Automotive bank debt, bonds continue fall; Solo bounces on call

By Paul Deckelman and Sara Rosenberg

New York, Sept. 20 - Bank debt and junk bonds of automotive names in general continued to weaken during Wednesday's market hours, traders in those markets said, with investors seemingly overwhelmed by the amount of troublesome news that has surrounded companies that operate in the sector over the past few weeks. Two names in particular that took beatings during the session were Dura Automotive Systems Inc., and Tower Automotive Inc., with Dana Corp. also seen on the downside, traders said.

Apart from the automotive names, Solo Cup Co.'s bonds initially fell on the news, announced after the close on Tuesday, that the Highland Park, Ill.-based packaging maker's previously announced review of apparent accounting problems had indeed found irregularities.

That will force Solo to restate results for a number of years - the 2005, 2004 and 2003 fiscal years, along with certain quarterly financial information for the interim periods of those years, and for the first fiscal quarter of 2006. In addition, some consolidated financial data for 2002 and 2001 are expected to be restated as well.

Solo said the errors and the consequent restatements constitute a default or event of default under its primary secured credit facilities and so it has begun discussions with the administrative agents for the credit facility about obtaining waivers and/or amendments.

Solo's bonds, a trader said, were initially off 3 points. However, they "bounced back after the company's conference call" to end essentially unchanged at 86.25 bid, 87.25 offered.

Dura down

Back among the autos, Dura, a Rochester Hills, Mich.-based parts maker, saw its second-lien term loan close out the day quoted at 95 bid, 96 offered, down over a point from Tuesday's levels of 96.5 bid, 97.25 offered, the trader said.

Tower Automotive, a Novi, Mich.-based vehicular frames maker, saw its bank debt close out the day at 85 bid, 90 offered, down from Tuesday's closing levels of 90 bid, 92 offered, the trader said.

And, Dana, a Toledo, Ohio-based parts maker, saw its debtor-in-possession bank debt drop to 99.75 bid, 100.25 offered versus previous levels of par bid, 100.5 offered, a second trader added.

In the junk bond market, traders saw Dura's bonds again cruising lower after the troubled company's downgrade by Moody's Investors' Service.

A trader saw Dura's 8 5/8% notes due 2012 knocked down a point on the day to 55 bid, 56 offered, while another trader, who saw those same bonds start higher on the session, saw them fall 1½ points but to a level at 56 bid, 56.5 offered.

Dura's subordinated 9% notes due 2009 dipped a point to 8 bid, 9 offered, a trader said.

The company's bonds and its second-lien loan have been under a lot of scrutiny since speculation of a potential bankruptcy filing recently surfaced. Along with the speculation came rumors that the company was having a hard time lining up debtor-in-possession financing on favorable terms.

Then, late Tuesday, Dura was informed that that it was in danger of being delisted from the Nasdaq Global Market since its stock has been below $1 per share for at least 30 consecutive days. The company has six months to fix the situation.

During Wednesday's session, Moody's cut Dura's corporate family rating three notches to Ca from Caa1, along with the rating on the Dura Operating Corp. bonds.

Moody's said that the lower ratings "reflect the company's ongoing operating pressures in the automotive supplier sector which have recently been exacerbated by the announcement of additional production declines in the second half of 2006."

It noted that sales to Ford Motor Co. and General Motors Corp. approximate 23% and 20% of Dura's revenue, respectively, with roughly half of the Ford exposure, and 75% of the GM exposure derived in the United States.

"Combined with the company's announced restructuring program and interest payments on its senior unsecured and senior subordinated notes in the fourth quarter, the lower expected production in the second half of 2006 will increase the cash flow pressure on the company," Moody's declared.

It said that the outlook remains negative, "reflecting the continuing industry pressures of lower Big 3 production in North America, raw material pricing pressures, and published reports indicating the company has hired restructuring advisors."

Auto sector suffering

But there are other broader negatives weighing heavily on the auto sector, including the lukewarm reception to Ford Motor Co.'s recently announced restructuring plan that calls for lay-offs and plant closures, and the subsequent downgrading of the Dearborn, Mich., automotive manufacturer's ratings.

On Tuesday, Moody's cut Ford Motor Co.'s corporate family and senior unsecured ratings to B3 from B2 and Ford Motor Credit Co.'s senior unsecured rating to B1 from Ba3. The outlook is negative.

In addition, Standard & Poor's lowered its long-term corporate credit ratings on Ford Motor Co. and Ford Motor Credit Co. to B from B+ on Tuesday. The outlook is negative.

Another negative weighing on the parts companies is DaimlerChrysler AG's announcement on Tuesday that its Chrysler Group will cut deliveries to dealers by 90,000 vehicles in the third quarter, and by 135,000 for the entire second-half of the year.

Although the market was expecting cuts from the Stuttgart, Germany, automotive company due to falling sales of trucks and SUVs, the level of delivery reductions surpassed expectations, a trader explained.

Chrysler's announcement, a trader said, was a factor in the fall of Metaldyne Corp.'s 11% notes due 2014, which were down 1¼ points to 89.75 bid, 90.75 offered, while its 10% senior notes due 2013 were off ¼ point at 101.25 bid, 102.25 offered.

The bonds were "very volatile," said another trader, who saw the 11s trade all the way down to 88 bid, before firming off the lows to close at 90 bid, 91 offered, down a point.

The trader attributed the fall to continued reaction to the news that Chrysler, a major customer of the Plymouth, Mich.-based parts maker, plans to cut its production levels, and to market fears that the news "could jeopardize the deal" under which Metaldyne is to be sold to Japanese partsmaker Asahi Tec.

Tower, Dana off

Tower's bonds meantime continued to "nosedive," a trader said, seeing its 12% notes due 2013 fall to 22 bid, 24 offered from prior levels around 25 bid, 26 offered on Tuesday - and well down from the mid-30s levels those bonds traded at in the beginning of the week.

A trader saw Dana's bonds "getting hit, even as we speak." He quoted the company's 6½% notes due 2008 down 4 points at 68.5 bid, 69.5 offered, while its 5.85% notes due 2015 lost 3 points to 66 bid, 67 offered.

An odd bankruptcy

Premier Entertainment Biloxi LLC's 10¾% notes due 2012 "cratered," a trader said, in the wake of the Biloxi, Miss.-based casino operator's Chapter 11 filing. He saw the bonds at 101.75 bid, down from 105 before the news, which hit the tape late in the day on Tuesday.

"I would have thought it would be down even more," he said.

Another trader saw those bonds as low as 98 bid, par offered in morning trading, but said that while players "tried to whack it down," the bonds recovered from those lows "as someone tried to cover a short," leaving them around 101. He added that there was "not much doing in it."

Still another trader saw bonds at that same 101 bid level - and quoted with accrued interest, which normally does not happen in a bankruptcy filing. Perhaps this was different because "it looks like they're going to be taken out" and everyone made whole.

Unlike most bankruptcies - in which a company has run out of money or is in the process of doing so, and files to stave off its creditors while it tries to put its financial house in order - Premier Entertainment, the would-be operator of the planned Hard Rock Hotel and Casino in Biloxi, Miss., has the money it needs, but legally cannot get at it, hence the bankruptcy filing.

Premier was literally just days away from opening its glitzy new gaming barge and adjoining hotel complex in early September last year, when Lady Bad Luck stepped in in the form of Hurricane Katrina, and heavily damaged the nearly completed project, forcing the company into extensive rebuilding operations. Those operations are to be paid for with the estimated $160 million for which the casino and hotel was insured - but Premier can't get at the money because bondholders alleging that the company defaulted by not opening the hotel by the end of last year, as their indentures stipulated, are refusing to release the money. Company management thus filed for court-supervised reorganization to force the release of those funds and allow the contractors rebuilding the project to get paid.

The company says the bondholders have nothing to worry about - since it "intends to pay its creditors 100 cents on the dollar and will not submit or support any plan that proposes otherwise."

Elsewhere, traders saw Movie Gallery Inc.'s 11% notes due 2012 up 1½ to 2 points on the day at around 64.5 bid, 65.5 offered. They noted rumors - strictly unsubstantiated - of a possible strategic partnership for the problem-plagued Dothan, Ala.-based video rental chain.

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