Delta holds in 60 area; Asarco worth holding; Winn-Dixie off; Adelphia weaker; Hines lower

By Ronda Fears

Memphis, Nov. 21 - It was no surprise, but distressed traders bemoaned another quiet session Tuesday and predicted an even slower time of it because of the early close Wednesday ahead of the Thanksgiving holiday shutdown and an early close on Friday.

"Our only chance to get anything done was Monday and Tuesday and here we are today with not much business," said one distressed trader.

The bond markets are scheduled to close at 2 p.m. ET Wednesday and Friday and are closed altogether Thursday for the Thanksgiving holiday.

Delta Air Lines Inc. did not even get much business off the ground Tuesday, nor did Northwest Airlines Corp., according to traders. They did probably see the most action in the distressed universe, even at lighter levels than last week, but that paper also did not see much price change.

Delta, US Airways tangle

Traders said Delta's 8.30% bonds saw little turnover in the quiet session, lolling lower but ending the day just about where they opened - 59/60. A battle with US Airways Group, Inc. over its proposed $8 billion merger is a sure bet, one trader remarked, "but no one really wanted to make a big move because we have such a big break in the markets due to the holiday."

Signaling it isn't giving up on the deal despite Atlanta-based Delta's resistance, US Airways on Tuesday was campaigning for support of its bid to buy bankrupt Delta in a newsletter to employees that was splashed across the wires. "Our proposal is just better. For everyone," the Tempe, Ariz.-based company said in a bluntly worded newsletter it sent employees entitled, "For The Record."

The newsletter added, "We don't believe that Delta's claim that their standalone plan will somehow provide more value holds water."

Northwest Airlines' paper also was steady Tuesday in the 83/84 area.

Tembec bonds add a point

Canadian-based Tembec Industries Inc.'s bonds got a bounce Tuesday on news it will reopen a suspended sawmill on a temporary basis, with the 8 5/8% notes due 2009 up about a point to 67/68. Also the Montreal lumber concern is slated to release third-quarter results Wednesday.

The Tembec 8½% notes were seen unchanged at 60 and the 7¾% notes steady at 58.

As for third quarter, analysts on average are looking for a net loss of 50 cents a share, versus a profit of 49 cents a share, in third-quarter 2005 with revenues of $798 million.

Tembec said Tuesday it will restart the Timmins sawmill, which was suspended in July due to unfavorable market conditions, on a temporary basis for about eight weeks. The restart is scheduled for Dec. 4 and will allow the existing raw log inventory currently at the site to be converted into lumber and once done, the sawmill will then be shut down for an indefinite period.

"The lumber markets are presently extremely challenging and no improvement is expected for some time. While the sawmill will be reopened to convert the existing log inventory, it will be idled for an indefinite period thereafter, pending market recovery," explained Dennis Rounsville, president of Tembec's Forest Products Group, in a news release.

"Given that the combined shutdown period could total a number of months, we are proceeding in accordance with applicable regulations and the provisions of the collective bargaining agreement to provide notices of termination to the employees. It must be emphasized, however, that we do expect the mill to restart and employees can act in a manner that protects their seniority and their recall rights."

Tembec management met employees and union officials on Monday to discuss the situation and to inform them of the company's decision.

Asarco worth its metal

In light of Freeport-McMoRan Copper & Gold's proposed $25.9 billion mega merger with Phelps Dodge Corp. announced Monday, a bond analyst Tuesday said that the bonds of bankrupt Asarco LLC, while considerably north of par, are worth holding.

The 8½% notes due 2025 and 7 7/8% due 2013 were both indicated in the 115.5/117.5 context.

Tucson, Ariz.-based Asarco, one of the largest copper producers in the world, was acquired by Grupo Mexico in 1999 and filed for bankruptcy in August 2005 in Texas. Grupo Mexico SA de CV has been named by several Wall Street pundits as a potential takeover target in the wake of the Phelps Dodge deal.

Jeffrey Laverty, analyst at JGiordano Securities Group in Stamford, Conn., said in a report Tuesday that the Asarco bonds are worth holding on the chance of an equity distribution, into Grupo Mexico, as well as the possibility of a takeover of the parent.

"Our valuation work on Asarco values the reserve base at about 20 cents per pound, roughly half that of Phelps Dodge. Although this seems conservative, recall that Asarco incurs cash costs north of $1/pound, while PD's cash costs only run about $0.70/pound," Laverty said in the report.

"Based on a mid-range view of copper prices of $1.50/pound and annual production of 450 million pounds, Asarco can generate EBITDA of $292 million. Using a mid-cycle EBITDA multiple of 6 times implies a reserve value of about $1.8 billion, or 20 cents per pound of reserves. If we add to that $1 billion for cash and other balance sheet items, total firm value for Asarco could reach $2.8 billion by mid-2007, which leaves ample coverage for the bonds, even after the environmental and asbestos liabilities.

"As such, the key question remains: will bondholders get equity? We think so, making it worthwhile to own bonds until it's all sorted out."

Copper prices are approaching $3 a pound. And the analyst said the Phelps Dodge bid by Freeport suggests a valuation for its reserves of $0.40/pound.

Grupo Mexico said Asarco's bankruptcy was prompted in part by mounting environmental and asbestos liabilities and a prolonged union strike. Asbestos claims are estimated at $460 million while environmental claims are estimated at $950 million.

Adelphia weakens a tad

Adelphia Communications Corp.'s bonds eased about a half point Tuesday with the bankrupt Greenwood Village, Colo.-based cable company's 10¼% notes due 2011 at 83/84. Trouble with the company's exit from bankruptcy continues to pressure the paper, one trader said, but "not a lot of it is trading."

Bank of America Corp. has objected to Adelphia's reorganization plan as it doesn't provide for interest payments; the bank heads a syndicate of lenders in a $2.48 billion financing deal with Adelphia unit Century Cable.

Adelphia creditors have until Monday to vote on its exit plan. A hearing on whether the proposal will be confirmed is scheduled for Dec. 7 in the U.S. Bankruptcy Court in Manhattan. The cable operator filed for bankruptcy in 2002 following an accounting scandal that ultimately resulted in the securities fraud convictions of founder John Rigas and his son Timothy in 2004.

The company said the latest plan, filed in August, embodies a compromise among top creditor groups under which some $1.08 billion in value will be transferred from some unsecured creditors of various subsidiaries to unsecured senior and trade creditors of the parent corporation, subject, in some cases, to reimbursement from contingent sources of value, including the proceeds of a litigation trust.

On July 31, Adelphia closed on the sale of its cable properties to Comcast Corp. and Time Warner Inc. in a $17.5 billion deal - $12.5 billion in cash and the remainder in Time Warner Cable stock. The company plans would divide those proceeds among the various stakeholder groups and envisions the bankruptcy process concluding before the end of the year.

Winn-Dixie emerges bankruptcy

Winn-Dixie Stores Inc. coasted out of bankruptcy Tuesday, and the bonds were seen sliding to the 69.5/71 area from 71/72 the day before, but there were no trades in the issue, which will go away as a result of the bankruptcy.

The Florida-based grocery chain said Tuesday it has emerged from bankruptcy, and the when-issued stock moved lower, which one broker attributed to some skepticism about the grocer's survivability in light of news from Wal-Mart Stores Inc. also Tuesday that it is lowering prices on hundreds of fresh and dry grocery items as much as 20%.

"Winn-Dixie is not just emerging bankruptcy in the same environment that culminated in its bankruptcy, times are getting tougher now," the broker said.

The Jacksonville, Fla.-based grocery chain, which filed for bankruptcy in February 2005 in part blaming tough competition from the likes of Wal-Mart, said it expects to emerge with only a minimal amount of long-term debt on its balance sheet. In connection with its emergence from Chapter 11, Winn-Dixie closed on a new $725 million exit financing facility and expects to issue roughly 54.5 million shares per the reorganization plan distribution.

Winn-Dixie plans to issue new shares within the next 45 days to pay bankruptcy claims. The stock will trade on the Nasdaq under the symbol "WINN."

Meanwhile, the when-issued shares, which had been trading on Pink Sheets, are trading on the Nasdaq under the ticker "WINNV." Those moved off from $11.10 where they were quoted Monday to $11 on Tuesday before bouncing up to $11.15 at the close. But the stock was seen lower at $11.12 in after-hours activity.

Hines covenant trouble seen

Hines Horticulture Inc. bonds were seen down by 5 points to 83/83.5, according to a distressed bond trader. And, by a sellside analyst's view, that price is more down to the earth than the previous lofty level of 89 as he sees the company facing trouble meeting recently eased bank covenants during fourth quarter.

The 10¼% notes due 2011 is a $175 million issue.

"The bonds are dramatically overvalued [at 89]. We see them worth more like the low to mid-80s," said JGiordano's Laverty.

"The company is probably coming into bank covenant violations in fourth quarter. The banks have them on a tight leash."

In August, Hines amended its credit facility, waiving compliance with certain covenants, reducing the revolver size to $100 million from $120 million and increasing interest rates by 25 basis points. Covenant waivers included the minimum fixed-charge coverage ratio for the periods ended June 30 and Sept. 30, which the company said were busted in the June period primarily due to declining sales.

In addition, the amendment establishes new fixed-charge covenant ratios beginning in the fourth quarter. Lastly, the company is required to generate a pre-determined minimum amount of aggregate proceeds from the sale of certain assets by Dec. 31.

Hines, based in Irvine, Calif., is a nursery operator that supplies live plants to retailers such as Lowe's and Home Depot, and wholesalers.

Delphi higher

In the auto sector, a trader saw Delphi Corp.'s 6½% notes due 2013 pushing up to 103.5 bid, although with no offers, from prior levels at 102.375 bid, 103.375 offered, "so they were definitely better," although the company's other paper, like its 6.55% notes that were to have come due this year, holding steady at prior levels around 105.5 bid, 106.5 offered.

The United Auto Workers announced Tuesday afternoon that it had reached agreement with Delphi on converting temporary workers which the parts company has recently hired to permanent status.

Delphi - which is currently restructuring under Chapter 11 - has hired temporary workers to replace thousands of UAW-represented workers who accepted buyouts as part of a three-way deal negotiated between Delphi, its former corporate parent, General Motors Corp., and the UAW, aimed at cutting the company's cost structure. Delphi, spun off from GM in 1999, claims that the cost structure it inherited from GM when it became independent was a major factor in the company's eventual bankruptcy filing.

But while Delphi and the union are on the same page with regards to the temporary workers, broader talks with the union and with GM, aimed at lowering the company's wage-and-benefits structure, are still far from reaching a solution. UAW president Ron Gettelfinger said in a live lunch-hour internet chat Tuesday with union members and reporters that little has been done on that front recently, claiming "[o]ur union has been available to meet with the corporation at any time, day or night, but honestly, at this time there has been very little discussion." He said that sooner or later, Delphi would have to deal with the union, or else face the prospects of a strike should it attempt to unilaterally impose a lower wage-and-benefits structure

Delphi has asked the U.S. Bankruptcy Court in Manhattan, which is overseeing its case, for permission to void the current labor agreement.

But there have been a number of postponements of hearings at which Delphi could have argued for the right to act unilaterally, which were instead pushed off to give the company more time to talk with the UAW and GM.

The next meeting with Judge Robert Drain is slated for Nov. 30. The bankruptcy court jurist has set a Jan. 7 deadline - subject to possible further extension - for a ruling on the labor contract request.

Calpine climb continues

Traders saw continued appreciation in Calpine Corp.'s bonds, although they saw no fresh news out on the bankrupt San Jose Calif.-based power plant operator, whose bonds have been steadily rising over the past several weeks.

A trader saw its 8½% notes due 2008 "a little higher" at 80 bid, 82 offered, while its 7¾% notes due 2015 were also up, at 42 bid, 44 offered.

Another trader saw those 81/2s advance to 82.5 bid, from prior levels around 81, and saw the company's 8½% notes due 2011 as 2 point winners at 66.5 bid, 67.5 offered.

Calpine did announce Tuesday that it has completed the sale of 10 turbines and generators and other miscellaneous equipment for $112 million, in a series of transactions as part of its ongoing program to sell excess turbines and related inventory.

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