Lear notes gain ground on Chapter 11 reports; Spectrum stays positive; Smithfield bonds better

By Stephanie N. Rotondo

Portland, Ore., June 25 - The distressed debt market ended largely positive Thursday and at least one market player said the day was "pretty active, generally speaking," given the recent lackluster trading days.

Still, "nothing was dominating," he added. "Just random stuff was trading."

Of the "random stuff," Lear Corp.'s debt was heading higher, though in thin trading. News reports indicated that the company was preparing to file for bankruptcy protections as early as next week.

Meanwhile, Spectrum Brands Inc. continued to be topical, though activity was lighter than on Wednesday. The bonds continued to improve as the company's reorganization plan was confirmed.

A new refinancing plan helped Smithfield Foods Inc.'s bonds gain ground, as well. The pork processor said it was offering a new bond issue and was also planning a new credit facility.

Lear gains ground

Automotive parts supplier Lear saw its bonds improve after the Wall Street Journal reported that the company was preparing a bankruptcy filing as early as next week.

A trader called the notes better by about half a point, quoting the company's various issues generically at 23.5 bid, 24.5 offered. Another trader saw both the 8½% notes due 2013 and the 8¾% notes due 2016 trading at 23.5.

Yet another trader deemed the 5¾% notes due 2014 up a deuce at 24 bid.

According to the Journal article, "people familiar with the matter" said Lear has been looking for debtor-in-possession financing and J.P. Morgan Chase & Co. and Citigroup Inc. are reportedly lined up to provide said financing.

The Journal also said that an agreement with stakeholders has not been reached.

On June 1, Lear skipped a $38 million interest payment on its senior debentures. Its 30-day grace period expires Tuesday.

Lear is based in Southfield, Mich.

Elsewhere in the autosphere, Visteon Corp.'s 7% notes due 2014 inched up a point to 4 bid.

A trader saw Ford Motor Co.'s 7.45% bonds due 2031 up half a point at 55.5 bid, 57.5 offered, while General Motors Corp.'s 8 3/8% bonds due 2033 lost a quarter-point at 12.25 bid, 13.25 offered.

Another trader saw Ford's short-term bonds "bid well in trade," but said that there was "not much volume in the longer ones," such as the 7.45% notes, which he saw "pretty much unchanged" at 55 bid, 56 offered. He saw most of GM's issues "the same as [Wednesday]," pegging them in an 11 to 12 range, but with the 8 3/8% notes "always higher," going out at 12.5 bid, 13 offered.

Spectrum remains positive

Spectrum Brands, which had seen active trading in the previous session, was still relatively busy Thursday, though less so than Wednesday. Traders reported that the debt continued to gain momentum, however, as the bankruptcy court overseeing its case approved the reorganization plan.

A market source said the 12½% notes due 2013 - which had slipped slightly on Wednesday - jumped 10 points to 71 bid, 73 offered. He called the 7 3/8% notes due 2015 - Wednesday's most active issue - unchanged at 70 bid, 71 offered.

Another source saw the 7 3/8% notes gaining another half a point to a point, also at 70 to 71. He quoted the 12½% notes at 72 bid, 73 offered. "That's up 10 points from a couple days ago," he added.

Under the terms of the plan, Spectrum's $1.05 billion in notes will be exchanged for new common stock, as well as new senior subordinated notes in the reorganized company. Equity holders walk away with nothing, but other creditors will have their claims reinstated.

Also, the company will have reduced its debt load by $840 million, eliminating about $60 million in annual interest expense for at least two years.

The company hopes to emerge from Chapter 11 in August.

"We are pleased that our plan of reorganization has been approved by the court, a key milestone in our financial restructuring process, and one that sets the stage for our exit from bankruptcy in August," stated Kent Hussey, chief executive officer, in a statement. "We will emerge with a stronger balance sheet that will better position us to maintain and strengthen our current platform and to pursue opportunities to grow our company."

On Wednesday, Spectrum announced that it had inked a deal with its bank lenders. The deal resulted in the lenders withdrawing their objections to the reorganization plan.

Smithfield better on refinancing news

Smithfield Foods' 7% notes due 2011 were called "one of the most active bonds" during Thursday trading, as the company announced a new refinancing plan.

The trader saw the 7% notes moving up to 94 bid, 95 offered, compared with 91 bid, 92 offered previously.

But another source said the 7¾% notes due 2017 dipped about 5 points to 69.5 bid, 71.5 offered. However, as for the difference in the notes, the first trader speculated that Smithfield would use its refinancing funds to "take out" the 7% notes.

Smithfield said it will sell $500 million in senior secured six-year notes to repay existing debt. The company was also looking to arrange a $1 billion asset-backed credit facility to replace an existing facility.

But late in the day, word came that Smithfield had upsized the deal to a $625 million 10% five-year note. The issue came to market at 96.201, yielding 11%.

Standard & Poor's has rated the new notes at BB- with a 1 recovery rating.

"The ratings on Smithfield Foods Inc. reflect the continued weak operating performance in the company's hog production segment, volatility of feed costs, cyclicality of the swine industry and very high debt leverage," said Patrick Jeffrey, S&P analyst, in a statement.

Paul Deckelman contributed to this article.

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