Tower Auto bank debt, bonds shrug off Chapter 11 talk, end firmer; Delta bonds better

By Paul Deckelman and Sara Rosenberg

New York, Jan. 25 - Tower Automotive Inc.'s bank debt traded around par a couple of times on Tuesday and even, at one point, traded slightly above par, shrugging off the recent liquidity concerns and Chapter 11 rumors, traders said. The Novi, Mich.-based automotive component maker's RJ Tower Corp. bonds - which had careened wildly down to levels as low as 54 bid from around 79.5 just last Thursday - were also several points higher on the day.

Elsewhere, Delta Air Lines Inc.'s bonds were also seen having a little bounce to them, after several days on the downside.

Investors in the Tower bank loan paper are apparently confident of their recovery prospects in a worst-case situation, according to a trader.

"The bonds have been off like 30 to 40 points. The bank debt has held in. The lowest it traded in the last couple of weeks is 99.25. It's up to par now.

"Whisper is a potential pre-packaged bankruptcy deal. Hedge fund, bank loan markets would probably supply some sort of financing because Tower can't just disappear. Big companies like Ford need them to stay around. It's all just speculation at this point," the trader said - although he added "where there's smoke, there's fire."

Moody's Investors Service, in downgrading Tower's debt ratings multiple notches on Monday - dropping the company's first-lien bank debt to B3 from B1, its second-lien bank debt to Caa2 from B2 and its bonds to Ca from B3 - cautioned that the rating actions and the continued negative outlook for the ratings "reflect increasingly alarming trends regarding the company's very constrained liquidity position, uncooperative second-lien lenders, potential inability to offset additional OEM early pay terminations, stretching of trade terms, and limited remaining alternative liquidity solutions in the face of rising leverage, [and] insufficient cash interest coverage by operating earnings."

The ratings agency also warned of its concern about "the rising potential for bankruptcy or some other form of distressed balance sheet restructuring to be required."

That sparked a breakout of bankruptcy buzz in the bond, bank debt and equity markets, with internet bulletin boards humming Tuesday about the possibility of a pre-packaged Chapter 11 arrangement or some other restructuring transaction.

However, Tower issued no public statement as a follow-up to last Thursday's liquidity warning and the company did not answer several phone and e-mail messages from Prospect News on Tuesday seeking comment on the market's bankruptcy speculation and Moody's specific warning.

RJ Tower's 12% notes due 2013 - which had skidded down over the past three sessions - were finally coming off the bottom on Tuesday, moving up from Monday's finish around 56 bid to close at 58.75 bid, 59.25 offered.

Tower, a trader said, had been "like a yo-yo," although he saw the movement all day Tuesday steadily upward from its recent lows.

That rebound coincided with a bounce in the company's New York Stock Exchange-traded shares, which had risen 25.33% gain on Monday from their recent lows of 75 cents, and which were up another 10 cents (10.64%) to $1.04, on volume of 3.5 million shares, about double the norm. But even as the small rise in the bonds Tuesday still leaves them around 20 points below where they were on Thursday, before the company's liquidity warning, the shares are still well down from the levels around $2.50 at which they had traded before the warning.

Last Thursday, the company had cautioned that its ongoing initiatives to improve liquidity were "adversely impacted" by longer than expected shutdowns by its customers over the holiday season and that its still faces significant challenges in meeting its ongoing liquidity requirements especially in the wake of the elimination of early payment programs from the company's customers.

It said that liquidity might be affected by as much as $40 million for the quarter, forcing it to dip into its cash reserves to keep operating normally.

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 on Friday to cut Tower's corporate credit to CCC from B, senior secured first-lien rating to CCC from B and second-lien rating to CC from CCC+. S&P's action was followed by Monday's similar move by Moody's.

Delta higher, most other airlines down

Elsewhere, Delta Air Lines - recently in the vanguard as airline bonds moved progressively lower on renewed rises in oil prices - was seen up anywhere from one to three points Tuesday, even as world crude prices continued to inch back upward toward $50 a barrel, a signal of likely higher fuel prices going forward for the Atlanta-based legacy carrier and its various rivals.

A trader saw Delta's benchmark 7.70% notes due 2005 firming to 86 bid, 88 offered from 83 bid, 85 offered on Monday, while its 10% notes due 2008 rose to 56 bid, 58 offered from 54 bid, 56 offered, and its 7.90% notes due 2009 rise a point to 47 bid, 49 offered. The trader also saw Delta's 8.30% notes due 2029 a point improved at 37 bid 39 offered.

While Delta was up, he saw AMR Corp.'s 9% notes due 2012 and 2016 unchanged at 68 bid, 70 offered and saw the 13% notes due 2009 and 12 1/8% notes due 2010 of bankrupt Indianapolis-based low-fare carrier ATA Holdings at 43 bid, 45 offered, "the first time in a week" that he had seen those bonds trading. Previously, he said, those bonds had hovered around 49 bid 51 offered.

At another desk, Northwest Airlines Corp.'s 7 7/8% notes due 2008, which had lost about two points on Monday, were down about another half point Tuesday, to 70 bid. Continental Airlines Corp.'s 8% notes due 2005 were, however, up a point at 98.

The airlines were all battered in the fourth quarter by sharp spikes in the price of jet fuel, which was averaging around $1.40 to $1.45 a gallon in the quarter, even as crude oil hit a peak of $55.17 a barrel in mid-October. Crude prices subsequently came down to levels around $42 a barrel by year's end, holding out the prospect that airline fuel prices might moderate a little, which helped the airline stock and bonds. But oil has been heading back up this month, pushed higher by both supply concerns and greater demand for heating oil in the midst of a cold U.S. winter.

On Tuesday, light sweet crude for March delivery was up 83 cents at $49.64 a barrel on the New York Mercantile Exchange. Oil futures are now more than 40% above their year-ago levels.

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