Delphi bonds better on news; Trump notes steady; Tembec staying active

By Stephanie N. Rotondo

Portland, Ore., June 14 - News that Highland Capital Management is stepping up its efforts to be part of a reorganized Delphi Corp. helped the Troy, Mich.-based company's bonds strengthen Thursday.

The private equity firm is reportedly engaging Delphi in renewed talks to become the lead investor in a deal that would help propel the company out of bankruptcy. Highland is part of another investor group that includes Pardus Capital as the lead investor but might be looking to branch out on its own.

One trader speculated that - depending on which deal is signed and how it is formulated - there is a favorable upside for bondholders.

Meanwhile, speculation that a deal could be signed sooner than later sparked huge movements in Trump Entertainment Resorts Inc.'s July $17.50 call options. The bonds, however, were deemed unchanged, but a trader expected to see increased activity in the debt come Friday.

And, as the market continues to trade "sideways, but a little better," as one trader put it, Tembec Inc. remains a name that is seeing fair amounts of activity. Still, there is no news out on the company that would inspire such movement.

Delphi better

Traders reported that Delphi's bonds were better by a half point or more as news emerged that Highland Capital was looking to become a lead investor in a reorganization plan.

One trader saw the 6½% notes due 2009 open the day at 117 bid, 119 offered, move up by noon to 117.5 bid, 118.5 offered and then end the day at 118.25 bid, no offer. He said the 6½% notes due 2013 were moving around 115.375 bid, 116.375 offered, and the 6.55% notes due 2006 saw a 118 bid.

Another trader quoted the notes due 2013 at 115.5 bid, 116 offered and the notes due 2009 at 118.5 bid, 119.

"The bonds are interesting," he said. Many market players had differing views, but he thought the end results were "skewed favorably to the upside depending on which way the deal gets done." He was of the opinion that the bond side would come out better than the equity.

But the question remains: How will the deal get done?

Highland is hoping to be a part of some deal and has showed an interest in the distressed automotive parts maker since December, when it proposed a rival bid against an investor group that included Cerberus Capital Management.

However, that bid was overlooked, and Cerberus group - which also included Appaloosa Management, Delphi's largest shareholder, and Harbinger Capital Partners in the original $3.4 billion plan - took the lead. Recently, Cerberus has expressed that it might pull out of the deal if Delphi cannot reach an accord between itself, its former parent General Motors and its labor unions.

Should Cerberus pull out, the original deal is not expected to change, with the exception of the stake each investor will then have.

In related news, Delphi said it was nearing a pact with the United Auto Workers union. Talks between the parties have waged on for some time, as the company has sought to lower pay and benefits - a move aimed at cutting costs but twice rejected by union workers.

Among other names in the autosphere, Dura Automotive Systems Inc. was seen "not very active, but there was really no trading [Wednesday]." The 8 5/8% notes due 2012 were seen better, however, by as much as 3 points at 62 bid, 63 offered.

Investors bet on Trump

Trump bonds were seen relatively unchanged as the equity jumped higher on speculation that a deal to buy out the company was near.

The 8½% notes due 2015 were quoted at 102.75 bid, 103 offered, while the stock was up 95 cents, or 6.65%, to $15.23.

A trader, who said there was heavy volume in the stock, was surprised there was not more activity in the bonds. However, as the stock surge occurred later in the trading day, he expected Friday would see more movement in the debt.

According to equity traders, there was a spike in the July $17.50 call options, which climbed 25 cents to 70 cents. Volume on the calls was 7,365 contracts and open interest was a whopping 11,425.

"Volume was big, open interest was huge," as one equity trader put it.

This sparked feelings in the equity market that a deal would be revealed within the next month around that $17.50 level.

Tembec active

Called one of the "more active names in a fairly quiet market," Tembec's bonds were deemed unchanged by one trader.

The trader pegged the 8½% notes due 2011 at 58.5 bid, 59 offered.

At another desk, however, a trader called the bonds up a point at 58 bid, 58.75 offered, after trading as high as 59 bid, 60 offered.

"It's the same old story," he said. 'But they were softening toward the close."

No fresh news is out on the Canadian forest products company.

Le-Nature's quiet

Le-Nature's Inc.'s bonds have been quiet despite news that Wachovia Bank is attempting to force the company into liquidation.

The bank, which has financed the company, alleges that the longer the Chapter 11 case drags on, the less relief creditors will receive. By turning the case into Chapter 7 liquidation, creditors will likely receive more in less time.

One trader, who said he has not seen any activity in the name recently, said the move is "probably a positive for the bonds." Another trader said the news was expected by most in the market.

The second trader also said he had not seen any markets of late, but that he had seen the 9% notes due 2013 around 35 last week.

Broad market mixed

Linens n'Things' bonds were seen "standing still," as a trader placed the floating-rate notes due 2014 at 82.5 bid, 83.5 offered.

"Nobody knows what is happening with the company," he said, "except that it is [not very good]."

Movie Gallery Inc.'s bonds gained about a point, one trader said, though most of the day's trades were odd lots. He said the 11% notes due 2012 were at 83.5 bid, 84 offered.

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