Dura bank debt better but bonds fall on bankruptcy talk; Calpine debt gains

By Paul Deckelman and Sara Rosenberg

New York, Sept. 14 - Dura Automotive Systems Inc.'s second-lien term loan traded higher Thursday as bankruptcy speculation swirled around the Rochester Hills, Mich.-based auto parts company. However, Dura's bonds and shares fell sharply, although the bonds were seen having finished above their session lows, though well off the prior day's levels.

Elsewhere, Calpine Corp.'s second-lien term loan continued to head higher on Thursday, still spurred on by recently announced strong monthly earnings.

A bank loan trader said that the second-lien loan closed out the day quoted tightly at 104.75 bid, 105 offered, up about ¼ point from previous levels.

On Wednesday, the bankrupt San Jose, Calif.-based power company reported income from operations of $171.54 million on revenues of $784.71 million, up from June's income from operations of $33.49 million on $574.42 million in revenues.

In addition, net income for July was $92.22 million, compared to a net loss in June of $336.34 million.

Based on the reported numbers, investors are projecting that Calpine's EBITDA for July is around $225 million, compared to around $300 million of EBITDA for all of last year.

Dura loan higher

But the big mover in the bank debt market was Dura, whose second-lien loan was thought to have gotten a boost, possibly on some private news and possibly in reaction to the bankruptcy speculation that was heard around the market.

A trader saw the second-lien term loan closing out the day quoted at 97.5 bid, 98.25 offered, up about a point when compared to Wednesday's closing levels.

However, the bank debt actually traded as high as 2 points better early on before settling in a touch by the close. Trades were seen going off as low as 96.5 and as high as 98 during market hours, the trader added.

Dura bonds stagger along

While Dura's bank debt was headed higher, its junk bonds and its shares were moving in the opposite direction, spooked by the bankruptcy predictions, as well as concern about whether the company can get financing on favorable terms, and whether its vendors will continue to extend credit.

Dura was "down quite a bit," said a trader, who quoted the company's Dura Operating Corp. 8 5/8% senior notes due 2012 as having fallen from a 70ish context on Wednesday to as low as 61 in Thursday's trading, before coming off the lows and settling in at 63 bid, 64.

"There was a fair amount of selling this [Thursday] morning," another trader said, "before the bonds came off their lows." He quoted the 8 5/8s ending at 64 bid, 64.75 offered, which he called down 2½ points on the session, after having fallen as low as 61 bid, 62 offered in the morning.

"There was brief interest in selling," he added, "then that popped back up. That was the story."

The trader also saw the Dura Operating 9% subordinated notes due 2009 fall as low as 8 bid, 9 offered in morning trading before firming slightly off those lows to finish at 9.5 bid, 10 offered - still down 2½ points on the day. However, he said that the 8 5/8s were by far the busier of the two issues.

Dura's Nasdaq Global Market-traded shares meantime swooned 8 cents (16.85%) to end at 37 cents. Volume of 1.2 million was about three times the usual turnover.

Dura's bonds were already sliding on Wednesday, after Lehman Brothers said in a research report that a bankruptcy filing was likely in the next few months.

However, that's not really an earth-shattering bombshell, said Bob Grimm, managing director at J. Giordano Securities Group in Stamford, Conn. "Everyone expects a filing," he declared. "The threat of a filing is nothing new. It's just a question of when?"

Grimm said that Thursday's price action was being driven by market rumors that Dura "was around looking for DIP [debtor-in-possession] financing, which means they're going to file - and the DIP people were demanding extremely high interest rates" before committing to loan the company any money.

"They were really giving them [Dura] a hard time," he reiterated. "That's what's got everybody spooked."

He also said that a court ruling earlier this week in Michigan might be taking its toll as well. In that decision, handed down Tuesday by a federal judge in Detroit, Dura failed in its effort to get the court to order supplier Johnson Electric North America Inc. to keep providing Dura with seat adjuster motors. Johnson had suspended deliveries because Dura owes the company $1.3 million.

"The screws are tightening on Dura from all angles," Grimm warned. While none of the other vendor companies that sell components or raw materials to Dura has been reported to have tightened their credit terms, "if one of them is doing it, who's to say they all aren't?"

Grimm further cited a recent research report which called Dura's 9s essentially worthless and which estimated the value of Dura's senior debt as between 60 and 80 cents on the dollar, in a liquidation scenario. "They said that even if Dura goes through the bankruptcy process, and gets rid of all of its debt, about the best they're going to be is cash-flow break-even.

"If you get rid of all your debt and you're only cash-flow break-even, you're really not a viable company."

Should Dura file for protection from its junk bond holders and other creditors, it will join such sector peers as Collins & Aikman Corp., Delphi Corp., Dana Corp. and Tower Automotive Inc.

"All of the suppliers are really in big trouble," the Giordano managing director opined. "The auto guys," like Ford, General Motors Corp. and DaimlerChrysler AG's domestic Chrysler Group, "are looking to cut expenses, and have fewer suppliers."

The bottom line, he said is that "a lot of these guys will eventually disappear."

Ford easier ahead of news

Among the carmakers, Ford's bellwether 7.45% notes due 2031 down ½ point at 78.75 bid, 79.75 offered, while the Ford Credit 7% notes due 2013 were down ¼ point at 93 bid, 93.5 offered.

"There was no big reaction," to the stories coming out of Detroit predicting that Ford would begin a massive buyout campaign aimed at whittling down its more than 75,000-person unionized domestic work force.

Ford did not disclose what took place behind the closed doors of its board room, although it slated an announcement for Friday.

However, the United Auto Workers union said Thursday that the company would expand its buyout program to the entire unionized U.S. workforce as part of a larger restructuring effort aimed at returning the company to profitability.

GM's benchmark 8 3/8% notes due 2033 were meanwhile down ¼ point at 86.75 bid, 87.25 offered.

Among other problem-plagued auto parts producers, Delphi's 6½% notes due 2009 were unchanged at 92, while the bankrupt Troy, Mich.-based firmer GM unit's 7 1/8% notes due 2029 were ½ point lower, at 86 bid, 87 offered.

A trader in distressed bonds said Federal Mogul Corp.'s notes were up 2 points on the session at 58 bid, 59 offered.

The bankrupt Southfield, Mich. -based automotive components maker meantime requested an extension to its exclusive periods to file a plan of reorganization and solicit votes on the plan, and also requested court approval of the $1.1 million sale of its Milan, Tenn., property, according to a court filings.

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