Sea Containers paper 'walloped'; Anvil Knitwear refinancing leery; Six Flags lower; Dura better

By Ronda Fears

Memphis, Nov. 27 - With the bulk of distressed paper falling in tandem with stocks Monday, Sea Containers Ltd. was pressured late in the day as holders bailed out to take profits on positive news that its British railway unit GNER would continue to run the East Coast main line in the United Kingdom for another two years while the franchise is re-let.

Moreover, distressed paper was "whacked" by the sharp downturn in stocks, as one trader put it. The Dow Jones Industrial Average lost 1.29% while the Nasdaq fell 2.21% and the S&P 500 dropped 1.36%.

"Distressed market has been so strong [lately] following equities, so when you have an equity pullback of 150 points today, distressed quickly loses its wind," another trader said.

As for Sea Containers, the 7½% notes due 2012 were doing fine on the news, which propped up the correlated stock by 4% on Monday, but the bonds were "walloped at the end of the day," one distressed debt trader remarked. The issue saw heavy after-hours action, finally settling with a loss of 2.5 to 3 points at 67.

Another trader saw the Sea Containers 10¾% bonds due 2006 down 1.5 points to 69/70.

Weekend reports in London stated that the British government has allowed its unit, railway operator GNER, to continue to run the East Coast main line for up to two years as it prepares to re-let the franchise. GNER's $2.49 billion franchise agreement has been terminated, but the government has offered to allow it a temporary reprieve on a new fixed-management-contract basis.

"Everyone saw this as a positive," said the distressed debt trader. "However, this afternoon, the bonds got hit. No one knows why really."

Another market source, though, said it was merely a matter of profit taking after the positive news surfaced.

Bermuda-based Sea Containers' troubled financial situation led to GNER's contract trouble. The parent is still embroiled in a dispute with the U.K. government pension regulator over an Oct. 19 warning that the regulator is considering exercising its powers to issue what are known as financial support directions, directing it to pay pension obligations.

In early November, the transport conglomerate said there was no need for pension regulators to compel it to pay into U.K. retirement plans because the company is in talks with the funds. The plans involved are the Sea Containers 1983 Pension Scheme and the Sea Containers 1990 Pension Scheme - the multi-employer defined-benefit pension plans of Sea Containers Services Ltd., a U.K. subsidiary.

Trustees of the pension schemes or their actuary have advised Sea Containers that their current estimates of the cost of winding up the schemes, including the cost of purchasing annuities to pay projected benefit obligations to scheme participants, would be about $201 million for the 1983 scheme, after giving effect to the withdrawal of a GE SeaCo SRL subsidiary from the plan, and about $51 million for the 1990 scheme.

Sea Containers sought bankruptcy protection after it was unable to pay the $115 million of 10¾% notes when they came due on Oct. 15.

Anvil Knitwear unravels

In another down-trodden story, Anvil Holdings, Inc., parent of Anvil Knitwear Inc., bonds dropped about a point with the 10 7/8% notes due March 15, 2007 trading down to 67, a trader said.

New York-based Anvil warned in April that it will most likely not be able to repay the principal on the $130 million issue.

A break-down in that effort resulted in the company filing a prepackaged bankruptcy in early October. In its bankruptcy petition, Anvil listed assets worth $110.7 million as against its liabilities of $244.6 million. The company has obtained interim bankruptcy court approval to borrow a $40 million debtor-in-possession financing via Wachovia Bank.

Under the plan, noteholders will receive substantially all of the equity of the reorganized company and preferred stockholders will receive the remaining equity and warrants. Noteholders have three options: up to $60 million of new 10 7/8% senior notes due 2012 and 98% of the shares of the new common stock; cash to be funded by between $40 million and $60 million in new third-party debt and 98% of the shares in the reorganized company; or, 99% of the shares in the reorganized company.

Anvil, with more than 4,200 workers, designs and manufactures active wear mainly for the imprinted or decorated segment of the U.S. apparel industry, such as T-shirts. The company sells products under various brand names like Anvil, ChromaZone, Cotton Deluxe, Towels Plus and Teak.

Six Flags asset sale problematic

Elsewhere, Six Flags Inc. bonds were seen lower by 3 to 4 points as players grow weary of news on its efforts to sell assets to help shore up the theme park's balance sheet. Basically, as time wears on, one sellsider said, the prospects of a profitable sale grow dimmer.

"I don't think they are going to get it done at all. If they don't get the price they want, they will just hold on to them," the sellsider said.

"If they had done this a year ago it would be a different story, when the real estate market probably peaked out. Now, they may be stuck in the down cycle for real estate."

Six Flags' 9¾% bonds due 2013 traded down to 93.75 on Monday from a 97.5 open and Friday's close of 96.125, a trader said. He said the sell-off was motivated by profit taking, echoing other remarks that the longer Six Flags has properties on the sale block the less likely it will see a transaction at decent prices.

Six Flags said in its third-quarter earnings calls that it is still trying to sell nine parks it put on the block earlier this year. The company said it received interest from 50 different parties and, come December, will announce either a successful sale or the decision to keep the parks if a suitable offer is not received.

The company hopes to sell Six Flags Darien Lake outside Buffalo, N.Y., Six Flags Waterworld in Concord, Calif., Six Flags Elitch Gardens in Denver, Wild Waves and Enchanted Village outside Seattle, Six Flags Splashtown in Houston and Six Flags Magic Mountain and Hurricane Harbor near Los Angeles, and three other parks.

Earlier in November, the New York-based theme park operator reported that third-quarter earnings fell 16% to $159.3 million, or $1.08 per share, from $190.2 million, or $1.29 per share, a year before while revenue slid to $540.7 million from $546.1 million.

Earlier this year, the company also had trouble meeting financial covenants under its credit facility due to EBITDA shortfalls.

Ford up despite downgrades

Activity in several markets was dominated by Ford Motor Co.'s news that it plans to get about $18 billion in financing in part to address near- and medium-term negative operating-related cash flow and fund its restructuring, as well as provide insulation against a recession or other unanticipated events.

The news sparked downgrades to the credit by all three major rating agencies deeper into junk territory, but bondholders ignored that, pushing the 7.45% notes due 2031 up a half-point to 78.5/79, according to traders. Ford shares, though, lost more than 4% to settle Monday at $8.16.

The package will include a new five-year senior secured revolving credit facility of roughly $8 billion to replace Ford's existing unsecured credit facilities of $6.3 billion, a senior secured term loan of around $7 billion and yet-to-be-defined unsecured capital market transactions that will total about $3 billion.

While the capital markets transactions have not been detailed by Ford, market speculation is that there could likely include unsecured notes convertible into Ford common stock.

Following the transactions, Dearborn, Mich.-based Ford said its automotive division liquidity will be about $38 billion at year-end, including cash, cash equivalents, loaned and marketable securities and available credit facilities. Ford expects the transactions to close before Dec. 31. The senior secured credit facilities will be arranged by Citigroup Corporate and Investment Banking, Goldman Sachs Credit Partners LP and J.P. Morgan Securities Inc.

In the first nine months of 2006, Ford lost $7 billion and has said it does not expect to return to profitability until 2009. The company has offered buyouts and early retirement packages to all 75,000 U.S. production workers and plans to shut down 16 plants to cut manufacturing capacity to match lower demand.

Moody's Investors Service affirmed Ford's B3 corporate family rating but lowered the senior unsecured rating to Caa1 from B3. Standard & Poor's cut its senior unsecured debt rating on Ford by two notches to CCC+ from B. And, Fitch Ratings downgraded Ford's senior unsecured debt to B from B+.

"Completing this financing would considerably strengthen Ford's ability to fund the large cash requirements it will face through 2008. However, the relatively robust security package being afforded to the term loan and the revolving credit facility hurts the position of unsecured creditors," said Moody's analyst Bruce Clark.

"It was important for Ford to structure this type of financing plan in order to ensure that it had adequate liquidity as it enters a highly challenging period. The company still faces daunting competitive and market challenges, but this plan would give its some breathing room over the next two years."

Ford bank paper tracks lower

Ford was the primary focus of the distressed loan market on Monday, too, as the plans include a new $15 billion senior secured credit facility, according to a trader.

The company's bilateral loan was quoted at 95 bid, 96 offered, unchanged on the day since the anticipation of the financing news was priced in early last week when the company revealed that it was looking into obtaining new secured financing to provide extra liquidity, the trader said.

The new credit facility, being led by Citigroup, Goldman Sachs and JPMorgan, consists of an $8 billion five-year revolver and a $7 billion term loan B.

Security is first-priority liens on principal domestic manufacturing facilities and substantially all of the company's other domestic automotive assets, certain intellectual property, certain real property, all or a portion of the stock of certain subsidiaries, certain intercompany payables and notes, and up to $4 billion of domestic cash without restriction on its use.

Dura loan expected in range

Elsewhere in the auto sector, a market source said Dura Automotive Systems Inc. is expecting that the spread on its $150 million term loan B and $20 million synthetic letter-of-credit facility will end up at the mid-range of pricing guidance.

It is currently thought the two institutional tranches will price at Libor plus 325 basis points, right in the middle of the Libor plus 300 to 350 bps price talk that investors were being guided toward, the source said. However, this pricing has not yet been finalized, the source warned.

The term loan and synthetic letter-of-credit facility are part of Dura's $300 million debtor-in-possession financing facility, which also includes a $130 million asset-based revolver priced at Libor plus 175 bps.

Goldman Sachs, GE Capital and Barclays are the lead banks on the deal.

Dura has already obtained final court approval for the DIP facility.

The Rochester Hills, Mich.-based automotive parts maker plans to use proceeds to fund normal business operations and continue its operational restructuring program initiated in February 2006.

On bond desks, traders said traffic was light in the auto group outside of the big automakers, but the Dura 8 5/8% notes due 2012 were seen up 1 point at 25/26 and the 9% notes due 2009 better by a half-point at 5/5.5.

Tembec, Le-Nature's lower

Other noteworthy moves in the distressed debt circles included declines for Tembec Industries Inc. and Le-Nature's Inc. and a bounce in Movie Gallery Inc.

Tembec's 8 5/8% notes due 2006 were described as lower by 2 points to 62/64 by one trader, but a second trader quoted those same bonds at 63/64, pegging them down 3 points from Wednesday. The Montreal-based forest products company's bonds were weaker last week on third-quarter numbers.

Le-Nature's 9% bonds due 2013 were cited down 1 point to 12/14. The bonds of the bankrupt Latrobe, Pa., manufacturer of flavored bottled water and other beverages had been trading around par bid at the beginning of November, then plunged as low as the 9-10 area before coming off those lows after a Chapter 7 involuntary liquidation proceeding initiated by disgruntled stockholders was converted back to a standard Chapter 11 reorganization.

On the upside, Movie Gallery's 11% notes due 2012 were quoted higher by a point to 71/73, with no news to prompt the rise.

Airlines head lower

Also in bond activity, traders saw the debt of Atlanta-based Number-Three domestic carrier Delta Air Lines Inc.dip, after having reached new heights last week on the latest development in the effort by US Airways Group to acquire Delta - some big Delta bondholders formed a rump creditors group, alongside the official creditors committee, to urge the airline to seriously consider the US Air offer and not reject it out of hand.

They cited profit-taking from the recent gains, as well as the news that the airline has agreed to give its retired pilots an extra $719 million in unsecured claims in its bankruptcy case, to help them recoup losses from the termination of the pilots' pension plan.

A trader saw Delta's 8.30% notes due 2029 at 59.5 bid, 60.5 offered, which he called down 2 points on the day.

Another trader saw those bonds at 59 bid, 61 offered, a 3 point loss.

The traders also saw Northwest Airlines Corp.'s bonds down about 2 points, with its 8 7/8% notes that were to have come due this year at 87 bid, 89 offered.

At another desk, a trader said the bonds of the bankrupt Eagan, Minn.-based Number-Four carrier "started out strong but then gave it all back." He had the 8 7/8s up about a point in the early going to 87.5 bid, 88.5 offered, but saw them end at 86 bid, 87 offered, down ½ point.

The Northwest bonds had risen last week in response to the recently solid rise in Delta, whose 8.30s went from the upper 30s to the lower 60s, as well as M&A speculation possibly involving Northwest.

Calpine climb continues

Traders again saw the bonds of Calpine Corp. strengthening, for no apparent reason.

One saw the bankrupt San Jose, Calif.-based power company's Calpine Canada Energy Finance II 8½% notes due 2008 up a point to 86 bid, 88 offered, while its 7¾% notes due 2009 rose to 90 bid, 92 offered. He saw its 8½% notes due 2011 up a point to 70 bid, 70.5 offered. Another trader saw those 2011 81/2s up 2 points to 71.5.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.