Tower Auto beaten down again, Delta off; Mirant bank debt easier

By Paul Deckelman and Sara Rosenberg

New York, Jan. 24 - Bonds of troubled automotive components supplier RJ Tower Corp. continued to speed lower, as Moody's Investors Service dropped the company's ratings multiple notches in response to its warning last week that it faces liquidity problems. Also on the downside, Delta Air Lines Inc.'s formerly high-flying bonds continue to come in, leading the battered sector lower in the wake of a renewed rise in oil prices - surely a harbinger of continued high fuel prices for the airlines.

In the distressed loan market, which was down on Friday, traders said things continued to carry a "heavier" feel on Monday, with names like Mirant Corp. quoted slightly lower but wide, with trading activity described as somewhat light.

A trader saw Mirant's 2003 bank debt quoted at 70.5 bid, 73 offered; on Friday, that paper had been seen at 71 bid, 72.5 offered.

The only real factor bringing the Atlanta-based power company's paper down was market technicals, the trader added.

On the bond side, a trader in distressed securities saw Mirant about a point easier, with its busted 2½% convertible notes dipping to 74 bid, 75 offered and its 7.40% bonds due 2004 and 7.90% notes due 2009 both also losing a point, to 76 bid, 77 offered.

Tower's 12% notes due 2013 were seen having been beaten down as low as 54 bid on Monday, before coming slightly off those lows to end at 56 bid, 57 offered - down from around 60 bid on Friday, and sharply below the levels around 79.5 bid that the bonds had held before Tower's Thursday morning liquidity warning.

One trader Monday even said that he had heard some speculation in the market - strictly unconfirmed at this point - that the Novi, Mich,-based maker of automotive assemblies for the Big Three and other carmakers "may file" [Chapter 11].

However believers or the hopefuls that that is not the case bid up Tower's convertible bonds Monday by 4 to 5 points.

The 5.75% convertible bonds rebounded to 24 bid, 27 offered from a bid of 19.25 on Friday, although the 6.75% preferreds were basically unchanged at 4.25 bid, 4.5 offered.

While the path is dark for the company, several current holders in the convertibles say it doesn't seem as it the company is about to file bankruptcy, or at least they are hopeful.

"Looking at Tower Automotive, I don't think they file," said one buyside source at a hedge fund. "But so far, I'm long and wrong."

Basically, the hedge fund source said it seems that some pretty big guns like General Electric Co. have rallied behind Tower Automotive in order to keep it afloat.

"I can't see why GE Capital would have put in a puny $50 million line to a company that is about to file since if the company was going to file GE would have made a lot more fees doing a larger DIP line," the buyside source said. "And, if the company was imminently going to file, why did they put out that press release the other day rather than just file?"

Another source, on the sellside, added that Tower Automotive's contracts with General Motors Corp. and Ford Motor Co. would be collateral enough to pick up more working capital if needed.

On Thursday, Tower cautioned that that its ongoing initiatives to improve liquidity "were adversely impacted by the length of customer shutdowns over the holiday season," in that the shutdowns were longer than expected. Cumulatively it said, those shutdowns will adversely impact the company's liquidity by as much as $40 million during the current 2005 first quarter.

Tower said it continues to face "significant challenges in meeting its ongoing liquidity requirements" - especially in the wake of the elimination of early payment programs from the company's customers. For January, it said, those changes in payment terms will adversely impact liquidity by some $17 million.

Tower said it was continuing to work with its customers and suppliers to address its liquidity issues, and was also continuing to pursue a European factoring facility, the possible sale of certain equipment and other liquidity initiatives.

That warning prompted Standard & Poor's to cut Tower's corporate credit to CCC from B on Friday, and Moody's followed suit on Monday, as it chopped the rating on those bonds down to Ca from B3 previously, citing the liquidity warning.

Equity players, though, apparently disagree with their bond market counterparts and believe that things probably won't get worse; Tower's New York Stock Exchange-traded shares, which had fallen 27.12% on Thursday in response to its liquidity guidance release Thursday morning and then remained in absolute freefall on Friday, when they lost another 56.40%, bounced Monday, rising 19 cents (25.33%) to end at 94 cents, on volume of 10.3 million, more than five times the usual turnover.

Intermet also lower

Following Tower's bonds down have been the bonds of bankrupt automotive component supplier Intermet, which on Friday were heard to have declined to 52.5 bid from 55 previously; on Monday, a market source saw the Toy Mich.-based company's bonds down another point at 51.5. However, another trader saw them only having declined to 53 bid, 54 offered from 54 bid, 56 offered previously.

Delta weak

Delta Air Lines "were pretty sloppy," a trader said, quoting the Atlanta-based carrier's benchmark 7.70% notes due 2005 as having fallen to 83 bid, 84 offered from previous levels around 87 bid, 88 offered, while its 7.90% notes due 2009 ended at 46.5 bid, 47.5 offered, down from 49 bid, 50 offered.

Another trader, who saw the 7.70s fall to 83 bid, 85 offered, though only from 85 bid, 87 offered, also saw Delta's 8.30% notes due 2029 languishing at 36 bid, 38 offered, down from 38 bid, 40 offered. Delta's bonds are down anywhere from eight to 10 points across the board from the relative highs they had hit last month, given a lift by Delta's recent success in cutting its employee costs and other expenses, as well as a trend of lower oil prices, as world crude prices backed off the highs around $55 a barrel they had hit in October, to around the $42 mark.

But that fall in crude is a thing of the past; prices have been steadily climbing back upward, to nearly $50 a barrel on Monday, following the massive blizzard and near-zero temperatures which blanketed the Northeast this past weekend, boosting demand for heating oil and dragging other distillates, such as jet fuel, along with it. On top of that, the major U.S.-based airlines all reported big losses last week, with Delta's the largest.

Traders also saw American Airlines parent AMR Corp.'s 9% notes due 2012 and 2016 dropping to 67.5 bid, 68.5 offered, down a bout a point or two on the session and well down from recent levels in the low 70s. And Northwest Airlines Corp.'s 7 7/8% notes due 2008 fell to 70.5, down 1½ points on the day.

"Northwest was down about a point," a trader said, "American down one to two, and Delta down three." He said he had not seen any activity in Continental Airlines Corp., noting that "they've got only one bond out there," the 8% notes due 2005, last seen hovering in the mid 90s.

North Atlantic lower

Back on solid ground, North Atlantic Trading Co.'s 9¼% notes were seen at 76 bid, down five points from recent levels. A trader saw the bonds at 82 bid, 83 offered Friday, then saw them open as low as 72 bid, 74 offered, before climbing back to 76.

The New York-based importer of tobacco, rolling papers and other smoking related products last week announced the resignation of David Brunson, its president and chief financial officer, and the hiring of the turnaround firm of Alvarez & Marsal as its advisors.

Owens Corning lower

Bankrupt Toledo, Ohio-based insulation maker Owens Corning's notes were quoted down a point, at 77 bid, 78 offered. The company - which recently lined up the support of several key creditor groups for its reorganization plan - continues to battle claimants seeking large damages due to medical problems allegedly brought on by exposure to asbestos in the company's products, according to court papers filed Friday.

Meanwhile, the bonds of Lancaster, Pa.-based floorcovering maker Armstrong World Industries - also driven into Chapter 11 under a hail or asbestos claims - were unchanged Monday, at around 74 bid.

(Ronda Fears contributed to this report)

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