Delphi bank debt, bonds, continue steady trading; Refco bonds in free-fall as scandal worsens

By Paul Deckelman and Sara Rosenberg

New York, Oct. 12 - Delphi Corp.'s bank debt and its bonds continued to trade actively around Wednesday, though price levels seemed largely unchanged, as the financial markets adjusted to the brave new world following the bankruptcy filing by the world's largest automotive supplier company.

Levitz Furniture bonds were seen steadying at somewhat higher levels, following that company's late-Tuesday Chapter 11 filing, although the bonds are now trading flat, or without their accrued interest, traders said.

And the newest name on the radar screens for traders in distressed bonds - the formerly high-flying financial services firm Refco Inc. - was seen sharply lower for a second straight session, as the alleged securities fraud scandal involving its deposed former chief executive continued to grow - and that ex-CEO was arrested and formally charged.

Delphi's revolving credit loan and its term loan continued to trade actively at basically unchanged levels, as the paper is likely in the process of finding a new investor base, according to a bank debt trader.

The revolver was trading right around par and the term loan was trading right around 103 - which is pretty much where the debt has been trading since the company announced that it had filed for Chapter 11 - traders said.

"Maybe more conservative players are selling and hedge funds are picking it up," one trader remarked about the strong activity levels.

A bond trader saw the bankrupt Troy, Mich.-based automotive electronics manufacturers bonds - now all trading at the same level and trading flat, or without their accrued interest - as being "up and down, they had mixed emotions," hitting a high of 58 bid, 59 offered and a low of 56.5 bid, 57.5 offered, before ending the session quoted at 57.25 bid, 58.25 offered.

"They just bounced around," he continued. "I think a lot of it was technical, just unwinding all of the CDS [credit default swap] stuff." He said that he didn't think it had much to do with real fundamental news out about the credit.

At another desk, a trader saw the Delphi bonds hanging in there in a 57-59 range, while a third saw them unchanged at 58.

Delphi filed for Chapter 11 bankruptcy Saturday in the U.S. Bankruptcy Court for the Southern District of New York and hopes to emerge from the reorganization in early- to mid-2007.

The company has $17.1 billion in assets and $22.17 billion in total debt, including $2.58 billion in pre-bankruptcy lender debt, $500 million in 6.55% unsecured notes due June 15, 2006, $500 million in 6½% unsecured notes due May 1, 2009, $500 million in 6½% unsecured notes due Aug. 15, 2013, $500 million in 7 1/8% debentures due May 1, 2029, and 561.78 million shares of common stock.

The plan is to finance global operations going forward with $4.5 billion in debt facilities plus additional committed and uncommitted financing lines and/or securitization facilities in Asia, Europe and the Americas.

Proposed financing includes $2.5 billion borrowed from pre-bankruptcy revolver and term loan facilities, and a commitment for up to $2 billion in senior secured 24-month debtor-in-possession financing, comprised of a $1.75 billion revolver and a $250 million term loan that will be led by JPMorgan Chase Bank and Citigroup Global Markets, Inc.

Also among bankrupt automotive supplier companies, a trader saw Collins & Aikman Corp.'s 10¾% senior notes due 2011 unchanged at 48 bid, 50 offered.

Levitz gain balanced by loss of interest

Elsewhere, the trader saw Levitz's 12% senior notes due 2011 trading at 36 bid following the Woodbury, N.Y.-based furniture store chain operator's "Chapter 22" bankruptcy filing - Levitz previously filed for bankruptcy in 1997, finally emerging in 2001.

The trader said that those bonds had been in the high 50s at the end of September, held steady at that level for a while "before they cracked the other day" and fell to 42 bid, 45 offered on Oct. 4. After that, he said, the bonds cascaded down to 31 bid, 36 offered, but regained a 36 bid level after its late Tuesday filing with the U.S. Bankruptcy Court for the Southern District of New York. However, he noted that the switchover to trading flat cancelled "four or five" points of accrued interest, essentially negating the nominal rise in the bonds' price.

The company's 15% subordinated notes due 2011 were seen trading below a penny on the dollar, with a bid of 1/8, a trader said, well below the last offer for those bonds, at 12.

The retailer plans to keep its 121 stores operational under its plan, which includes the company's getting a $80 million debtor-in-possession credit facility by GE Commercial Finance, which is to include an incremental credit facility of $25 million arranged by Prentice Capital Management.

Mirant down again

Elsewhere in the distressed precincts, a trader saw Mirant Corp.'s bonds continuing to ease, although he saw no fresh negative news out on the Atlanta-based power generating company. Its 7.40% notes that were to have come due last year were a point lower at 120 bid, 122 offered, while its 7.90% notes due 2009 were also a point lower, at 122 bid, 124 offered. So were its 5¾% convertible notes due 2007, which ended at 114 bid, 116 offered.

Adelphia Communications Corp.'s 10¼% notes due 2011, which were two or three points lower on Tuesday, continued to ease Wednesday, dipping a point to 66.5 bid, 68.5 offered.

"Cable has been under pressure on valuations," ever since Verizon moved into Charter Communications Inc.'s territory in Texas, the trader said, This was "on top of the overall malaise in the market."

He saw Charter's 11 1/8% notes due 2001 half a point lower at 69.5 bid, 71 offered. The St. Louis-based cable operator's benchmark bonds "have been sliding one-half to a full point every day."

Refco plunges

Refco's 9% notes due 2012 were easily the most actively traded bond, a trader said. He saw those notes opening at 84 bid, 87 offered - well down from Tuesday's closing levels around 90 bid, 94 offered - and then getting taken down as low as 75.75 bid, before firming slightly off that nadir to close out the day at 78 bid, 79 offered, down 12 points on the session and some 30 points below their 108 bid, 109 offered levels at the end of last week.

Another trader saw those bonds finishing at 75 bid, 77 offered, down from prior levels in the high 80s Tuesday and above par before that.

Yet a third trader pegged the bonds going out at 75 bid, 77 offered, down 14 points from its Tuesday levels at 89 bid, 91 offered, and over 32 below its recent peak at 108. The trader quipped that Refco was "pretty active," with "a ton of the bonds traded. Call it a bajillion."

A trader said that with the bonds getting pummeled the way they were, among the big losers from the debacle would be institutional holders like Pimco, Eaton Vance and Vanguard, who own, respectively, 10%, 9% and 5% of the company's $390 million of currently outstanding notes.

Refco's bank debt meantime was quoted trading late in the day around 93 bid, with offerings in the 95-96 area, a bit firmer than it was at the open.

"It feels like the bank debt found a home in that [92 bid, 93 offered] area," a debt trader said earlier in the session. "The bonds were like low-90's yesterday and now they're like 80, 81.

"I heard there was a lender call going on today. I assume it's about the situation. People (meaning company clients) may want to pull money out. There will probably be fines from the SEC. [But], I think the bank debt is fine from what I hear so people who bought it at 90 may be happy," the trader added.

Refco's New York Stock Exchange-traded shares were equally widely traded and just as volatile on the downside for a third straight session. They plunged $3 (21.66%), to close at $10.85, on volume of 35 million - almost 18 times the norm. Wednesday's finish was well down from the $28.56 closing price last Friday, before the news emerged about a burgeoning securities fraud scandal. That news led to the company abruptly removing then-CEO Phillip Bennett and putting him on leave.

On Wednesday, the U.S. Attorney's office for the Southern District of New York charged the ousted executive with securities fraud over hundreds of millions of dollars in transactions owed to the company by an entity he controlled. Bennett was arraigned before a federal magistrate, who set his bond at $50 million.

Besides the Justice Department, the Securities and Exchange Commission is also investigating Bennett's alleged secret dealings with Refco.

Prosecutors said that when Refco went public two months ago and raised $583 million, Bennett and "others known and unknown" concealed related-party transactions between Refco and the mystery company - which they said made Refco look stronger than it was during its initial public offering.

U.S. Attorney Michael Garcia said Wednesday that Bennett and these other as yet unidentified individuals had misled investors and regulators - a charge that the embattled exec, through his lawyers, denied.

On Tuesday, the company had disclosed that that a $430 million receivable held by an entity controlled by Bennett was buried deep within its quarterly and annual reports, with the debts mostly uncollectible and stretching back as far as 1998. Refco warned investors that its financial statements for the periods ending Feb. 28, 2002, Feb. 28, 2003, Feb. 29, 2004, Feb. 28 and May 31 of this year, "taken as a whole, for each of Refco Inc., Refco Group Ltd., LLC and Refco Finance Inc. should no longer be relied upon."

When Refco suddenly removed Bennett on Monday and put him on leave, it did likewise for another executive, Santo Maggio, the head of Refco Securities. Maggio has not been charged in connection with the alleged securities fraud.

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