Troubled Transeastern turns higher; Dura bonds in late slide

By Paul Deckelman and Sara Rosenberg

New York, Oct. 12 - Transeastern's term loan reversed its recent negative momentum, actually gaining a couple of points on Thursday, as the Coral Springs, Fla.-based joint-venture homebuilder held a private-side call during market hours, bank debt traders said.

In the junk bond market, Dura Automotive Systems Inc.'s bonds also saw a change of momentum - but this time to the downside, as a technical rally that had pushed those bonds as high as the upper 30s Wednesday came to an abrupt end on Thursday, with the bonds tumbling into the lower 20s.

Sea Containers Ltd.'s bonds were seen continuing to take on water and slowly sink amid market nervousness over whether the troubled Bermuda-based maritime and railroad transportation company will be able to redeem an upcoming issue of bonds. The company on Thursday acknowledged that it may have no choice but to file for bankruptcy protection if it cannot restructure its debt.

Transeastern bounces

Transeastern's term loan headed up to 67 bid, 68 offered before the conference call with its lenders, and hung in at those levels following the call, a trader said. By comparison, on Wednesday the term loan had closed out the day at 62 bid, 64 offered.

Details on what took place on the conference call were unavailable, since it is all private information, the trader added.

A bit more than two weeks ago, on Sept. 27, the company announced that it could not support its existing capital structure due to Florida housing market conditions, and ever since that news hit the market the term loan has been consistently losing ground - dropping all the way from around a 99 trading context into the 60s.

Transeastern had said at that time that it is exploring various options to fix the liquidity problem, including requesting waivers from its lenders regarding potential defaults and permitting future advances under the revolver, and restructuring land bank obligations.

Transeastern is a joint venture of Technical Olympic USA Inc. and The Falcone Group. Both companies have indicated that they would not consider an equity infusion into the cash-strapped company until after it straightens out its capital structure problems.

Armstrong pricing changes

Also on the bank loan front, Armstrong World Industries Inc. lowered pricing on its $500 million seven-year term loan B to Libor plus 175 bps from original talk at launch of Libor plus 200 bps, according to a market source.

However, a grid was added to the term loan B under which pricing can step back up to Libor plus 200 bps if the company's corporate credit ratings are downgraded, the source said.

Pricing on the company's $300 million five-year revolver and $300 million five-year term loan A remained at Libor plus 150 bps.

Bank of America and JPMorgan are the lead banks on the $1.1 billion exit financing senior secured credit facility (Ba2/BB), with Bank of America the left lead.

The Lancaster, Pa.-based flooring company emerged from Chapter 11 bankruptcy on Oct. 2 after its fourth amended plan of reorganization took effect, but the credit facility isn't expected to close until Oct. 16.

The reorganization plan includes a comprehensive settlement resolving Armstrong's asbestos liability by establishing and funding a trust to compensate all current and future asbestos personal injury claimants.

A junk bond trader saw Armstrong's bonds, such as its 9¾% notes due 2008, trading at 72 bid, 74 offered, a 1 point gain on the day.

He also saw the bonds of bankrupt fellow asbestos-challenged manufacturer Owens Corning pretty much unchanged, with the Toledo, Ohio insulation maker's 7½% notes due 2018 holding steady at 57 bid.

Dura drubbed, drops drastically

Dura Automotive was back on the downside in a very big way Thursday, as the troubled Rochester Hills, Mich.-based automotive components maker's Dura Operating Corp. 8 5/8% senior notes due 2012 - which had firmed by several points on Wednesday - went into a complete free fall. Those bonds had actually gotten as high as the upper 30s Wednesday on technical factors related to the bonds trading ex-interest ahead of the scheduled Monday interest payment rather than due to any fundamental factors.

But that stronger trend sputtered out and died Thursday. A trader saw those bonds as low as 33.5 bid at mid-afternoon, well down from Wednesday's closing levels, while a source at another desk saw the bonds make an abortive attempt to come off their lows around that time and move back up to around 36.75 - only to then sink back to hit new session lows at 32.5.

But then, in the last hour or so of trading, the bonds completely swooned, and were quoted down anywhere from 10 to 12 points, even though there was no fresh news out that might explain the late slide.

"Late in the day, Dura got slammed," a trader exclaimed, quoting the bonds at 24 bid, 26 offered, down from levels earlier in the day that he had seen around 30 bid, 32 offered.

"They got shellacked, and I'm not sure why," he said. "Somebody must have gotten wind of something going on."

"We call this doing the limbo rock," quipped another trader in assessing the bonds' fall down to around the 26.5 bid, 28 offered level from 38 bid, 40 offered on Wednesday - a reference to the popular dance hit of the early 1960s in which singer Chubby Checker asked "how low can you go?"

Dura "got their *** twisted," yet another trader colorfully observed, notching the bonds down to 25.5 bid, 26.5 offered, a 12 point loss on the day, he said. "It was not a pretty sight."

Trading activity in the issue was described as heavy, with a lot of the trades of considerable size.

Questioning coupon payment

Market denizens are still uncertain about whether the company will make the scheduled $17.25 million interest payment that is due on the $400 million of outstanding bonds on Monday, or whether it will have to play for time and invoke the standard 30-day grace period while it tries to work its way through the situation.

Dura, like many other auto parts suppliers, has been badly hurt by recently announced production cutbacks by Detroit's "Big Three" carmakers, and rumors that Dura would be forced to follow such sector peers as Delphi Corp., Dana Corp., Tower Automotive Inc. and Collins & Aikman Corp. into Chapter 11 have swirled around the company for months, gaining further impetus over the summer when it hired the New York-based turnaround specialist firm Miller Buckfire & Co. LLC to advise it on a financial restructuring. Miller Buckfire had also advised Dana shortly before that Toledo, Ohio-based systems maker sought protection from its creditors on March 3.

The ratings agencies have already knocked Dura's bonds down to near-bankruptcy levels, with Moody's Investors Service having downgraded its 8 5/8s to Ca from Caa3 previously on Sept. 20, and lowering its 9% notes due 2009 - which currently languish at levels around 3 or 4 cents on the dollar- to C from Ca, citing the impact of cutbacks by the carmakers. It also lowered the company's bank debt to Caa2 from Caa1. Some weeks earlier, on July 28, Standard & Poor's had cut Dura's corporate credit rating to CCC from B-, and had lowered its bond ratings to CC, all with a negative outlook.

Dura, which makes gear shifts and other driver control systems, seating control implements, glass assemblies, structural door modules and exterior trim systems, is trying to overhaul itself operationally to cut costs and bring its spending into line with the diminished revenues that have resulted from the decline of the "Big Three," a core market for Dura's products.

In February, it announced a multi-part turnaround plan - which the company nicknamed "50-cubed," since its elements include achieving a 50 parts-per-million quality level, raising average earnings by 50% from the company's historical performance, and transferring at least 50% of it production to what it terms "best-in-cost" facilities - mostly, though not exclusively in lower labor cost regions such as Mexico or Eastern Europe. Dura also at that time announced plans to put three non-core German businesses up for sale.

But despite its efforts at belt-tightening, including plant closings and headcount reductions, the company continues to hemorrhage money. In July, Dura reported that revenues for the fiscal second quarter ended July 2 fell to $573.3 million from $623.8 million in the year-earlier period, and the company suffered a net loss of $131.3 million ($6.96 per diluted share) - a sharp deterioration from its $3 million (16 cents per diluted share) of net income in the 2005 second quarter. Dura's adjusted loss from continuing operations for the quarter, excluding facility consolidation charges and a deferred tax asset valuation allowance, totaled $38.3 million ($2.03 per diluted share) versus adjusted income of $1.6 million (nine cents per diluted share) a year earlier.

As of the end of the second quarter, Dura's balance sheet showed $278.809 million of long-term debt, net of current maturities, as well as the $400 million of 8 5/8% notes, $532.519 million of the 9% notes, and $55.2 million of convertible trust preferred securities subject to mandatory redemption.

Other autos fail to follow

Dura's debacle did not drag Dana, Delphi or the other names in the sector down though, a trader said.

"Not really," he opined. "Nothing really came off."

Another trader saw the bankrupt Troy, Mich.-based parts maker Delphi unchanged to off ½ point, with its 6½% notes due 2009 half a point lower at 96.25 bid, 97.25 offered, while its 7 1/8% notes due 2029 were unchanged at 91 bid, 92 offered.

Dana's 6½% notes due 2008 were meantime unchanged at 75.5 bid, 76.5 offered, while its 5.85% notes due 2015 were ¼ point down at 71 bid, 72 offered.

Sea Containers continue to weaken

Sea Containers bonds were "a little lower," a trader said, quoting its 10½% notes due 2012 "wrapped around 70."

"It was the same old song-and-dance - no word from management" on whether the company would be paying off $115 million of 10¾% notes that are scheduled to mature on Monday, he said.

A spokesman for the company told Prospect News Thursday that Sea Containers would look at alternatives to its current financial restructuring program - including a Chapter 11 filing - if the restructuring is not complete by Oct. 15.

"Sunday is critical timing," the spokesman said, adding that all firms should make contingencies for possible events, including a Chapter 11 filing, although the company has not yet decided whether it will file for protection.

Sea Containers "may or may not have the full restructuring in place by Sunday," the spokesman said (see related story elsewhere in this issue).

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