted a wider fourth-quarter loss and warned that the financial institution could go under if it did not receive an equity infusion of at least $700 million.

The news pummeled the bank's stock but boosted its bonds by at least 1.5 points, a trader said.

"The shares were down, but the bonds were up, naturally," he said.

The trader placed the floating-rate notes at 96 bid, 96.75 offered, while another trader pegged the notes at 96 bid, 96.5 offered.

On the equity side, the stock fell 32 cents, or 18.60%, to close at $1.40.

The company showed a $169.7 million loss for the quarter, compared with a $52.5 million loss for the same period of 2005. The company is continuing to adjust its books after accounting errors inflated the value of some of the company's investments.

Doral, which is in refinancing talks with a private-equity firm, said that the unidentified investment firm's infusion would result in "very significant dilution'" to current shareholders. In a company-issued statement, the company said it lacks funds to pay debt due this year, including a $625 million bond maturing in July. One trader said that it is possible the bondholders could receive at cash payout at par.

"The failure to refinance the senior notes and recapitalize the holding company would have a material adverse effect on, and impair, the holding company's financial condition and ability to operate as going concern," Doral said in the statement.

Moody's Investors Service and Fitch Ratings both said that the agencies would keep the bank on watch. Moody's currently ranks the company's debt at B2, while Fitch has a B senior debt and short-term issuer default rating. Standard & Poor's also placed the company on developing watch.

Solutia bonds spike up 10 points

Solutia's bonds were the heavy hitter for the day, gaining as much as 10 points, only to fall back slightly but still end the day up by about 8 points, a trader said.

The trader placed the 7 3/8% notes due 2027 of the St. Louis-based manufacturer of performance films, specialty chemicals and nylon products at 107 bid, 108 offered.

The run on the bonds came as a group of the company's noteholders objected to a motion for a 90-day exclusivity extension. The group is contending that the company is favoring its general unsecured creditors.

In the Friday filing, the bondholders argued that the company's latest exclusivity extension request aims to take credit for progress made between the group and the company's former parent, Monsanto Inc. The bondholders had said last week that the parties had developed their own reorganization plan for Solutia.

"Evidently, they want the court to believe they had something to do with the fact that Monsanto has agreed to make substantial concessions in the plan agreed to as a result of the noteholders' committee's negotiation efforts. Nothing could be further from the truth," the noteholders said in the objection.

"As before, the debtors are so desperate to obtain an extension that they would apparently file a plan lacking Monsanto's and noteholders' support merely to obtain a meaningless solicitation period," the objection said. "Rather than embrace such monumental progress, [Solutia rejects] the opportunity to seek confirmation of such plan, instead continuing a strategy favoring holdouts (general unsecured creditors) whose claims are vastly exceeded by those of Monsanto and the noteholders," according to the objection.

"The debtors' destructive approach deprives them of any right to control the plan process."

Solutia filed for bankruptcy in December 2003.

Delta bonds dip

Delta flew out of bankruptcy on Monday, using a $2.5 billion exit financing facility to repay its $2.1 billion debtor-in-possession credit facilities, among other costs associated with exiting Chapter 11 protection.

With its bonds being "equitized" on Tuesday, a trader saw the 8.3% notes due 2029 down slightly at 52.5 bid, 53 offered.

The company's new equity - which replaced the now worthless existing stock - will begin trading Thursday on the New York Stock Exchange under the symbol "DAL." The new shares began trading on a when-issued basis last week and closed Friday at $22.80.

S&P raised its ratings on the Atlanta-based airline, raising the corporate credit rating to B, with a stable outlook, from D.

Northwest notes steady

Northwest Airlines is still waiting to exit bankruptcy like its fellow distressed airline Delta, but Northwest did manage to cut its quarterly losses for the first quarter of 2007.

The No. 5 airline posted a loss of $292 million, compared with a loss of $1.1 billion a year previous.

Amid the earnings release, a trader said the company's bonds were "quiet." He quoted the 10% notes due 2009 at 78.75 bid, 79.75 offered, adding that the notes have been trading in the 79 area.

Eagan, Minn.-based Northwest received court approval for its reorganization plan in March and is awaiting approval from its creditors. A confirmation hearing is scheduled for May 16, and the airline hopes to emerge from bankruptcy by June.

Northwest also announced Monday that it lowered the estimated amount of unsecured claims to be paid to creditors to a range of $8.2 billion to $8.8 billion, down from the previous estimate of $8.75 billion to $9.50 billion.

Caroline Salls contributed to this article.

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