Salton sidelined by Harbinger bid for Applica; Iridium trial going into January; airlines drift lower

By Ronda Fears

Memphis, Dec. 15 - In another gruesomely slow day in distressed debt dealings Friday, traders had little to offer in the way any printed trades. It will likely get slower, too, traders surmised, with the holidays and end-of-year paperwork facing everyone.

Bankrupt carriers Delta Air Lines Inc. and Northwest Airlines Inc., of course, provided virtually all the volume seen Friday, with both heading southward on profit taking. But even those high-profile distressed names saw a lot of odd-lot trading Friday, according to traders.

Delta's bonds were generally described as off about a half point to a point while Northwest's paper was seen declining by as much as 2 points after having seen a more dramatic rise over the past month. Bonds in both those names, however, have more than doubled since mid-November when US Airways Group Inc. aired an $8 billion-plus bid for Delta - $4 billion in cash and the remainder in US Airways stock, which also has gained ground since then.

Traders said the Delta bonds went out for the weekend in the 66.5 bid, 67.5 offered area and the Northwest bonds settled at a 92.5 bid, 93 offered context to as low as 90.5 bid, 91.5 offered.

Salton extends Harbinger pact

Well after the close, small appliance maker Salton Inc. said it has extended its exclusivity agreement with Harbinger Capital Partners LP until Jan. 2 as part of ongoing discussions over a possible sale of the company. It really didn't matter insofar as trading the bonds, traders said, as the bonds have not seen much traffic since shortly after the Harbinger talks began in October.

Salton's 12¼% senior subordinated notes due 2008 were described as holding steady Friday at 83.5 bid, 84.5 offered, but one trader said there were bids at 86 and 89 but no sellers.

That said, the trader said Lake Forest, Ill.-based Salton should benefit from Harbinger upping its bid for peer small appliance maker Applica, Inc. to match to a surprise rival offer from Nacco Industries Inc. Harbinger, a major stockholder in both companies, ultimately wants to merger Salton with Applica.

There is some speculation that a bidding war for Applica could ensue but for now, Miramar, Fla.-based Applica has accepted Harbinger's offer to match Nacco's bid of $6.50 per share, bumped up from a previous offer of $6 per share. In a Securities and Exchange Commission filing Friday, Harbinger declared a 32.6% stake in Applica, up from around 10% when it began talking of a buyout in October. Applica shares rose 13% to $6.51 Friday.

Harbinger was to complete due diligence on Salton by Friday, but that now has been extended to Jan. 2. Salton shares were unchanged Friday at $2.48.

Salton makes and markets the popular George Foreman line of electric hot dog and hamburger grills, among other appliances. Applica makes and markets small appliances under the Black & Decker brand, such as the Gizmo, and others like Spacemaker. Black & Decker Corp. shares took a hit to the tune of 10% on Friday after it warned of weak sales due to the slowdown in the housing market and soft demand for discretionary goods, which would cut into its profits.

In October, Salton hired Houlihan Lokey Howard & Zukin Capital Inc. to conduct a strategic review of its business, with the possible sale among the potential options following Harbinger's suggestion of a merger with Applica.

Iridium players confident

As for bankrupt Iridium LLC and the trial in the creditors' suit against former backer and majority owner of the satellite telecom venture, Motorola Inc., a market source informed Friday that the resumption of the trial has just been postponed until Jan. 8 from Monday due to an illness on the Motorola team.

He also remarked that comments to the effect that Iridium bonds are either worth zero or 60 to 80 were too simplistic, explaining:

"Although zero is always a possibility in litigation, current market prices indicate approximately $600 to $800 million of recovery. Market participants are comfortable that the downside should be fairly limited from these levels. In addition to the evidence so far in this trial, the federal judge in the Chase bank guarantee litigation has already found that Motorola knew that Iridium's projections were false.

"To the upside, there is also substantial evidence that Motorola's business plan for Iridium was flawed from the very beginning and that Motorola knew it was flawed from a very early point. This evidence includes internal e-mails questioning 'Why build something no one (few people) will buy?' [and] 'How long can we continue this lie?', and referencing the need 'to continue the lie until the investment is secure.'

"If the creditors win all $3.5 billion at issue plus pre-judgment interest, potential recovery is 200-plus, not the 60 to 80 suggested."

The bonds are trading in the 30 context.

Iridium bondholders allege Motorola committed breach of contract and other financial misdeeds connected with the 1999 collapse of the once high-promising satellite phone company. Motorola has denied any wrongdoing, pointing to its own substantial losses from the Iridium collapse, which totaled several billion dollars.

Solo gains on Vestar presence

The interest level in Solo Cup Co., if not volume or price change, increased Friday, traders said, on additions to the company's board of directors from the ranks of Vestar Capital Partners, a private equity firm that owns a minority interest in the company.

One trader saw Solo Cup's 8½% notes due 2014 up a half-point to 86 bid, 87 offered, again with little volume.

Market sources said the news of four executives from Vestar being added to Solo's board was a positive step. The Highland Park, Ill.-based maker of disposable cups and plates made presentations last week to investors and lenders about progress in its turnaround effort that has been in the works for months.

On Friday, the company said it would increase its board to 11 members, adding Peter W. Calamari, Jack M. Feder, Jeffrey W. Long and Kevin A. Mundt - all of Vestar. In addition, Mundt was named chairman, replacing long-time chairman Robert L. Hulseman, who will remain on the board.

Earlier this week, the company announced layoffs of 5% of its workforce. In another point of its turnaround effort, last week Solo chief executive Robert Korzenski said the company would increase its second-lien loan by $50 million and use that money to reduce borrowings under its revolver.

The company also is still seeking an amendment of its existing credit facilities to allow additional debt and modify financial covenants regarding financial performance ratios, which must be done by Jan. 2.

Furthermore, Solo said it has retained investment banking firms and a property management firm to market non-strategic assets. On the operations end of the equation, Solo said that it has hired AlixPartners to help design and implement an integrated performance improvement program.

Solutia firms on Dutch buy

Solutia Inc. bonds were a little firmer, with the 11¼% notes due 2009 edging to the 101.5 area from prior levels of par and 101, although the day's trading was very light, and the bond had not been seen in more than a week.

Helping the Solutia bonds was news Friday that the bankrupt St. Louis-based chemical company has inked a deal to buy out Dutch chemical firm Akzo Nobel NV's stake in Flexsys - the 50/50 rubber chemicals joint venture between the two - as well as Akzo Nobel's Crystex business in Japan.

Brussels, Belgium-based Flexsys, which supplies chemicals that cure and protect rubber, posted 2005 sales of about $600 million. Akzo Nobel and Solutia formed the joint venture in 1995.

Financial terms of the deal were not disclosed but Solutia also said it expects to fund the purchase through a combination of sources, including a portion of a new extended debtor-in-possession financing package. Separately, Solutia said Friday that it has received full commitments for $1.075 billion of DIP financing, maturing March 31, 2008.

The DIP amendment, which is a $250 million increase and one-year extension over its current financing, also enables Solutia to fund mandatory pension payments that come due next year, according to the company. The company said up to $150 million of additional funds could be raised under this DIP financing through an accordion feature, bringing the total to $1.225 billion.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.