Delphi off, most other autos better; Delta, Northwest bonds drift lower; Granite, Young Broadcasting gain

By Ronda Fears and Sara Rosenberg

Memphis, Dec. 21 - Delphi Corp. getting a competing hedge fund bid Thursday, in the wake of Tower Automotive Inc. unveiling a plan backed by hedge fund investors, sparked an impending run on the bonds of Dana Corp., Dura Automotive Systems Inc. and Remy International Inc. on rampant speculation of similar support for those beleaguered auto parts makers.

The new bid for Delphi caused those bonds to flex lower by 3 to 4 points on the session, as it would give more consideration to Delphi stock, but the remainder of the auto pack was higher. Thin market aside, when pressed, traders described other auto-related bonds as better by at least 1 to 2 points virtually across the board. Except for Dana, that is, whose bonds were described as easier by about a half-point.

Traders were quick to say the run, if indeed it materializes, was impending because the market was so thin on Thursday and expected to be likewise on Friday, if not all of next week - the final week of the year. Friday is sure to be slow, as it is a holiday-shortened session with dealings expected to essentially be wrapped up by noon, although the Bond Market Association has recommended an early close of 2 p.m. ET.

"The Delphi news was lifting all the autos, but it's very thin today," a trader said. "In the next few days, though, we will see all of these lifted."

As a colorful illustration of how slow the session was, the trader quipped, "If you call an account today, you'll get the cleaning lady."

Outside of the auto names, other transport names continue to be in the spotlight, namely Delta Air Lines Inc. and Northwest Airlines Corp. Delta bonds were off about 0.75 point to the 64 context as US Airways pitched its plan again in a conference call with analysts. Northwest bonds also were easier, described as off about 1 to 1.5 points to the 92 area, as it expressed interest in backing the reorganization plan for bankrupt MAIR Holdings Inc.'s unit, the feeder carrier Mesaba Airlines.

Elsewhere, bankrupt Granite Broadcasting Inc. bonds were better, moving into the 97.5 area, and traders said backing for the New York-based television station operator's reorganization had sparked interest in rival New York-based television station operator Young Broadcasting Inc. bonds and stock as well.

Meridian exit facility frees

On bank desks auto paper also was of note, with Meridian Automotive Systems, Inc.'s exit financing credit facility freeing for trading on Thursday, with the strip of term loan and synthetic letter-of-credit facility debt quoted at 98.25 bid, 99.25 offered, according to a trader.

The $80 million six-year term loan and $25 million six-year synthetic letter-of-credit facility are priced at Libor plus 600 bps, were issued at an original issue discount of 98 and are non-callable for two years. During syndication, pricing on the tranches was flexed up from original talk at launch of Libor plus 550 bps with the addition of the OID.

The company's $175 million credit facility also includes a $70 million five-year asset-based revolver.

Court approval of the exit facility has already been obtained, and the Dearborn, Mich., supplier of lighting, exterior composites, console modules, instrument panels and other interior systems to vehicle manufacturers is hoping to emerge bankruptcy by the end of this month.

Deutsche Bank is the lead bank on the deal.

Delphi stock pot would grow

Highland Capital on Thursday unveiled a buyout plan worth $4.7 billion to compete with a plan presented by Delphi earlier in the week in which an investor group led by Appaloosa Management LP, Harbinger Capital Partners Master Fund I and Cerberus Capital Management LP would plug $3.4 billion into the flagging auto parts maker as it exits bankruptcy.

Onlookers said the biggest difference between the two plans was the treatment of current equity, at the expense of bondholders. He noted that Delphi shares shot up more than 37% on Thursday in Pink Sheets trading to $3.81, while Delphi bonds pulled back by 3 to 4 points on the session to the 110 to 112 context.

"It would ratchet down the bonds, but a vast majority of the bondholders are hedged with swaps and stock, so it would almost be a wash for them," the sellside analyst said.

"The big deal is for the current Delphi stockholders who don't own the bonds. They will make out better under the Highland plan. Of course, the translation is that Highland would end up with a stake in Delphi and be pretty much on equal footing with Appaloosa and Cerberus; they probably won't like that."

On Monday, Delphi submitted a preliminary reorganization plan backed by an investor group led by Appaloosa, Cerberus and Harbinger, along with investment banks Merrill Lynch & Co. and UBS Securities LLC.

Highland Capital has declared an 8.9% stake in Delphi and said the previous plan is unfair in part because some debtholders would get cash and equity worth more than par at the expense of common stockholders and it would give Appaloosa and Cerberus control of Delphi's board by allowing them to name six of 12 directors.

Appaloosa was the largest Delphi stakeholder in the earlier plan, with 9.3%. Under that plan, the Appaloosa group would buy 30% to 72% of Delphi's new stock, depending on how many current stockholders participate in the equity rights offering component.

Highland Capital described its plan as one that was "fair to all groups that currently make up Delphi's capital structure." Under its plan, existing stockholders will be able to participate in a $4.7 billion rights offering. All existing stockholders with more than 0.5 percent of the common shares would have the right to purchase any unsubscribed shares in the rights offering.

Terms as proposed in the previous plan between General Motors Corp. and Delphi would remain the same, Highland Capital said.

Under the earlier plan, GM would get 7 million, or 5%, of the 135.5 million new Delphi shares issued. GM has estimated that it is liable for $6 billion in Delphi employee benefit costs, and Delphi has said GM may take on as much as $2 billion of its pension obligations.

There has been a hearing a scheduled for Jan. 5 to consider the Delphi plan, but Highland Capital said Thursday that Delphi more time have to be taken to consider its plan.

Northwest moves on Mesaba

It came to light Thursday that Northwest Airlines, which had made it known that it would be looking for some sort of merger deal by recently seeking bankruptcy court approval to hire Evercore Group LLC, is in discussions to buy the feeder carrier Mesaba Aviation Inc.

"It is not such a big deal, just a point of news flow on a very slow trading day," said one distressed bond trader, adding that the dip in Northwest Airlines bonds was not necessarily tied to the Mesaba event.

Northwest Airlines said it might sponsor the bankruptcy reorganization of Mesaba Airlines, which operates as a Northwest Airlink affiliate. Also Thursday, Northwest Airlines said it expects to report a pre-tax profit for 2006 in the range of $230 million to $270 million, excluding reorganization items.

The discussions include the possibility that Northwest would become the owner of Mesaba in a principally non-cash transaction, but specific figures have not yet surfaced. Northwest provides Mesaba's planes, passengers and revenue. When Northwest Airlines filed bankruptcy in September 2005, Mesaba followed a month later, as some 90% of its revenue came from Northwest Airlines.

"Northwest is working with Mesaba to conclude a more definitive agreement," said Northwest spokesman Kurt Ebenhoch. "This agreement would be part of Mesaba's reorganization plan that must be approved by Mesaba's bankruptcy court in the first half of 2007."

MAIR Holdings also operates regional carrier Big Sky Airlines, flying 19-seat aircraft to cities in Montana, Colorado, Idaho, Oregon, Washington and Wyoming, but it was unclear if that was part of Northwest Airlines' purchase plans.

US Airways pans Delta plan

As for Delta, it was also a down day and, again, not necessarily linked to any news flow.

"There was some profit taking in Delta, I would say," the above-cited bond trader remarked, also reiterating that traffic was very light in the bonds.

Unsecured creditors in Delta's bankruptcy, which are crucial in deciding its future, have come out in support of its standalone reorganization plan, and Delta's union employees also are said to be in support of the company's plan. Meanwhile, US Airways is not giving up its hostile bid so easy and made another pitch in a conference call Thursday.

"It's like the battle of the conference calls, pretty ridiculous if you ask me," another distressed bond trader said.

"It's not even like a jury that you could sway with some press conference. Everything is in black-and-white in their proposal; it's just going to come down to a vote. Unless they toggle the figures, probably the votes have already been cast."

US Airways chief executive Doug Parker in the call referred to Delta's projection that it will be worth as much as $12 billion when it emerges from bankruptcy as "unrealistic." In its standalone plan, Delta said The Blackstone Group put a post-bankruptcy value on it of $9.4 billion to $12 billion. US Airways says the amount it is offering - $4 billion in cash plus 78.5 million shares of US Airways shares for a total value of roughly $8.4 billion based on Thursday's prices - is Delta's true worth.

"We think their valuation is way out of whack," Parker said on the call.

Parker said US Airways' analysis of Delta's stand-alone plan values Delta at $5.5 billion to $6.9 billion. He also said that while US Airways generally agrees with Delta's profit projections for 2007, he thinks Delta's projections beyond next year are too optimistic.

Parker also said that Tempe, Ariz.-based US Airways strongly believes that its offer to buy Atlanta-based Delta will pass antitrust scrutiny.

Granite gains to 97.5 area

Moving to higher ground, Granite Broadcasting's bonds continue to move up, traders said, and hit the 97.5 bid, 97.75 offered area on Thursday.

Traders said that in addition to holders of Granite bonds adding to their positions, they continue to see new buyers for the paper.

The broadcaster last week filed a prepackaged bankruptcy filing through which current secured debtholders have agreed to exchange their notes for a combination of new notes and new common stock. And, current common and preferred stockholders will exchange their existing securities for shares of the newly reorganized company.

For several months, Granite has been warning of trouble and in July reworked some bank debt. New York City-based Granite, which operates NBC, ABC and CBS television stations in 11 markets, including San Francisco, Detroit and smaller New York markets such as Buffalo, Syracuse, Utica and Elmira, filed the prepackaged bankruptcy Monday.

The company had been trying to sell its San Francisco and Detroit stations, but having not come to terms, the company said it could now be in growth mode, as the "restructuring will provide us with additional resources to re-invest in and grow our local television businesses, and enables us to continue to seek out new stations and markets."

Granite expects to exit bankruptcy around mid-2007.

Young finding new interest

Young Broadcasting was finding new interest Thursday, which one trader said might be linked to the reorganization terms Granite was able to nail down.

He noted that while the Young bonds were better by as much as a point, with the 10% notes at around 95.5 and the 8¾% notes at about 87, there was incredibly high volume in Young common shares, which moved up on the Nasdaq by more than 33% to $2.74.

"If the value of Granite means those bonds are worth par and the stock is worth something, then the same could be true for Young Broadcasting," the trader said.

"Certainly, there was huge volume in Young Broadcasting shares today, and we saw the bonds move up a little. I'd say they were moving on the back of what's happening with Granite."

Young Broadcasting owns and operates 10 television stations, of which five are American Broadcasting Cos. Inc. affiliates, three are CBS Inc. affiliates, one is a National Broadcasting Co., Inc. affiliate and one is an independent station.

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