Delphi bonds firmer as UAW accord reached; Tower off on lack of other bids

By Paul Deckelman

New York, June 22 - News that beleaguered Delphi Corp. has reached a tentative agreement with the United Auto Workers union and former corporate parent General Motors Corp. aimed at lowering Delphi's bloated labor costs - a key factor in the company's slide into Chapter 11 - pushed its bonds higher Friday, traders said. Much of the movement had come earlier in the day, before the official announcement, on market speculation that a deal was near.

Elsewhere in that sector, Tower Automotive Inc.'s bonds were seen several points lower on the cancellation of the planned auction to find a buyer for the bankrupt Novi, Mich.-based vehicle frames maker after no would-be acquirers emerged - leaving an affiliate of Cerberus Capital Management LP as the sole interested buyer.

Movie Gallery Inc.'s bonds were off a little, possibly in reaction to a coming executive personnel change at its larger rival and industry leader, Blockbuster Inc.

Delphi labor talks reach pact

Delphi's bonds were seen up several points, with traders pointing to the mid-afternoon announcement of a tentative agreement between the bankrupt Troy, Mich.-based automotive parts supplier, former parent GM - which will be greatly helping Delphi with any financing costs associated with the agreement - and the UAW, which represents about 17,000 hourly workers at the company. Those workers have been employed under a cost structure Delphi essentially inherited from GM when it was spun off as an independent company in 2000 - a setup which Delphi complains made it impossible to actually earn any money as a stand-alone parts supplier.

A trader quoted Delphi's 6.55% notes that were to have come due last year and its 6½% notes due 2009 both around 120 bid, up a point. He also saw its 6½% notes due 2013 at 117 bid, 118 offered, "quoted higher, but with not a lot of volume trading in that."

The big mover on the day, he said, was the company's 7 1/8% notes due 2029, which moved up to 120.75 bid, 121.75 offered, which he called a 4 point rise.

"That being on the long end, it seemed to move the most, up 4 points, and on decent volume. The short ones didn't move up that much."

A second trader saw the 6.55s at 119 bid, 119.75 offered, which he called up 2 points on the day, while a third agreed that the biggest move came in the '29s, which he saw up a deuce at 121 bid, 122 offered.

A market source at another desk saw those longer bonds rise to about the 121.5 level - up about 2½ points from the opening, but up some 5 points from late levels on Thursday.

Delphi's bonds had actually started moving up earlier in the session on news reports late Friday that presidents of the various locals representing workers at Delphi plants in Troy and elsewhere throughout the country had been summoned to Detroit for a Friday meeting on the talks, reports which suggested that they might be presented with a completed agreement. Earlier in the week, union chief Ron Gettelfinger had advised the Delphi local leaders to prepare for a ratification vote, perhaps in the next few days.

Terms of the accord have not officially been released, pending a ratification vote by the union rank and file. Published reports say that the pact would cut wages for longtime UAW workers from around the present $27 per hour base salary to between $14 and $18.50, and is also expected to include lump-sum payments to longtime employees, who could then either continue working for Delphi at a lower wage, go back to GM or retire.

GM could be on the hook for as much as $7 billion for the lump-sum payments - but it is apparently worth it to the giant carmaker to maintain labor peace at its largest parts supplier. Last year, the UAW threatened to strike Delphi - which would severely affect production at GM, the company's biggest customer, as well as other carmakers - if an acceptable contract were not reached.

While the reported $18.50 top hourly wage is a sharp reduction from the current top salary, it is still more than twice the $9 per hour wage that Delphi first said it wished to impose on its hourly employees, which prompted the strike threat.

In addition to gaining the approval of its UAW-represented workers, Delphi needs the U.S. Bankruptcy Court for the Southern District of New York, which is overseeing its restructuring, to sign off on the plan. Delphi has to also negotiate similar agreements with several smaller unions which collectively represent about 20,000 hourly workers.

The labor pacts are a key condition of a proposed $3.4 billion cash infusion to be provided to Delphi by an investment group headed by top shareholder Appaloosa Management LP and Cerberus, although the latter may decide to drop out since it is occupied with its acquisition of Chrysler from the former DaimlerChrysler AG. Number-Two Delphi shareholder Highland Capital Management has also been in talks with Delphi on an alternative funding plan.

Delphi's Pink Sheets traded shares were unchanged on the day at $2.67, although the 12 million share volume was more than double the average daily activity level.

Tower tumbles

It looks like Cerberus, meanwhile, is the only potential buyer for Tower Automotive, and that news caused the latter's RJ Tower Corp. 12% notes due 2013 to slide down to 5 bid, 6 offered from prior levels around 9 bid, 10 offered, a trader said.

Another market source said that the bonds had tobogganed down to about the 5 bid level from a Thursday close around 8.25. Trading activity was described as active.

Tower on Thursday had announced that the marketing process which the Manhattan bankruptcy court had ordered ended with no competing bids other than the offer previously put forward by Cerberus affiliate TA Acquisition Co., LLC. Accordingly, Monday's scheduled auction has been scrubbed, and Tower will seek court approval of the Cerberus deal, which is estimated to be worth about $1 billion, at a July 11 hearing, at which the company will also seek confirmation of its plan of reorganization. Tower envisions closing the Cerberus deal by the end of July, paving the way for its emergence from Chapter 11 shortly after that.

Dura, Remy little changed

Out of that same distressed automotive sector, traders saw little real movement in names such as Dura Automotive Systems Inc. and Remy International Inc., which recently had been moving around sharply.

In Friday's dealings, bankrupt Rochester Hills, Mich.-based Dura - whose 8 5/8% senior notes due 2012 have recently been gyrating between highs around 67 bid and lows about 10 points under that, were seen "right where they had been," a trader said, at 63 bid, 65 offered "on not much volume."

Meantime, troubled Anderson, Ind.-based auto electrical systems manufacturer Remy - whose Delco Remy bonds had shot up sharply over about three or four sessions on the news that its bondholders backed a restructuring plan that would give them complete ownership of the restructured company - were seen by one trader as quiet, with no activity, while another saw the bonds trade around the same levels they'd already held - its 8 5/8% notes coming due later this year at 110 bid, 111 offered, while its 11% notes due 2009 and 9 3/8% notes due 2012 both at 98.5 bid, 99.5 offered.

Tembec active, but little changed

A trader said that Tembec Inc.'s bonds "had some activity, but they were pretty much unchanged," with the Montreal-based forest products company's 7¾% notes due 2012 at 54 bid, 55 offered, "up a little, with decent volume," while its 8½% notes due 2011 were unchanged at 56 bid, 57 offered.

"There was some volume early" in that one, the trader said, "but then it quieted down. The bonds bounced around on decent volume, but ended unchanged."

He meantime saw "no trades" going on in its 8 5/8% notes due 2009, which closed at 65.5 bid, 66.5 offered.

A source at another desk pegged the 81/2s down ½ point at 56.

Another trader saw Tembec competitor Ainsworth Lumber Co. Ltd.'s 7¼% notes due 2012, which "got hit earlier in the week, now reversing its direction" moving up a point to 79.5 bid, 80.5 offered. He attributed the gain to higher pricing levels for the Vancouver, B.C.-based forest products company's key product, oriented-strand board lumber.

Movie Gallery off, Blockbuster change eyed

Elsewhere, a trader saw Movie Gallery's 11% notes due 2012 at 81 bid, 82 offered, and said "there's nothing there."

However, another trader called the Dothan, Ala.-based Number-Two U.S. video rental chain operator's bonds down a point at 80 bid, 81 offered, and suggested it might have been due to investor angst about news coming from Movie Gallery's bigger rival, Blockbuster.

The Dallas-based Number-One operator announced that its chief financial officer Larry J. Zine will leave the company no later than Dec. 31, and although it raised the possibility that he could leave earlier, it laid out provisions for a lump-sum payment to encourage him to stay until then.

Zine becomes the second high-ranking Blockbuster executive to make exit plans; previously, chairman and chief executive officer John Antioco announced plans to step down at year's end.

Blockbuster's 9% notes due 2012 lost ½ point to 96.5 bid, 97.5 offered.

In other distressed trading, a trader saw Primus Telecommunications Group Inc.'s 8% notes due 2014 down 2 points at 71 bid, 72 offered, but saw no fresh negative news out about the McLean, Va.-based telecommunications company that might explain that retreat.

A trader saw Linens 'n Things Inc.'s floating-rate notes due 2014 languishing around 78.5 bid, 79.5 offered, about the level to which the bonds had slid on Thursday, after traders said Merrill Lynch & Co. panned the Clifton, N.J.-based bedding, home furnishings and kitchen gadgets retailer in a research note.

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