Northwest steady, Delta down; Tower bid/ask spread widens; Tembec up; Calpine loans lower

By Stephanie N. Rotondo

Portland, Ore., Jan. 29 - Distressed airlines were the big news of the day on news reports that Delta Air Lines Inc. may get an increased takeover bid from U.S Airways Group Inc. and shareholders at Northwest Airlines Corp. waged an attack.

Reports said U.S. Airways may be willing to add $1 billion to its offer to takeover Atlanta-based airliner Delta. The company's creditors' committee is discussing the offer, set to expire Feb. 1, though many have opposed the potential merger.

Meanwhile Northwest's shareholders are objecting to the airline's reorganization plan that would allow zero recovery for stockholders. In a letter filed with regulators Monday, shareholders representing owners of a 30% stake allege that the company is not taking their interests into account.

In bankrupt auto parts manufacturer news, Tower Automotive Inc. is experiencing some objections of its own. The company's creditors' committee has filed objections against another exclusivity extension. In bond trading, traders saw a wide spread but little movement.

Paper and forest product merger news sent Tembec Inc. looking to regain its losses from last week, but in the end it registered only modest gains and little activity.

"It seemed to me everyone was sleeping today," one trader said of the overall slow day. Another said the market was "really quiet," with no real news driving trades.

Northwest bonds steady-ish

Shareholders are mounting an attack on Northwest's reorganization plan. Filed Jan 12, the plan states that all stock will be cancelled, leaving shareholders holding worthless paper.

But in a letter filed Monday, Jeffrey A. Altman of the Owl Creek hedge fund stated that the company was breaching its duty to look out for all parties' financial interests, including shareholders'. He said the company is performing much better than it was at the time it filed bankruptcy in September 2005, and would have enough to pay its debts as they come due. Altman, whose fund owns 5% of Northwest's equity and is part of a group of shareholders who hold "close to 30%" of the airline's stock, have asked the bankruptcy court to appoint a committee of shareholders.

"They'd be stupid not to listen to the equity committee," one trader said. "Your fiduciary duty to the company, to the creditors, is to get as much recompense as possible. The bond holders should listen to the equity guys."

The trader called Altman's move "strategic," though he said it "depends on how good these guys are at being activists."

Despite the fresh news, one trader said the Northwest notes were relatively unchanged, though they were weaker in the morning. He placed the 10% notes due 2009 at 95 bid, 96 offer, though they traded at 94 bid, 96 offer during the day. At another desk, a trader saw the recently retreating paper "rebounding" Monday, with its 8 7/8% notes due 2006 up a point on the day.

The company "gained altitude after the drubbing they took on Friday," said another trader who also saw the '06 bonds firm up to the 93 bid, 94 offered area.

Delta bonds drifts lower

In other bankrupt airline paper, Delta slipped a few points throughout the day amid reports that U.S. Airways might up its takeover bid. One trader said the 8.30% notes due in 2029 started the morning off at 64 and were seen later in the day at 62 bid, 63 offered.

According to a Wall Street Journal report, the Tempe, Ariz.-based airline would increase its $10.2 billion bid by $1 billion if the official committee of creditors demanded Delta open itself to due diligence. The company is asking that Delta postpone a Feb. 7 hearing on its stand-alone reorganization plan to give U.S. Airways a chance to check out Delta's financials.

As the Feb. 1 deadline approaches, it is still unclear on how the committee will react to the bid increase, though much of Delta's management, with the support of its unions and Georgia state officials, have opposed a merger with U.S. Airways.

Tower price spread widens

Auto parts maker Tower saw a wider bid-ask spread as its creditors committee objected to the company's request for a ninth exclusivity extension.

One trader indicated activity was light in the 12% bonds due in 2013, as they traded at 10 bid, 14 offered. The offer on the bonds had dropped sharply when the company's equity rights offering fell apart recently and it took several sessions for any bids to emerge for the paper.

"There was no real movement in the bonds because the bid, offer is so wide," he said.

The Novi, Mich.-based company's unsecured creditors filed the objection Friday. In the objection, the committee said it was in discussion with an investor who the company has largely ignored. The investor wants to purchase most of the company's North American assets, as well as a plan term sheet based on the proposed sale.

Tower announced earlier in the month that three investors who backed the company's reorganization plan were pulling out, leaving the company to search for other alternatives. To date, no other plans have been announced.

Tower filed for bankruptcy in February 2005.

Tembec rises with Abitibi

Montreal-based Tembec attempted a comeback Monday amid news of the Abitibi Consolidated Inc.-Bowater Inc. merger. One trader said there was little activity in Tembec but the bonds were slightly higher. Another trader in the broader high yield market pegged Abitibi bonds better by 4.5 points with heavy volume.

The Tembec 8 5/8% bonds due in 2009 closed at 84.75, while the 8½% notes due in 2011 closed around 75 bid, 76 offered. Another trader saw Tembec's 8 5/8% notes initially push up 2 points to around 86.5, before dropping back from that peak to end at 85, up ½ point.

On Friday, Tembec's bonds were described as "volatile," as the paper traded heavily. The debt had been on a firming trend in response to weakness in the Canadian dollar, seen as an aid to export sales, and after the company said earlier in the week that it had come to an agreement with its lenders on an amended and restated working capital facility. It also announced Thursday it would release its fourth-quarter earnings on Feb. 1.

But traders said the Abitibi-Bowater news was behind the slight rebound on Monday. The two newsprint producers said they would combine in an all-stock merger. The new company, AbitibiBowater, will be the third-largest publicly traded paper and forest products company in North America and the eight largest in the world. Abitibi's 8.85% notes due in 2030 were very active, gaining almost 4.5 points from Friday at 93 bid, 94.5 offered.

One trader cautioned that it was by no means certain that the Abitibi-Bowater news meant that the troubled Montreal-based forest products producer Tembec was "on someone's radar screen" for a possible acquisition attempt.

Calpine loan paper lower

Calpine Corp.'s debtor-in-possession financing facility debt and the second-lien loan of its subsidiary, Calpine Generating Co., LLC (CalGen), retreated on Monday as news of upcoming repayments through a refinancing hit the market, according to traders.

Calpine's first-lien DIP loan closed the day at 100.125 bid, 100.625 offered, down from 100.75 bid, 101.25 offered as investors are expecting to be taken out at par, a trader said.

Calpine's second-lien DIP loan closed the day at 100.125 bid, 100.625 offered, down from 101.25 bid, 101.75 offered also, because of this expected par paydown, the trader continued. The call protection on this second-lien paper "runs off in a couple of weeks so that will be gone by the time this thing is done", the trader added.

And, CalGen's second-lien loan closed the day at 103 bid, 103.5 offered, down from 103.5 bid, as investors expect to be taken out at the 103 call protection level, a second trader remarked.

Calpine revealed in a court document late Friday that it is seeking approval of a $5 billion DIP that would refinance its existing DIP and repay $2.516 billion of CalGen secured pre-bankruptcy debt.

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

The DIP 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.-based power company.

Sara Rosenberg and Paul Deckelman contributed to this article.

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