Armstrong exit financing hits market; Dura bonds in 'dead cat bounce'

By Paul Deckelman and Sara Rosenberg

New York, Oct. 13 - Armstrong World Industries Inc.'s new credit facility hit the secondary market Friday, the latest step in the formerly bankrupt Lancaster Pa.-based floorcovering maker's recent emergence from Chapter 11 after six years of operating under court protection.

Even as Armstrong was coming out of bankruptcy, there has been lots of market talk lately that Dura Automotive Systems Inc. is headed in that direction - and the troubled Rochester Hills, Mich.-based automotive parts maker's bonds have certainly been trading that way of late, with even its senior notes seen at pitiful price levels in the 20s and its subordinated bonds considered by most to be nearly worthless.

However, after having been massacred on Thursday, the senior bonds firmed on Friday and recovered some - but by no means all - of that lost ground. Dura's bank debt was seen up as well.

Meanwhile Sea Container Ltd.'s bonds were again lower, with the company facing the weekend deadline for paying off one maturing bond issue - even as the problem-plagued Bermuda-based maritime and railroad transportation company said Friday that it now is unlikely to pay that bond off, and is considering a Chapter 11 filing.

Armstrong exit loan trades

Traders in the bank loan market said that Armstrong's $500 million seven-year term loan B opened up at 100.25 bid, 100.5 offered, then dropped down to 100.125 bid, 100.375 offered.

A fund manager said that after that it bounced back up to the 100.25 bid, 100.5 offered levels, where it closed out the day.

The term loan B is priced with an interest rate of Libor plus 175 basis points with a step up to Libor plus 200 bps if the company's corporate credit ratings are downgraded. During syndication, pricing on this loan was reverse flexed from original talk of Libor plus 200 bps with the addition of the step.

Armstrong's $1.1 billion exit financing senior secured credit facility (Ba2/BB) also includes a $300 million five-year revolver and $300 million five-year term loan A, with both of these tranches priced in line with original talk at Libor plus 150 bps.

Bank of America and JPMorgan are the lead banks on the exit financing deal, with Bank of America the left lead.

The company emerged from Chapter 11 bankruptcy on Oct. 2 after its fourth amended plan of reorganization took effect, but the credit facility is not expected to close until Oct. 16.

The reorganization plan includes a comprehensive settlement resolving Armstrong's asbestos liability by establishing and funding a trust to compensate all current and future asbestos personal injury claimants.

Armstrong's bonds, such as its 9¾% notes due 2008, were seen around 72 bid, a market source said, down ½ point on the session.

A trader in distressed notes, however, said that the bonds' levels were "not much different" from where they had most recently been in the lower 70s.

He said the same also held true for the bonds of Owens Corning, the Toledo, Ohio-based insulation maker which, like Armstrong, was forced into Chapter 11 under a flood of asbestos medical claims damage suits. Those bonds, like its 7½% notes due 2018, were hovering in the mid 50s.

Dura pulls out of dive

Also among the bond traders, Dura Automotive's Dura Operating Corp. 8 5/8% senior notes due 2012 were seen to have turned higher Friday, even as Dura's third-largest shareholder, Societe Generale, bailed out, while uncertainty continued about the bond interest payment, and bankruptcy scenarios were discussed further by investors and analysts.

But there was no fundamental reason for an upturn; one trader dismissed the rebound as the proverbial "dead cat bounce." He said that the bonds on Thursday "went straight down to the low to mid 20s," finishing at around 25 bid, 26 offered, "and then they bounced back [Friday], jumped up" to close around 29 bid, 30 offered.

"The seniors looked better, but the juniors looked lower," another trader said, quoting the 8 5/8s at 29.75 bid, 30.25 offered, up from around 26 on Thursday, but seeing Dura's 9% senior subordinated notes due 2009 losing a chunk of what little remaining value they still have, as they fell to 1¾ bid, 2¾ offered from Thursday levels around 2 bid, 2.625 offered.

He said that investors are "apprehensive" about what's next for Dura, noting that the company is obligated to pay $17.25 million in interest on its $400 million of 8 5/8s - and that payment was coming due on Sunday. The company - which is in the process of restructuring its operations - has declined to say whether the payment would be made, or whether it would be skipped and the 30-day grace period in which a default could be cured be invoked.

Even if cash-strapped Dura - its sales of automotive components hurt this year by escalating production cutbacks among Detroit's "Big Three" carmakers, its major customer base - were to scrape together the money to make the interest payment, it faces yet another coupon interest payment on Nov. 1 of about $24 million on its 9% notes.

The trader noted that Societe Generale - which up till now had owned 1.19 million Dura shares, making it the third-largest stockholder - said in a filing with the Securities and Exchange Commission that it had sold its entire position in the company, a further cause for irritation or concern by equity investors.

In the bank loan market, Dura's second-lien term loan saw a nice upswing in trading levels early on in the session before coming back in to end the day basically unchanged, according to a trader.

The second-lien paper closed out the day at 83 bid, 83½ offered but traded as high as 85, the trader said. On Thursday, the loan went out around 83 bid, 84 offered, but traded as low as 821/2.

"The bonds have been all over the place so it's just kind of tracking the bonds," the trader said about the second-lien loan.

Other autos hang back

A bond trader said that other automotive names are meantime steering clear of the coming car crash that is Dura, with little bond price movement seen, even in the wake of Dura's volatility.

For instance, even as he was seeing the Dura 8 5/8s up 4 points on the session at 29.5 bid, 30.5 offered, he saw General Motors Corp.'s benchmark 8 3/8% notes due 2033 down ¼ point at 87.75 bid, 88.75 offered, while the giant carmaker's General Motors Acceptance Corp. financial unit's 8% notes due 2031 were also ¼ point lower, at 105 bid, 105.5 offered. GM arch-rival Ford Motor Co.'s 7.45% notes due 2031 were ¼ point lower, at 77.75 bid, 78.75 offered, while Ford Motor Credit Co.'s 7% notes due 2013 were unchanged at 92.5 bid, 93 offered.

Among Dura's peers in the parts supplier sector, bankrupt Delphi Corp.'s 6½% notes due 2009 were up 3/8 point at 97 bid, 98 offered, while the Troy, Mich.-based former GM parts unit's 7 1/8% notes due 2029 were unchanged at 91 bid, 92 offered.

Among parts suppliers which were not forced into bankruptcy by the industry downturn, Visteon Corp.'s 8¼% notes due 2010 were unchanged at 95.5 bid, 96 offered, while the Van Buren Township, Mich.-based former Ford parts unit's 7% notes due 2014 were unchanged at 87.5 bid, 88 offered.

Sea Containers still sinking

Elsewhere in junkbond land, Sea Containers paper was seen weaker, with a trader quoting the 10¾% notes slated to come due on Sunday (Oct. 15) about a point down on the day at 71.5 bid, 72.5 offered.

However, he said that in contrast to the sometimes choppy and frantic trading that those bonds and the company's other notes have recently seen, activity in the 103/4s, the most widely traded of its issues was "quiet" on Friday.

On the other hand, a market source at another desk saw the bonds pretty much staying put, with the 103/4s at 72.25 bid, and its 7 7/8% notes due 2008 at 74.225, unchanged.

On Friday, the company warned that it was unlikely to be able to pay back the $115 million of 103/4s due on Sunday, and said it was considering Chapter 11 bankruptcy protection.

A company spokesperson that while Sea Containers intends to carry on with its previously announced restructuring program, "it's unlikely to be finished, done and dusted by this weekend."

Transeastern keeps heading north

Transeastern's term loan was quoted higher for the second day in a row - a rare event in recent times for this paper - still buoyed by the company's private-side conference call that was held on Thursday afternoon, according to a trader.

The term loan closed out the day at roughly 67.5 bid, 70 offered, up from Thursday's levels of 67 bid, 68 offered, the trader said. On Thursday, the paper had moved up to the 67 bid, 68 offered context prior to the actual call taking place and held in at those levels following the call. By comparison, on Wednesday, the loan closed out the day at 62 bid, 64 offered.

Details on what took place on the conference call were unavailable because it was all private-side information.

Late last month, the company warned that because of the disappointing Florida housing market conditions, it would be unable to support its existing capital structure.

The Transeastern joint venture has about $600 million in debt at annual carrying costs of roughly $60 million and current business conditions only anticipate the company selling between 1,200 and 1,500 homes next year - translating to at least $40,000 of debt service for each home sold.

Transeastern also said that it is exploring various options to fix the liquidity problem, including requesting waivers from its lenders regarding potential defaults and permitting future advances under the revolver, and restructuring land bank obligations.

Once news of these troubling financials hit the market, the term loan plummeted over the course of many sessions from its 99 trading context into the 60s.

Transeastern is a joint venture of Technical Olympic USA Inc. and Falcone Group.

Neither Technical Olympic nor Falcone Group plan to put any more equity capital into the company until the capital structure problems are resolved.

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