Delta bids ease a point; Tower Auto edges up; Level 3 bid down; Calpine issues bid up 2-3 points

By Ronda Fears

Memphis, Dec. 22 - Brutal, gruesome, painfully slow. Those were some of the remarks from distressed bond traders in Friday's holiday-shortened session. Still, despite the thin market, traders said they still think there is an overall positive tone among players; it's just that nearly everyone but bare-bones crews were working.

"You are seeing bids. There's just not anything on the other side of the trade," commented one trader. "Overall, though, I think the market is still feeling firm."

Thus, the upshot was that very few trades were printed Friday.

For what visibility it provided, however, traders said they were getting checked on basically "the usual suspects" - Delta Air Lines Inc., Delphi Corp., Remy International Inc., Calpine Corp. and the like - the high-profile names that generate most of the traffic in the market.

In another auto-related name, there was a trade in the bonds of R. J. Tower Corp., parent to bankrupt Tower Automotive Inc., moving those 12% notes to 17.

In an off-the-run name, one trader said he got a call on Hawk Corp., noting that those 8¾% notes due 2014 moved up to par last week. The Cleveland-based industrial supplier of brakes, clutches and gearboxes for vehicles announced Friday that it agreed to sell its precision components group to an entity formed by Saw Mill Capital Partners LP for $90.1 million. Separately, Hawk said the Securities and Exchange Commission has made an informal inquiry into certain stock transactions on June 30.

With no news, Calpine issues were described as better bid by 2 to 3 points with the 10½% notes due 2006 and the 7 7/8% notes due 2008 both at 96 bid, 96.5 offered.

Elsewhere, Level 3 Communications Inc. paper has been moving higher in recent weeks on refinancing hopes, but the bids were easier by as much as 1 to 2 points Friday, traders said, which was generally chalked up to profit taking.

Delta bondholders urge an ear

Delta bonds traded down about a point to the 63 bid, 65 offered context after the unofficial bondholders group, which holds $2.25 billion in unsecured claims in the bankruptcy case, urged the Atlanta-based carrier Friday to consider alternatives to its standalone reorganization plan, such as the US Airways Group Inc. bid that is on the table.

Those are separate from the official unsecured creditors in the bankruptcy case, which have come out in support of its standalone reorganization plan. Delta's union employees also are said to be in support of the company's plan.

"This is far from over," said one distressed bond trader.

"US Airways isn't backing down. Delta isn't backing down. So, it seems like a stalemate."

The impasse likely will be settled in the courts, he said.

The unofficial committee of unsecured claimholders said in a statement that while they appreciate Delta's progress to date in its restructuring efforts, the committee "expects Delta to consider methodically, proactively and fairly strategic alternatives to its proposed stand-alone Chapter 11 plan to ensure that creditor recoveries are maximized in the Chapter 11 process."

US Airways chief executive Doug Parker in a conference call Thursday referred to Delta's projection that it will be worth as much as $12 billion when it emerges from bankruptcy as "unrealistic." In its standalone plan, Delta said The Blackstone Group put a post-bankruptcy value on it of $9.4 billion to $12 billion.

Tempe, Ariz.-based US Airways says the amount it is offering - $4 billion in cash plus 78.5 million US Airways shares for a total value of roughly $8.4 billion based on Thursday's prices - is Delta's true worth.

Delta spokesman Michael Freitag said Delta will consider what the committee has to say even though they are not an officially sanctioned voice in the Chapter 11 process. He pointed out that the unofficial creditors committee represents only 15% of the total claims in Delta's bankruptcy, almost equal to that of Delta's pilot union.

Doral floaters higher for week

While there have been recent arguments made for buying Doral Financial Corp.'s floating-rate notes, not all are optimistic that the issue will be taken out. Most of the risk, onlookers say on both sides of the argument, is the lack of visibility.

There has been scuttlebutt recently to the effect that the Bermuda-based bank is in talks with bondholders to effect a debt-for-equity swap, but the worth of the stock is a point of contention. Plus, holders want a good chunk of cash, at least 50%, so that would depend on successful asset sales, observers say.

Meanwhile, the Doral floaters have moved up this week by a couple of points, by one trader's account, to the area of 90.5 bid, 90.75 offered. The floaters pay Libor plus 83 basis points.

Another trader still sees the Doral 4.75% preferred issue as the gem in its capital structure, and those traded this week at 95.5.

Panning an argument that Doral's assets provide reasonable downside support for holding the floaters in the event the company cannot accomplish a refinancing, the latter trader said, "He is assuming they can sell for two times book value. No way! He's making no adjustment for shareholder lawsuits and they are substantial."

Analysts seem to agree on one point of Doral's refinancing options, that current spreads on its credit would prohibit refinancing with a new bond offering. Thus, there likewise seems to be an agreement that any refinancing will encompass some equity component.

"I do think that by buying the floating-rate notes of 2007 you will get a convertible bond at a discount to pro forma book value. You can have an adjustment for hits to book (i.e., shareholder suit results) and would be a big money maker and it's a great hedge for an equity short.

"But I think the common is going lower, to around $1.75, and I think the 4.75% preferreds get a big pop once the refi is done as a better credit. All the other preferreds are non-cumulative so are less exciting, plus callable.

"That's my spiel."

The former trader, who provided the price on the floaters, said the big risk in the Doral story is that the bondholders' pressure to refinance coupled with such few alternatives if the company cannot get a good price for its bank assets, then it could be forced to file bankruptcy.

"Bankruptcy, I think, is a very real option in the back of their [Doral's] minds," the trader said.

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