Distressed bond issues mostly lower as junk market sags; Calpine loans continue easing

By Paul Deckelman and Sara Rosenberg

New York, Jan. 12 - Bonds of distressed companies were seen generally lower Thursday, in line with overall weakness in the junk bond market, which in turn took its cue from lower equities.

Among the areas seen struggling were the airline bonds - up earlier in the week on the possibility of consolidation among restructuring carriers like Delta Air Lines Inc. and Northwest Airlines Corp. - as well as automotive issues, which had broken sharply out of the gate last week as the junk bond market resumed trading in the new year, only to start running out of gas earlier this week, as ratings downgrades and other negative events began to take their toll.

One of the few still-bright spots in the distressed bond arena Thursday was Integrated Electrical Services, whose bonds have been firming smartly over the last few sessions, although there has been no positive news out about the troubled Houston-based electrical engineering company, other than a recent story about it having negotiated amended financial covenants with its credit facility lender.

In the bank loan market, Calpine Corp.'s second-lien bank debt headed lower for the second day in a row, this time dropping by about a point as opposed to the previous day's quarter to half a point loss, according to a trader.

The San Jose, Calif.-based power company's second-lien loan closed out the session quoted at 83.5 bid, 84.5 offered, the trader said. That was down from Wednesday's close at 84.75 bid, 85.5 offered and well down from Tuesday's finish at 85 bid, 86 offered.

Calpine's recent weakening has been attributed to the distressed loan market in general taking "a breather", the trader added.

Calpine's bonds, meantime, were doing no better, with a market source pegging the company's 8½% notes due 2011 and its 8 5/8% notes due 2010 each at 27 bid, down 1¾ points.

He saw Calpine's 7 5/8% notes due 2006 at 41, down 1½ points, its 7 7/8% notes due 2008 at 42, off half a point, and its secured 8½% notes due 2010 at 85.5 bid, down ½ point.

Integrated Electrical keeps rising

There were only a few bright spots among the distressed bond issues on Thursday. One was Integrated Electrical Services, whose 9 3/8% notes due 2009 "have been up a lot lately" a market source said with no small degree of understatement. By some counts, the bonds are up as much as 10 points or more in the past week, at least half of that over the past two sessions. Those bonds had risen from the mid-to-upper 70s to around an 80ish context by Wednesday, and on Thursday, the source said, those bonds were up another two points to 82 bid.

A trader at another shop saw the bonds at 81 bid, 83 offered Thursday, which he called up a point.

Bankruptcy talk had swirled around Integrated Electrical last month, but it has so far stayed out of the courts. It announced last week that lender Bank of America had agreed to amended, somewhat easier terms on parts of its loan agreement.

Owens Corning higher

Other upside areas, a trader said, included the bankrupt, asbestos-challenged Toledo, Ohio-based insulation maker Owens Corning, whose bonds firmed a point to 84 bid, 86 offered.

Another company with asbestos problems so severe that it too was driven into chapter 11 was Federal-Mogul Corp., the Southfield, Mich.-based maker of automotive brakes and other safety technology items. The trader saw its bonds a point better at 35 bid, 37 offered.

Foamex gains

Another one of the few automotive names that got out of trading Thursday with a gain was the Linwood, Pa.-based foam rubber cushioning maker Foamex International.

The trader saw its 10¾% senior secured notes due 2009 a point better at 85 bid, 87 offered, while its two junior issues - its 13¼% notes that were to have come due last Aug. 15, and its 9 7/8% senior subordinated notes due 2007 - both continued to languish in the teens, though at higher levels, with the 131/4s seen up five points at 15 bid, 17 offered. The 9 7/8s were likewise up five points, at 14 bid, 16 offered.

Most auto names sink

The troubled automotive sector was pretty much otherwise a mess, traders said, with sector bonds continuing to take their lumps Thursday, as the autosphere pulled back from the solid gains it had notched in the first trading week of the new year.

Bankrupt former General Motors Corp. unit Delphi Corp.'s 6.55% notes due 2006 were being quoted down nearly a point at 55.5 bid, with the Troy, Mich.-based auto electronics manufacturer's 7 1/8% notes due 2029 also down a point to that same 55.5 bid, 56.5 offered level.

Among other bankrupt parts makers, Tower Automotive's 12% notes due 2013 were off a point at 77 bid, 79 offered, while Collins & Aikman Products Co.'s bonds were seen having slid all the way to 38 bids, 39 offered from 41 bid, 43 offered previously.

Bearish news out of the sector included Moody's Investors Service's downward revision of its outlook for Southfield, Mich.-based seating and interior components maker Lear Corp. in the aftermath of the company's announcement of a $342 million charge against earnings. The agency, while affirming Lear's Ba2 rating, lowered its outlook to negative from stable, citing uncertainty about the company's North American sales this year.

A trader saw Lear's 5¾% notes due 2014 down a point at 82 bid, 83 offered, while another saw Lear's 8.11% notes due 2009 half a point easier at 92.25 bid, 93.25 offered.

While Lear said earlier in the session that it expects earnings to improve this year, the company chose not to issue any specific guidance, citing uncertainty over industry demand and the prices of the raw materials it uses.

Moody's noted the pressure that soaring raw materials costs have put on Lear's bottom line, and also cited the costs associated with its previously announced restructuring.

Also among the auto names, a trader saw GM's benchmark 8 3/8% notes due 2033 down 1¼ points at 70 bid, 71 offered, although he saw GM's 7 1/8% notes due 2013 unchanged at 73.25. GM's General Motors Acceptance Corp.'s 8% notes due 2031 were at 101 bid, 102 offered, down half a point.

Another trader pegged the GM bonds pretty much unchanged around that same 70.25 bid, 71.25 offered level, ahead of a much-anticipated briefing for automotive industry analysts that GM will hold on Friday.

Leading on to that presentation, at which company executives will discuss GM's turnaround strategy, the carmaker said in a statement late Thursday that it expects to show global growth in vehicle sales in 2006, although it declined to attach a number to that forecast. GM said that global vehicle sales grew 2% in 2005, to about 9.2 million units, even though its domestic sales were off badly, due to high gas prices and aggressive inroads that Japanese carmakers have been making on GM's home turf in the United States.

The Detroit giant's main rival, Ford, was seen largely unchanged to lower on Thursday, after having pretty well withstood Wednesday's widely anticipated two-notch ratings downgrade by Moody's. That move followed a similar downgrade last week by Standard & Poor's.

A trader saw Ford's flagship issue, the 7.45% notes due 2031, at 70.75 bid, off ¼ point.

However, another trader estimated that those Ford bonds had lost a point to close at 70.25 bid, 71.25 offered, with the Ford Credit 7% notes due 2013 likewise down a point, to 88.5 bid, 89.5 offered.

Among the automotive parts makers, other than Lear, a trader saw former Ford unit Visteon Corp.'s 8¼% notes due 2010 down 1½ points at 85 bid, 86 offered, while Dana Corp, - whose ratings were cut several notches on Wednesday by Fitch Ratings - was little changed at 71.75 bid, 72.75 offered for the Toledo, Ohio-based automotive systems manufacturer's 5.85% notes due 2015.

The trader also saw Dura Automotive Systems Inc.'s 9% notes due 2009 off 1¾ at 55 bid, 56.5 offered, while its 8 5/8% notes due 2012 were off half a point at 84 bid, 85 offered.

And Metaldyne Corp. - whose 11% notes due 2012 had jumped on Tuesday on the news that the Plymouth, Mich.-based automotive metal stamping company had agreed to sell its underperforming North American metal forging unit in a $129 million deal - continued to fall back from those peak levels.

A trader saw the bonds - which had shot up to 85 bid on Tuesday on the news from prior levels around 80, came off that peak to end Tuesday around 83 bid, 85 offered, and then gave up another point Wednesday to finish at 82 bid, 84 offered - down another point Thursday at 81 bid, 82 offered.

At another desk, a trader saw those bonds quoted down even further, at 79 bid, 80 offered, which he estimated to be down four points on the day.

Airlines mostly give up gains

Apart from the autos the airlines - whose bonds had risen earlier in the week, partly on sector consolidation speculation stoked by some offhand remarks from U.S. transportation secretary Norman Mineta - were flying at lower altitudes Thursday, as the consolidation buzz wore off and as oil prices - considered a reliable leading indicator for future jet fuel prices - remained around $64 per barrel.

Although a trader saw United Airlines parent UAL Corp, - slated to soon emerge from bankruptcy - a little higher at 25 bid, 26 offered, most other airline names were lower.

A market source saw Northwest's 7 7/8% notes due 2008 and its 8.70% notes due 2007 each down a point on the day at 40 bid, while Delta's bonds were also easier, its 7.70% notes that were to have come due last year and its 7.90% notes due 2009 each stuck at a price of 21, down half a point to ¾ point.

Winn-Dixie Stores Inc. bonds - which had firmed solidly earlier in the week - continued to trade well below those early-week peak levels. A trader saw its 8 7/8% notes due 2009 - which had reached highs around 85 - around 82 bid, 83 offered.

"They had their run-up - and now they're just sitting there," he said.

Tembec Industries Inc. bonds "were weak today," said a trader, although he was not aware of any specific negative news about the Canadian forest products company. He quoted its 8½% notes due 2011 down three points on the day at 46.5 bid, 47.5 offered, and had its 7¾% notes due 2012 also down three points, at 45.5 bid, 46.5 offered.

© 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.