Northwest, Delta steady; Remy mixed; Federal-Mogul higher; Sea Containers offers lifted

By Ronda Fears

Memphis, Jan. 8 - Distressed debt remained on higher ground Monday, although some attribute it to an overly optimistic value of the potential equity optionality as interest in bankrupt companies from hedge funds and private equity investors continues to climb.

The lack of paper for sale, traders say, is what has players "grabbing for straws," or snapping up practically anything that shows up on the offer, as one put it. "The tone is very good," one trader remarked, yet he noted that while volume was decent Monday there were many issues in which only one trade was printed, even among larger, more liquid issues.

"Everything, with perhaps the exception of Remy, is still catching surprisingly a strong bid," said another distressed bond trader.

"I still see the distressed market as extremely buoyant."

Remy International Inc. bonds were mixed, traders said, as uncertainty about the situation lingers. The Remy junior bonds were seen off by about a point at 41 bid, 42 offered while the senior bonds were seen higher by a point at 88 bid, 89 offered, according to one trader. However, traders also made a point to remark that the Remy weakness had no impact on other names in the auto-related group.

The distressed bond trader continued, saying situations like Delphi Corp. and Delta Air Lines Inc. where competing hedge fund and private equity bids propose to bring these companies out of bankruptcy have injected a lot of equity players into the stories and provoked debt players to bid up the bonds in the arbitrage trade. Delphi bonds were described Monday as a little weaker with the 6.55s at 109 versus 111 on Friday, although the 6½% notes were said to be steady at about 108.5.

The trader said, however, it appears that many of the debt players are not doing much work on the exact payouts, but merely adding on an equity option value. Northwest Airlines Corp. could be the exception, but he noted that those bonds have not escalated to the extent of Delphi's. Along those lines, Delta's bonds may have the most juice left.

Also of note, a trader saw Tembec Inc.'s bonds up a point across the board, with the 8 5/8% notes at 71 bid, 73 offered, the 8½% notes at 63 bid, 65 offered and the 7¾% notes at 61 bid, 63 offered. No positive news that might explain the rise was seen out on the Montreal-based forest products company.

Delta unmoved by US Air news

Traders said Delta Air Lines bonds moved up as much as 2.5 points but ended basically unmoved Monday by news that US Airways Group Inc. had added Morgan Stanley as a lead underwriter of its proposed takeover of Delta, joining Citigroup among underwriters committed to providing $7.2 billion in debt financing for its hostile proposal.

"It hasn't changed the bid as we read the news," one trader said.

Thus, Delta paper was essentially unchanged or maybe a touch easier, with the 8.30% bonds pegged at 64.5 bid, 64.75 offered at the close versus 65 on Friday. The bonds were seen trading earlier in the day as high as 66 bid, 67 offered.

The new financing commitment has been revised to provide improved terms, US Airways said. Tempe, Ariz.-based US Airways made the unsolicited bid, which includes $4 billion in cash plus 78.5 million shares of US Airways stock, on Nov. 15. At the current US Airways stock price, its bid would be roughly $8.55 billion.

Atlanta-based Delta has filed a reorganization plan that calls for it to emerge from bankruptcy as a stand-alone company by the middle of this year. Financial adviser The Blackstone Group estimates a $9.4 billion to $12 billion consolidated equity value for the company, which US Airways has asserted is unreasonable.

Lawyers for Delta Air Lines, the nation's third-largest carrier, said Wednesday they have scheduled a Feb. 7 hearing in bankruptcy court to consider approval of the disclosure statement to the carrier's reorganization plan.

Northwest Air steady in 94 area

Steady was also the course for Northwest Airlines bonds, traders said, as the company reported Monday that traffic in December improved by 1.1% and its load factor increased to 80.7% from 80%.

The Northwest issues were quoted in the 94 bid, 95 offered area by one trader, who also noted very little traffic in those bonds.

Another trader said there is some anxiety creeping into the Northwest situation because no buyout offer has emerged for the Eagan, Minn.-based carrier since it hired Evercore Group LLC last month to explore merger and acquisition possibilities.

"It could be that anyone looking at Northwest is waiting to see how the Delta situation pans out," said one trader.

"But we are not hearing anything and some people are getting nervous about that."

Northwest has made a bid to sponsor feeder carrier Mesaba Airlines Inc. in its bankruptcy exit plan, but that is considered minor at under $200 million, the trader said.

Federal-Mogul inquiries grow

Elsewhere, on higher ground Federal-Mogul Corp. moved higher by another point to 79 bid, 80 offered as investors remain encouraged by the Southfield, Mich.-based auto parts maker's progress in emerging bankruptcy soon.

"They've moved up a point or so just about every day," one distressed bond trader commented.

"It's not much, you think, but in the last week these bonds have tacked on 10 points. That's remarkable. It has turned some heads; we have got a lot more calls on this one lately."

Federal-Mogul's bankruptcy, filed Oct. 1, 2001, has been mired and drawn out by a mound of asbestos claims, past and future. On Nov. 20, the company filed its fourth joint amended plan of reorganization, which incorporates new provisions for the settlement of claims filed against debtor affiliates in the United Kingdom.

The bankruptcy court hearing is scheduled for Feb. 2 on the new and latest plan. Objections are to be filed by Jan. 10.

Sea Containers bounce to 75

After a short bout of weakness, Sea Containers Ltd. bonds got lifted on an offer at 75, versus 72 for the paper last Friday, another distressed trader reported.

The Bermuda-based maritime group filed bankruptcy in mid-October and had been steadily climbing until recently, but now has bounced back. Most of the Sea Containers issue is locked up in restricted hands and nearly any offer put on the table is getting hit, a buyside trader said.

Sea Containers' subsidiary Great North Eastern Railway recently entered into a management agreement with the United Kingdom under which it will operate the East Coast Mainline, which alleviated some holders' concerns. But speculation that the company may sell off all of its Finnish ferry business has some players thinking that will not leave much in the way of an ongoing concern.

Adelphia lingers around par

Action in the Adelphia Communications Corp. bonds Monday cooled off considerably from Friday, traders said, as arbitrage players began to run into resistance from equity players in the Time Warner Cable shares that are trading on a when-issued basis.

"The borrows are getting tight," said one distressed bond trader.

He said arb traders wanting to short the stock were being required Monday to hold the Adelphia bonds, which will be getting a Time Warner Cable stock distribution as part of the Adelphia bankruptcy reorganization plan. That is somewhat unusual, he said, and put a damper on the trading action.

Adelphi bondholders do not want to let go of that paper, though, because they want to be involved in the Time Warner Cable story, another trader said.

"There was maybe a couple of trades in the bonds," he said, pegging the 10¼% bonds due 2011 essentially unchanged at 99.5 bid, 100 offered and the 10¼% bonds due 2006 also steady at 93 bid, 94 offered.

After some five years in bankruptcy, the defunct cable company has estimated its reorganization plan could become effective Jan. 17. The Time Warner Cable stock is the result of the $17 billion sale of its cable assets to Time Warner Inc. and Comcast Inc., which took place in July 2006 and creates the biggest domestic cable company.

Rotech bonds gain

Back to gainers, Rotech Healthcare Inc.'s 9½% notes were seen having moved up to 98.5 bid, 99.5 offered from prior levels at 97 bid, 99 offered but bond traders saw no fresh news out on the Orlando, Fla.-based medical products distributor.

Renewed rumors of merger for Rotech, coupled with better Medicaid reimbursement projections, pushed the stock up more than 8%, according to equity traders. There has been speculation of merger with American Homepatient Inc. for several weeks, it was noted. American Home shares were unchanged in over-the-counter trade Monday at $1.60 amid light volume.

Hedge fund Highland Capital Management LP is a big player in both companies, one trader said, and it was speculated that the company might propose a merger between the two home health care providers. Highland Capital did not return calls about the speculation.

"This has been circulating for a good while now and nothing has come of it, except for a nice appreciation in both stock prices," an equity trader said.

"It could be that Highland just cashes out now that the stocks have risen so much."

Rotech provides home medical equipment and related products and services in the United States. It offers respiratory therapy and durable home medical equipment and related services. Brentwood, Tenn.-based American Homepatient is focused on products consisting primarily of respiratory and infusion therapies, and home medical equipment and home health care supplies.

A long-awaited Medicaid report that pushes tax breaks for long term care also was cited as cause for the improvement in Rotech shares, according to the trader.

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