Foamex bonds split on Chapter 11 filing; Delphi bonds keep falling, bank debt up

By Paul Deckelman and Sara Rosenberg

New York, Sept. 19 - Foamex International Inc. sought protection Monday from its junk bond holders and other creditors via a Chapter 11 filing, and the Linwood, Pa.-based foam rubber products producer's bonds diverged sharply, with its secured senior notes firming on the news - but its badly distressed unsecured notes flailing around in the single digits.

Elsewhere, Delphi Corp.'s bonds continued their freefall as speculation mounted that the company will end up in the courts, just like its chief executive has warned. However, the prospect of a bankruptcy certainly does not scare Delphi's bank debt holders, who expect their debt to be taken out at par; Delphi debt was on the rise for yet another session as a result.

And details emerged about Delta Air Lines Inc.'s efforts to line up its debtor-in-possession financing, following the troubled Atlanta-based Number-Three U.S. airline carrier's bankruptcy filing last week.

Foamex - which makes padding for car seats and dashboards, as well as for non-automotive applications - became the latest auto components supplier to find itself parked in Chapter 11, following the lead of such companies as Collins & Aikman Corp., Tower Automotive and Intermet Corp. (see related story elsewhere in this issue for full bankruptcy filing details).

News of the filing pushed the company's Foamex LP 10¾% secured notes due 2009 "actually up," a trader said, quoting them 1¼ points higher at 85.25.

However, he saw the company's unsecured senior subordinated notes - its 9 7/8% notes due 2007 and the 13¼% notes that were to have been redeemed at maturity on Aug. 15, but which were not, both in a 7¼ to 7½ context.

On the other hand, another trader said that the 103/4s "were already trading" in an 84-86 context, and "pretty much stayed where they were within that range."

He actually saw the subordinated bonds improved, to around 6½ from recent levels around 3¾ bid, 4¾ offered.

Yet another trader, however, saw the 103/4s up as much as two points to 85 bid, 86 offered.

Delphi bonds decline, loans gain

Out of that same troubled automotive sphere, beset by high oil prices - which translate into high gas prices and slower SUV and light truck sales - as well as high raw materials costs and consumer nervousness about big-ticket purchases, Delphi's bonds continued to stumble lower.

A trader saw Delphi's 6.55% notes due 2006 at 72 bid, 73 offered, "down maybe three points on the day," while its 6½% notes due 2009 and 6½% notes due 2013 were each down about two to three points on the session, at 66 bid, 68 offered and 65 bid, 67 offered, respectively.

The trader also saw Delphi's 7 1/8% notes due 2029 at 62 bid, 64 offered, also around two to three points lower.

It was another story on the bank debt side of the fence, though, as the company's revolving credit loan ticked up another quarter of a point Monday, as market players are starting to lean towards the expectation of a bankruptcy filing, which would most probably result in the debt being taken out at par, a bank debt trader said.

That revolver was quoted at 98.25 bid, 98.5 offered, according to the trader. On Friday, the revolver had traded around at 98.125 and closed out the week quoted around 98 bid, 98½ offered.

"People are considering a Chapter 11 filing more and more likely. They think [the revolver] will be rolled into a DIP facility," the trader explained.

As for the company's term loan, that remained quoted at 101.75 bid, 102.25 offered and is pretty much expected to hang out in that context since that the debt is currently repayable at a call premium of 102, the trader added.

The company's New York Stock Exchange-traded shares skidded another 49 cents (12.69%) to $3.37. Volume of 13.1 million shares was almost three times the norm.

The bonds, and the shares - though not the bank paper - have been getting clobbered over the past week, on market speculation that Delphi might be getting close to a bankruptcy filing.

Troy, Mich.-based auto electronics manufacturer Delphi is currently looking to former corporate parent General Motors Corp. for some sort of financial bailout - and has warned that it could be forced into Chapter 11 if it does not get concessions from the United Auto Workers union and help from GM.

The company has said that a filing, should it occur, would come before Oct. 17, when federal bankruptcy laws will become less friendly to debtor companies, who will be given less time to come up with a reorganization plan.

Many in the financial community now seems to have come around to the view that there's not much chance Delphi will be able to stay out of the courts - as reflected by the level to which the bonds and the shares have sunk.

In a research report released Monday, automotive analyst Joseph J. Farricielli of Imperial Capital LLC said that "given DPH CEO Steve Miller's statement that he would consider a Ch 11 if a deal was not reached with the UAW and GM, coupled with limited negotiating progress between all parties, we believe the odds of a filing are high."

In the event of a bankruptcy, the analyst believes that holders of the company's bank debt will likely be able to achieve a par recovery of their investment. He sees the recovery level for the unsecured bonds as somewhere in the 40% to 60% level - or 30-45% after a 2-year, 15% discounting. Holders of the company's trust preferred securities and common stock are likely to get nothing, Farricielli said.

A key factor in what kind of a recovery senior noteholders will experience is how much of the UAW contract benefits that Delphi is now obligated to pay will be assumed by GM in the event of a bankruptcy. While GM will have to take on the benefits for most of the 30,000 workers covered by its UAW contract that it transferred to Delphi, the latter company agreed to indemnify GM against such costs. The exact level of benefits GM would assume and the exact indemnification Delphi would pay to its former corporate parent have not been disclosed.

The bottom line, Farricielli said is that "any obligation GM assumes as a result of the guarantee would be offset by the Delphi indemnification. While we realize there would still be a cost to GM in a bankruptcy scenario, that cost would then be at least partially offset by a corresponding general unsecured claim [by GM against Delphi] in the DPH bankruptcy. This arrangement appears to favor a bankruptcy filing by all parties involved: the UAW will not lose any benefits as a result of the GM guarantee, GM will have its exposure minimized as a result of the indemnification and Delphi will be able to restructure its operations."

Such an arrangement, he said, would not impact the holders of the company's bank debt, as "the GM claim would rank junior, and thus not impact recoveries." However, he cautioned, the GM claim "would be pari passu with all general unsecured claims [which includes the senior unsecured notes], increasing the size of that class by an estimated $10B and thus diluting the recoveries for the notes."

Right now, he said, the union "has yet to formally respond to the company's cost-cutting proposals and claims a response will not be made until the end of 9/05. The Detroit Free Press obtained a union delegate newsletter that quoted UAW VP Shoemaker stating 'There is no way that the UAW can agree to all of Delphi's demands and it may be better to let Delphi file for bankruptcy.'"

The analyst further noted that while in "ordinary circumstances, we would expect the union to cave in regarding the concessions. However, with the guarantee provided by GM covering union benefits for two more years, the UAW's motivation to concede is limited."

Mirant loans slip again

Elsewhere, Mirant Corp.'s bank debt continued to lose ground, with the bankrupt Atlanta-based energy company's 2003 paper quoted lower by about half a point as the market in general continued to feel very weak, according to a trader.

That '03 bank debt was quoted at 101½ bid, 102½ offered, the trader said.

Mirant's 7.90% notes due 2009 were quoted at 114.5 bid and its 7.40% notes that were to have matured last year were at 113.5 bid, both down half a point, a trader said.

Delta DIP launch seen Sept. 27

Delta Air Lines will likely be holding a bank meeting on Sept. 27 to launch its proposed $1.7 billion 30-month debtor-in-possession financing facility into syndication, although the date "is not set in stone" just yet, according to a market source.

Previously it was known that the syndicate was planning the launch for next week, but a specific targeted date was unavailable.

The facility consists of a $600 million term loan A with an interest rate of Libor plus 500 basis points, a $600 million term loan B with an interest rate of Libor plus 700 basis points and a $500 million term loan C with an interest rate of Libor plus 900 basis points.

GE Capital Markets is the sole lead arranger and bookrunner on the facility and Morgan Stanley has signed on as co-arranger on the term loan C tranche.

The DIP is secured by a super-priority lien on all unencumbered assets of the company, including unrestricted cash, certain aircraft, real estate, spare parts, ground service equipment, tooling, simulators, routes, slots and stocks of subsidiaries.

The bankrupt airline's DIP will refinance $630 million of financing provided by GE Commercial Finance and $500 million of financing provided by American Express in November 2004.

Additionally, Delta has an agreement in principle with American Express to provide the airline with an additional $350 million of secured financing which will be secured by liens junior to the DIP facility.

Altogether, Delta's post-petition financing arrangements now total up to $2.05 billion, an increase of approximately $1.07 billion from the company's pre-petition secured credit facilities.

Delta bonds steady, Northwest up

In bond trading Monday, a trader saw Delta's bonds continuing to move around at lower levels within the same 16-17 context they've held for the last several sessions. He saw Delta's 7.70% notes slated to come due on Dec. 15 at 17 bid, down ¾ point, while its 7.90% notes due 2009 and 8.30% notes due 2029 were each half a point lower, at 16.5 bid and 16, respectively.

He also saw the bonds of bankrupt Northwest Airlines Corp. - which filed for Chapter 11 the same day last week as Delta did - a little higher, through still in their recent 22-23 context.

He quoted the Eagan, Minn.-based Number-Four U.S. airline operator's 8 7/8% notes due 2006 23.25 bid, up 1¼ point, while the company's other bonds were seen up anywhere from ¼ to ¾ point, all trading around 23.

And distressed traders saw little real movement in the bonds of such bankrupt asbestos-challenged companies as Owens Corning and Armstrong World Industries - despite news reports about a new study claiming that the $140 billion claims fund that would be established by a bill that the Senate is expected to take up, would be woefully inadequate to meet all claims from people saying they suffered asbestos-related medical problems and would be broke within three years. That study - undertaken for a coalition of state legislative officials - estimates that claims could run as high as half a trillion - far outstripping the fund's capabilities.

Despite that negative vibe, Armstrong's bonds were seen hanging in around the 77 level and Owens Corning's were steady in an 82-83 context, traders said.

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