Collins & Aikman bonds gyrate as Euro units file; airlines unchanged despite Northwest bad news

By Paul Deckelman

New York, July 18 - Collins & Aikman Corp.'s bonds were heard bouncing around at lower levels Monday on the news that the bankrupt Troy, Mich.-based automotive components maker's European units had sought administration - the British equivalent of Chapter 11 - in the courts in the United Kingdom. However, those bonds ended up bouncing off their lows and finishing only marginally lower.

Elsewhere, the sharp jump in Salton Inc. bonds seen late last week after the troubled Lake Forest, Ill.-based small appliance maker made a scheduled coupon payment on its senior bonds appears to have run its course, with those bonds essentially unchanged.

Also pretty much unchanged were the bonds of Northwest Airlines Corp., failing to react much to a Wall Street Journal story indicating that Eagan, Minn.-based Northwest's lucrative partnership with KLM Royal Dutch Airlines could be threatened by U.S. anti-trust concerns now that the former Dutch-flag carrier has been purchased by Air France.

Sources in the bank loan market meantime reported that dealings in the bank debt of distressed companies were virtually non-existent Monday for a second straight session.

Collins & Aikman Product Co.'s 10¾% senior notes due 2011 were seen by a trader as having swooned to as low as 23 bid, 25 offered from recent levels around 29 bid, 30 offered. However, he said, those bonds came back to only close a point lower, at 28 bid, 29 offered.

Another trader saw the bonds fall on the news the European operations had sought administration protection. But he saw the losses as more conservative, seeing the 103/4s dropping perhaps two points on the day to 27.25, but only down perhaps a half point below that at its depth.

Yet another trader saw the 103/4s at 27 bid, 28 offered - down a point on the day, but two points better than their low levels for the day around 25.

WL Ross & Co. LLC announced Monday that it has provided a loan to Collins & Aikman's U.K. affiliates, and is also preparing to provide additional financing to the other European subsidiaries under Administration in the United Kingdom.

Foamex continues higher

Also in the automotive sphere, Foamex LP.'s oversold bonds, which fell sharply last week after the Linwood, Pa.-based foam rubber products manufacturer issued an earning warning, were seen having bounced off those lows and were a few points higher for a second straight session.

A trader in distressed debt quoted Foamex's 10¾% notes due 2009 as having bounced up to 86 bid, 88 offered from 83 bid, 85 offered on Friday, while its 9 7/8% notes due 2007 had an even bigger rebound, he said, to 30 bid, 32 offered, well up from last week's levels around 25 bid, 27 offered.

The company's Nasdaq-traded shares were meantime also on the upswing, gaining eight cents (14.81%) to close at 62 cents. Volume was 566,000 shares, nearly five times the usual turnover.

The Foamex bonds had also firmed on Friday from their previous lows, hit after the company issued a warning that it has significantly reduced its earnings expectations for the second quarter of 2005 due to volatility in raw materials prices and a difficult operating environment.

Those bonds appeared to have firmed somewhat from their oversold initial levels, apparently helped by the news that it has retained the investment banking firm Miller Buckfire & Co., LLC "to help evaluate strategic alternatives for strengthening the company's balance sheet and enhancing long-term value."

Airlines steady

Airline bonds were seen essentially little changed on the session, weathering a story in The Wall Street Journal to the effect that Northwest Airlines - already reeling from too-high fuel prices, too-low ticket revenues and a deteriorating labor situation - may also be in danger of losing its lucrative transatlantic route partnership with KLM, due to the latter's recent purchase by Air France.

A trader quoted the air carrier's 8 7/8% notes due 2006 at 63.5 bid, "basically unchanged," while another trader saw those bonds firm to 63 bid, 65 offered from 61 bid, 63 offered previously.

Yet another trader quoted them unchanged at 64 bid, 65 offered, "about where they had been." He said that the Northwest bonds showed "surprising resilience in the face of all of the bad news, and pegged Northwest's 10% notes due 2009 likewise unchanged at 42.5 bid, 43.5 offered, while its 9% notes due 2012 were at 80 bid, 81, also steady.

The Journal reported Monday that Northwest's cozy joint venture relationship with KLM - linking the Dutch airline's Amsterdam hub to a slew of North American cities served by Northwest - has benefited both airlines to the tune of some $2 billion per year. Under terms of the alliance, KLM and Northwest, which are also able to sell tickets on each other's connecting flights, split all costs and all revenue.

Enter Air France, which bought KLM last year, and which already has a similar joint-venture arrangement with Northwest rival Delta Air Lines Inc. The paper suggested that U.S. anti-trust regulators might look askance upon a three-sided trans-Atlantic alliance involving two American carriers.

As if that weren't enough bad news for investors to swallow, Northwest late Monday rejected binding arbitration with its mechanics' union - a move that could start a 30-day countdown toward a strike.

If the National Mediation Board declares an impasse, that would start a 30-day "cooling off" period required before the Airline Mechanics Fraternal Association could strike.

Northwest did not seem worried by the prospect, saying that a deadline could help its talks with the union. Northwest is seeking $1.1 billion in permanent cost cuts from its unions, including $176 million from the mechanics - a concession which is so far not forthcoming.

The airline said binding arbitration would take too long and would not lead to the labor cost savings it requires in order to avoid bankruptcy.

The third trader marveled that the airline's bonds had not fallen on all of that potential bad news, wondering whether investors were "wearing blinders" so they could not see all of the bad news. He speculated that the recent fall in oil prices must be the driver that kept the Northwest bonds from falling since "it doesn't make sense" otherwise for those bonds to continue to stay up.

Oil prices - seen as an indicator of future price trends for distillate like jet fuel - had recently spiked as high as around $62 per barrel, but they have been coming down the last several days, and on Monday light, sweet crude for August delivery fell 77 cents to settle at $57.32 a barrel on the New York Mercantile Exchange.

That also helped Delta's bonds, which were unchanged on the session, with the 7.70% notes due 2005 at 86 bid, 88 offered and its 8.30% notes due 2029 at 26.75 bid, 27.75 offered. Otherwise, the bonds might have retreated in response to analysts' comments that the Atlanta-based air carrier's move last week to raise the top price on its walk-up fares by $100 per ticket - quickly matched by its rivals - would not provide enough additional revenue to meaningfully help the cash-strapped airline as it fights to stay out of bankruptcy.

And an airline now in bankruptcy got some good news, as the courts on Friday okayed United Airlines' request for another $310 million of financing from its DIP lenders, bringing the total to $1.3 billion. A trader saw UAL's bonds unchanged Monday at around the 14 level.

Salton holds at higher levels

Outside of the airlines, traders saw little follow-through to Salton Inc.'s bonds, which jumped late last week on the news that it had paid the June 15 coupon payment on its 10¾% senior notes due 2005. That had boosted the price of some of those bonds as high as the mid-70s - those that had not been tendered under the company's pending offer to exchange new debt plus stock for those bonds. Bonds which were to be tendered were quoted in the mid 60s, and the company's 12¼% notes due 2008 were seen in the mid-50s - all up solidly from levels they held before the company's announcement.

A trader said that those bonds "had their run," and saw little additional movement from those levels on Monday.

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