Dura bank debt continues to ease, but bonds settle in with no further erosion

By Paul Deckelman and Sara Rosenberg

New York, Oct. 17 - Dura Automotive Systems, Inc.'s second-lien term loan was softer again on Tuesday, continuing to react to the news that the troubled Rochester Hills, Mich.-based automotive parts maker didn't make a scheduled interest payment on its senior bonds.

Those bonds, however, having been beaten down into the 20s over the past several months as the company's finances deteriorated and now trading flat, or without accrued interest, were seen having steadied around the levels they reached on Monday.

Automotive parts supplier Remy International Inc.'s bonds were meantime seen down as much as 8 points on the session in the lower 30s.

Dura debt drop continues

Dura's bank debt was seen having retreated in Tuesday's dealings to 77 bid, 79 offered from 78.5 bid, 79.5 offered, according to a trader.

The bank debt has been under pressure since the company announced on Monday that its subsidiary, Dura Operating Corp., would not be making a $17.25 million interest payment on its 8 5/8% senior notes.

The notes provide for a 30-day grace period before the nonpayment becomes an event of default under the 8 5/8% notes' indenture.

However, if the payment is not made during the grace period, then the company will be in default under its second-lien term loan, 9% senior subordinated notes and, of course, its 8 5/8% notes.

The nonpayment does constitute an immediate event of default under the company's asset-based revolving credit facility.

Dura bonds settle, Remy routed

Dura's bonds, meanwhile, were seen pretty steady at the levels to which they moved on Monday after news of the non-payment of the $17.25 million coupon on the $400 million of 8 5/8% notes.

A trader saw Dura's 8 5/8s at 29 bid, 30 offered and its 9% subordinated notes at 5.5 bid, 6.5 offered, with both issues now trading flat, or without accrued interest.

"There was not too much change there," he said.

Overall, he said, "not much was doing in autos" - with one exception. Delco Remy was "down huge," with the Anderson, Ind.-based automotive electronics maker's 11% notes due 2009 down a whopping 8 points on the day, to 31 bid, 33 offered. He said that the Remy fell in response to the recent Dura debacle.

Lear leaps on Icahn investment

Lear Corp.'s 5¾% notes due 2014 were seen by a source to have firmed a point to 82.75 bid, while at another desk those bonds were seen up 1¼ points at 82.5 bid.

A trader, who also saw those 53/4s move, additionally saw the company's 8.11% notes due 2009 move up to 99 bid, 99.5 offered from prior levels at 97.875 bid, 98.25 offered - a sign, he said, that "the market liked the news" that billionaire financier Carl Icahn was placing a big bet that Lear will survive the current shakeout in the automotive parts industry, which has seen Lear rival Collins & Aikman Corp. slide into bankruptcy, along with other parts-supplier names like Delphi, Dana and Tower.

Certainly equity investors approved, taking Lear's New York Stock Exchange-traded shares up $3.75 (15.25%) to $28.34.

Under terms of an agreement between Icahn and Lear, the company will issue $200 million worth of stock in a private placement to funds managed by Icahn, who in turn will get to put a representative on Lear's board.

Observers noted that Icahn is known as an activist shareholder, with a reputation for pressing management of underperforming companies in which he invests to make big changes. They also were suggesting Tuesday that Lear turning to the iconoclastic tycoon for an investment could be a sign that the company is having difficulty securing funding from other sources - but Lear says it's no such thing, asserting that Icahn was already a Lear investor, and he approached the company about upping his stake, rather than the other way around.

Lear indicated it planned to use the Icahn capital to help grow its business with Asian automakers, as it attempts to diversify past its core customer base, Detroit's now-struggling Big Three domestic carmakers.

Movie Gallery mauled on hedge fund suspicions

Outside of the automotive arena, Movie Gallery Inc.'s 11% notes due 2012 were seen having fallen 4 points on the session to 58.5 bid, on negative publicity surrounding the problem-plagued Dothan, Ala.-based video rental chain.

Monday's editions of The New York Times reported that the Securities and Exchange Commission is looking into whether any of the hedge funds on a private call with Movie Gallery executives in early March to update its big debtholders as to the company's declining financial situation took their inside knowledge of the company's struggles and traded on it.

The paper reported that, in fact, most of the roughly 200 lenders on that call were not traditional banks but hedge funds, who heard company executives tell them that they needed more time to fix Movie Gallery's problems, including more than $1 billion of debt.

Over the next two days, the Times said, Movie Gallery's shares were heavily traded, and its stock plummeted 25%, while its bonds and bank debt slid as well.

The feds are reportedly looking into whether the hedge funds used the inside information they gleaned from the lender call - information which would not be announced to the public for nearly two additional weeks - to short the stock, the bonds and the debt.

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