Delphi skids, bonds fall 3 points or more; Collins & Aikman buyers lift bonds; Owens Corning higher

By Ronda Fears

Nashville, Oct. 5 - Automotive paper dominated activity on distressed desks, which again was brisk in spite of the Jewish holiday. Delphi Corp. was under pressure as market chatter put the auto parts maker filing bankruptcy as early as this week while bankrupt Collins & Aikman Corp. was finding buyers on hopes of a buyout bid emerging soon.

Collins & Aikman bonds whipsawed Wednesday, traders said, with sellers of the 10¾% bonds seen getting out at 42 and 43 early on but buyers in afternoon pushing the issue to 47. Time is running out on the company's exclusive period to file a reorganization plan, one trader said, but now Lear Corp. is seen exiting the situation, leaving noted takeover expert Wilbur Ross still hovering as a buyer.

Federal-Mogul Corp. is another auto parts name that was active and heading south. In its latest court filing on Friday, Federal-Mogul officially acknowledged that its restructuring plan is being amended to give billionaire private investor Carl Icahn an option to become its controlling shareholder.

Federal-Mogul also has asbestos-related issues and that group has been on the rise this week. Owens Corning was pushed into bankruptcy by asbestos claims five years ago, but it saw a bounce in its bonds also related to hopes it will see no further barriers to exiting bankruptcy. Owens Corning's bankruptcy plan is up for court approval Oct. 24.

Owens Corning's 7½% bonds were most active Wednesday, a trader said, and the issue traded anywhere from 84 to 88 before ending the day at about 85 bid, 87 offered, up about ¾ point on the bid side. He said the shorter paper, though, was up 2 to 3 points, with the 7.7% bonds due 2008 at 87 and 7% bonds due 2009 at 81.

Delphi filing seen imminent

Delphi Corp. has been threatening a bankruptcy filing by Oct. 17 when bankruptcy laws become less friendly to filers, but reports put the company preparing to file as early as this week, and bonds plunged 3½ to 4½ points Wednesday. The stock fell 10% in heavy trade.

Lending credence to buzz of an impending ride to the bankruptcy court, on Wednesday Fitch Ratings cut Delphi's default rating to CCC from B-, senior unsecured notes to CC and trust preferred securities to CC, citing a strong likelihood of bankruptcy for the Troy, Mich.-based former General Motors Corp. unit as well.

Delphi's benchmark 6.55% bonds due 2006 dropped 3½ points to 70 bid, 73 offered and its 6½% notes due 2009 fell 3 points to 66¼ bid while the 6½% notes due 2013 were described as steady at 64. The long paper, 7 1/8% notes due 2029, took the biggest hit, though, losing 4¼ points to 60½ bid, 62½ offered.

Delphi shares plunged 28 cents on the day, or 10%, to $2.50.

"There is still some people saying that GM and/or the UAW [United Auto Workers] will come through for them but the clock is ticking and Oct. 17 is not that far away," said a trader. "People are getting jittery."

Delphi bulls still faithful

Himanshu Patel, analyst at J.P. Morgan and bullish on the Delphi story, discounted the media chatter that Delphi would be filing bankruptcy this week.

The New York Times article, he said, had no new information. Rather, he cited a report from the Detroit News as having a much more telling angle.

The Detroit newspaper said GM and the UAW are close to a deal that could lead to more than $1 billion in annual health cost savings. That, in turn, could portend a similar arrangement for Delphi.

Patel said a possible health care deal between GM and its unions, along with the proceeds from GM's sale of its 20% stake in Subaru maker Fuji Heavy Industries - also announced Wednesday by GM - put the automaker in a better financial position to offer Delphi a lifeline.

"The NY Times and the Detroit News are reporting stories today that suggest conflicting outcomes of the Delphi situation," he said. "We think the possibility of a GM-UAW sponsored bailout remains high."

Friday looms for Delphi

Believers that Delphi could file bankruptcy this week, however, note that Friday brings a crucial deadline to a head. Delphi drew down $1.5 billion of a $1.8 billion credit facility in August and only has until Friday to repay that and avoid a breach in its loan covenants.

Delphi, which is said to be seeking $6 billion from GM and union employees, aims to use the cash to reduce expenses by offering some long-time workers bonuses to retire, quit or accept lower pay. The money could also be used to pay for pensions and health care for the retirees, according to recent reports.

GM spun off Delphi in 1999 but still accounts for roughly half its business and last year bought some $14 billion in parts from Delphi. Also possibly of interest, GM shares on Wednesday plunged $1.45, or 4.82%, to $28.64.

Pension fund suit weighs too

A new wrinkle in the Delphi story is a lawsuit filed against the company by two state pension funds and other large investors alleging that executives at the troubled auto parts supplier made bogus deals with third-party vendors in an effort to hide its financial problems.

Lead plaintiffs in the suit, which was filed in federal court in New York on Friday, are the Teachers' Retirement System of Oklahoma and the Public Employees' Retirement System of Mississippi, but they are seeking class-action status that could open the door for many investors to join in.

According to reports, the lawsuit asserts senior Delphi executives instructed subordinates to violate accounting rules overseeing how revenue and expenses should be recognized.

"The fraud could not have succeeded, or achieved the magnitude it did, without the direct participation of third parties who were all too willing to engage in sham transactions intended to falsify Delphi's reported financial results," according to the complaint.

From 1999 to 2001, the lawsuit alleges, the company entered into a string of deals in which it purported to transfer assets to third parties in exchange for hundreds of millions of dollars, with an associated obligation to buy back the same assets.

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