Delphi dips on investor pullout; Claire's bonds better despite poor numbers; Idearc gains ground

By Stephanie N. Rotondo

Portland, Ore., April 4 - As the trading week came to a close, Delphi Corp.'s bonds slipped on the news that hedge fund Appaloosa Management LP had terminated its investment deal.

The David Teppar-led fund backed out of the $2.55 billion investment plan, citing violations of the agreement on Delphi's part and calling the company's ability to secure exit financing "tenuous." The automotive parts supplier, which had previously stated it would in fact emerge from bankruptcy by the April 4 deadline, instead saw its bonds slide 3 to 4 points.

Meanwhile, short covering was seen as the reason for gains in Claire's Stores Inc.'s debt. The struggling retailer reported its quarterly numbers Friday, which showed a more than 5% decrease in sales. Still, the bonds ended the session a couple points better.

A rating downgrade from Moody's Investors Service on Thursday has done little to stop Idearc Inc.'s paper from steadily climbing. The phonebook publisher's debt has slowly edged its way higher over the week, closing another 1 to 1.5 points firmer on Friday.

As the equity markets once again ended essentially flat, distressed bond traders are seeing their market heading for higher ground.

"A lot of stuff in general was fairly good today," said one trader.

"The market was definitely firm, but pretty light volume," said another, who called the overall market 1 to 2 points firmer on average.

Delphi dips on investor pullout

Delphi's debt took a hit on the news that a key investor in its reorganization plan pulled out.

One trader quoted the bonds generically at around 35, down 3 to 4 points on the day. Another trader pegged the 6.55% notes that were to have matured in 2006 at 33 bid, 35 offered and the 7 1/8% notes due 2029 at 33 bid, 34 offered.

"That's down a little," he said.

In the wake of the news, Delphi's DIP second-lien term loan traded higher, while General Motors' term loan traded lower, according to traders.

Delphi's DIP second-lien term loan was quoted at 98 3/8 bid, 99 3/8 offered, up from 98 1/8 bid, 99 1/8 offered, traders said.

Delphi's exit facility first-lien term loan did not really trade in the Street on Friday because of all the uncertainty surrounding it in terms of whether it will go through or not; however, there were some levels being floated around by market players, with one quoting the deal at 95 bid, 96 offered and another quoting it at 94½ bid, 95 offered. On Thursday, the loan went out at 94 bid, 95 offered.

"A lot of people are still thinking that this thing might go through," one trader said about the exit facility.

"Some people think all the tickets are going to get ripped up," another trader said about the exit loan, adding that because of the ambiguity "people refocused on the DIP" on Friday. "Some people are banking on the fact that [the DIP] will be taken out. If the deal goes through, depending on when you think it will happen, [the DIP] is kind of cheap."

Meanwhile, General Motors' term loan softened on the day, with levels quoted at 89½ bid, 90½ offered, compared to 90 bid, 91 offered on Thursday, traders continued.

The traders explained that investors are trying to figure out what type of action, if any, General Motors will take to help Delphi emerge from Chapter 11.

There is a "question of will they get more debt? Will they buy Delphi? Will they just leave it alone. People are trying to figure out what to do with this," one trader remarked.

On the day the company was hoping to exit bankruptcy, Appaloosa Management terminated its deal with Delphi to invest $2.55 billion into the automotive arts supplier.

In filings with the court overseeing Delphi's case, Appaloosa said the pullout was due to violations of the parties' agreement, including a failure to show the ability to obtain $6.1 billion in exit loans.

Earlier in the week, Delphi told Prospect News that it expected to exit Chapter 11 protection by the April 4 deadline, though it declined to comment on how much of the exit financing had been secured.

Delphi has struggled to emerge from bankruptcy since its reorganization plan was confirmed on Jan. 25. Turmoil in the credit markets made it difficult for the company to obtain its needed financing, and the company amended its exit facility several times as a result.

While former parent General Motors is considering once again increasing its role in its offspring's bankruptcy exit, the market is left wondering what will happen next. One trader said it was "possible" that the company will be forced to go back to the drawing board.

Delphi is a Troy, Mich.-based automotive parts supplier.

Elsewhere in the automotive realm, Cooper-Standard Automotive Inc.'s bonds continue to gain. A trader quoted the 8 3/8% notes due 2014 at 79 bid, 80 offered and the 7% notes due 2012 at 87 bid, 88 offered.

Another source saw Visteon Corp.'s 7% notes due 2014 end half a point better at 64.5.

Claire's bonds better

Fashion accessory retailer Claire's Stores reported its fourth-quarter and full-year results during the last trading day of the week, and, in turn, the company's debt gained.

But a trader attributed the increases in the bonds to short covering, calling the quarterly figures "terrible."

"People must be short," he said. "No matter what, they have got to start covering those shorts."

The trader deemed the debt up 2 points, with the 9¼% notes due 2015 at 64.25 bid, 65.25 offered from 62 bid, 64 offered previously and the 10½% notes due 2017 at 46 bid, 47 offered from 45 bid, 46 offered.

At another desk, a trader called the 9¼% notes "up a couple points" at around 65.

Claire's term loan also traded better during Friday's market hours, traders reported.

However, these traders went on to say that the earnings, although bad, were in line with what people had already been expecting.

The term loan was quoted at 75¼ bid, 76¼ offered late in the day, compared to Thursday's levels of 74¼ bid, 75¼ offered, traders said. One trader said that he saw the paper trade as high as near 76 in the mid-morning. Another trader said that he was quoting the paper at 73¼ bid, 75¼ offered on the open because of the poor earnings, but it traded up from there with the rest of the market.

The cash market in general was up about a quarter to a half a point on Friday, and LCDX 9 was quoted at 94.90 bid, 95.05 offered, up from 94.45 bid, 94.65 offered, traders remarked.

One trader explained that the cash market was better because amortization with quarter end is giving people more cash to put to work and there's less pressure as people have been "chipping away" at the loan overhang.

For the quarter ended Feb. 2, Claire's reported net sales of $447.4 million, a 5.3% decline from the same quarter the previous year. Consolidated same-store sales also fell 5%.

Still, year over year, sales increased 2% to $1.5 billion compared to $1.4 billion in fiscal 2007. Store sales still experienced a decline, falling 1.8%.

Claire's Stores is a Pembroke Pines, Fla.-based specialty retailer offering value-priced jewelry and accessories.

Overall, the retail sector ended once again firmer to unchanged.

A trader said Bon-Ton Stores Inc.'s 10¼% notes due 2014 closed "not too much different" at around 69.5, while Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2014 were likewise stable "right around 80."

Linens n'Things Inc.'s floating-rate notes due 2014 continued to post gains, ending the session at 38.5 bid, 39 offered.

"They keep trying to get better," the trader said.

Idearc continues upward climb

A rating downgrade in the previous session did little to stop Idearc's bonds from pushing ever higher.

A trader said the 8% notes due 2016 closed 1.5 points better at 67 bid, 68 offered. Another trader called the bonds 1 point better at 66 bid, 67 offered.

Moody's cut its corporate family rating on the phonebook publisher to "Ba3" from "B1," citing continued softening of its financial performance and its inability to reduce debt and deleverage.

The ratings agency also said the outlook is negative, given that the company has forecasted a continued decrease in advertising revenue.

Standard & Poor's downgraded the company in the previous week, as well, to "BB."

Idearc is a Dallas-based publisher of telephone directories.

Broad market mostly firmer

A trader said there "was some stuff going on earlier" in Residential Capital LLC's debt.

"They keep moving up," he said, pegging the 6 3/8% notes due 2010 at around 58, up 2 to 3 points.

Meanwhile parent company GMAC LLC's longer-dated paper, such as the 8% notes due 2031, was also better, closing at around 77 from 74 previously.

Harrah's Operating's new 10¾% notes moved up half a point to around 85.

A trader said Hawaiian Telcom Communications Inc.'s 12½% notes due 2015 were "not much different," though there "was some trading" in the name. He said the debt remained in the low-20s.

Sara Rosenberg contributed to this article.

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