Delta, Northwest dip; Home Products plan confirmed; CalGen loan paper mixed

By Stephanie N. Rotondo

Portland, Ore., Jan. 30 - Bankrupt airline paper continued to weaken Tuesday as carriers US Airways Group Inc. and JetBlue Airways Corp. announced fourth-quarter profits and crude oil hit almost $57 a barrel.

Delta Air Lines Inc. saw its 8.30% notes drop slightly as US Airways also denied a report it was upping its takeover bid by $1 billion.

As oil prices jumped more than $3 during the trading day, Northwest Airlines Corp.'s bonds dropped about a point. Company management also announced potential merger talks were bogus and that the company is expecting to soon independently emerge from bankruptcy.

Home Products International Inc. received approval to exit bankruptcy Tuesday as bondholders agreed to the company's reorganization plan. The company's notes saw a wide bid/offer, as there was not enough to go around.

Calpine Generating Co., LLC, a San Jose, Calif.-based power company, had a hectic day that saw its loan paper mixed by day's end.

Traders saw little real activity among distressed credits Tuesday, in line with an overall junk bond market that was seen largely sidelined as investors waited for the conclusion Wednesday of the two-day Federal Open Market Committee meeting. The policy-making Federal Reserve panel is expected to keep interest rates where they are, although market participants will carefully examine the wording of the expected Fed announcement for clues as to which way the central bank may move next.

Commenting on the recent slowdown of price movement, one trader said current prices on distressed bonds made people "nervous."

"Everything is priced to perfection, everything is so high," he said. "Everybody is nervous to buy."

Delta weakens

Delta drifted lower as US Airways released its fourth-quarter results Tuesday, showing a profit of $12 million in its first full year in the black since its merger with America West. Forest Hills, N.Y.-based JetBlue also posted a fourth-quarter profit of $17 million.

The bankrupt air carrier's 8.30% notes due 2029 slipped about a quarter of a point to 61.75 bid, 62.75 offered. Another trader saw some movement in the notes, seeing the bonds push as high as 64 bid from opening levels around 62 bid, 63 offered - but saw them come off those highs and actually give back a point on the day, ending at 61 bid, 62 offered.

News that US Airways is not increasing its hostile takeover bid also fueled the dip. The Tempe, Ariz.-based company denied reports that the bid would be increased by $1 billion, or that the Feb. 1 deadline would be extended.

"We have not raised our bid," US Airways spokesman Phil Gee said Tuesday, according to the Associated Press. "The previous offer is still on the table and is set to expire Feb. 1."

One trader called the constant back-and-forth between the companies "lots of shuckin' and jivin'."

"There's not a lot of action," he said.

Delta is set to discuss its own reorganization plan with a bankruptcy court on Feb. 7. The company has maintained its desire to emerge from Chapter 11 protection as a stand-alone airline.

To that end, Delta made its own announcement Tuesday: It has "obtained commitments for a $2.5 billion exit financing facility, marking a significant step forward for the company's plan to exit bankruptcy in spring 2007 as a strong, well-capitalized standalone carrier," according to a company press release.

The release said six financial institutions - JPMorgan, Goldman Sachs & Co., Merrill Lynch, Lehman Brothers, UBS, and Barclays Capital - would lead the exit facility. The facility will consist of a $1 billion first-lien revolving credit facility, a $500 million first-lien term loan A and a $1 billion second-lien term loan B. Substantially all of the first-priority collateral in the existing debtor-in-possession facilities will secure the facility.

The Atlanta-based carrier filed for bankruptcy in 2005.

Northwest lower

The Associated Press also reported Tuesday that Northwest will not be merging with Delta, or any other carrier for that matter, according to the company's chief executive officer.

CEO Doug Steenland said the company will emerge as a stand-alone carrier and stay that way through 2007. The company, expected to exit bankruptcy by June 30, is due to file the details of its reorganization plan by Feb. 15.

The company's 10% notes due 2009 down at 94.25 bid, 95.25 offered. One trader saw Northwest Airlines' 8 7/8% notes due 2006 unchanged at 93 bid, 94 offered.

Oil prices also contributed to the airline's slide as light sweet crude oil rose almost $3 a barrel, settling at $56.97 a barrel on the New York Mercantile Exchange, rising to just over $57 during the day. More cold weather expectations, as well as more concern of the Organization of Petroleum Exporting Countries production cuts, bolstered the commodity.

Equity holders waged war on Northwest this week, as the company said its reorganization plan would not include recovery for stockholders.

Home Products spread widens

Home Products has won approval to exit bankruptcy, according to one distressed trader. The Chicago housewares company filed its reorganization plan and disclosure statement Jan. 24 with the U.S. Bankruptcy Court for the District of Delaware.

According to a filing with the Securities and Exchange Commission, a majority of the holders of the 9 5/8% senior subordinated notes due 2008 agreed to the amended plan. Under the plan, bondholders would recover 4% either in their share of 95% of new common stock in the reorganized company or through a cash-out option that will give noteholders cash equal to $22.97 for each $1,000 of notes held instead of stock. All noteholders will also receive the right to participate in a new convertible notes election option.

On news of the exit approval, the senior notes closed around 31 bid, 41 offered. The trader said the wide spread was due to the fact that there were "not many bonds to trade." Third Avenue Management Advisors LLC, formerly known as MJ Whitman Advisors, holds a majority of the company's notes.

Home Products filed for bankruptcy on Nov. 20, 2006.

CalGen loan paper mixed

CalGen saw a lot of activity in its bank debt on Tuesday, and levels on the second-lien paper moved higher as investors are considering their call protection options, according to a trader.

The second-lien bank debt closed the day at 104 bid, 104.75 offered, up around half a point on the day, while the first-lien bank debt closed the day unchanged at 101 bid, 102 offered, the trader said.

"The second-lien is callable at 103.5 starting April 1, 2008. If the refi happens soon, then it could be made whole since essentially it's non-callable till April 2008," the trader said in explanation of why the second-lien paper headed higher.

Parent company Calpine Corp. recently announced plans for a $5 billion DIP financing facility that would be used to refinance its existing DIP facility and repay $2.516 billion of CalGen secured pre-bankruptcy debt.

The new two-year DIP facility, being led by Credit Suisse, Goldman Sachs, JPMorgan and Deutsche Bank, is expected to be launched with a bank meeting around the March timeframe being that a hearing for court approval is first scheduled for Feb. 27.

The DIP facility consists of a $4 billion term loan and a $1 billion revolver, with pricing on both tranches tied to ratings. If the deal is rated Ba3/BB-, pricing will be Libor plus 200 basis points, if the deal is rated B1/B+, pricing will be Libor plus 225 bps. If the deal is rated B2/B, pricing will be Libor plus 275 bps. And, if the deal is rated B3/B- or lower, pricing will be Libor plus 325 bps.

Calpine is a San Jose, Calif., power company.

Auto paper mixed

Flailing Tower Automotive Inc. gained a point on its 12% notes due 2013. One trader placed the closing number at 12.5. Earlier this week, the company's creditors' committee objected to a ninth exclusivity extension request. The committee said it was close to terms with an interested buyer for most of the company's North American assets.

In other struggling auto-related paper, Exide Technologies rose over a point on its 10½% notes due 2013. The trader said softening lead prices helped the lead-acid battery maker close the day at 97.5 bid, 98.5 offered.

Dura Automotive Systems Inc. reported an operating loss of $1.95 million for December. Still, the report is an improvement over a $12.01 million November operating loss. The company's 8 5/8% notes lost about a point to 35.5 bid, 36 offered.

At another desk, a trader saw Remy International Inc.'s "juniors down a couple and their seniors up a couple," with the automotive electrical systems manufacturer's 8 5/8% notes due 2007 better by 2 points at 87 bid, 88 offered but its 11% subordinated notes due 2009 down 1 point, at 38 bid, 39 offered.

Also in the automotive realm, he saw Dana Corp.'s bonds off 1.5 points with the 6½% notes due 2008 at 74 bid, 75 offered.

Down across the board

Traders have commented that the lack of news is creating little movement in the distressed market but Tuesday showed a weakening across the board, according to one trader.

Werner Holding Co. Inc. lost about a point, though it saw a lot of activity, the trader said. The Greenville, Pa., manufacturer and distributor of ladders, climbing equipment and ladder accessories saw its 10% notes due in 2007 down to 8.5. The company filed for bankruptcy in June 2006.

Fedders Corp., a manufacturer of air treatment products, saw light trading on its 9 7/8% notes due 2014, which closed down about half a point to 72.75.

MagnaChip Semiconductor Ltd. also slid half a point, its 8% junior notes landing at 63.5. The Seoul, South Korea-based company had a "wild ride" last week as it released its fourth-quarter earnings.

Yet a different trader saw the Tembec Inc. bonds a little easier on the day, citing profit-taking on the name, whose bonds have recently firmed smartly on weakness in the Canadian dollar and which were up another point to 1.5 points on Monday on sector strength following the news of the planned merger between Abitibi-Consolidated Inc. and Bowater Inc.

But they gave those latter points back on Tuesday with the Tembec 7¾% notes falling to 71 bid, 72 offered, down 1.5 points. "There was definite weakness there," he said.

Sara Rosenberg and Paul Deckelman contributed to this article.

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