Refco trades up, ends unchanged; Delphi, GMAC up on GM; airlines up; HealthSouth paper turns heads

By Ronda Fears

Nashville, Jan. 9 - Distressed bond desks reported brisk activity in pockets with some shops staying steadily busy Monday while others watched the traffic on their screens with little real business of their own. Transportation issues - the autos and airlines - accounted for the bulk of the traffic, too.

"We were not that busy, but there was a lot going on," one distressed bond trader said.

Meanwhile, at another shop, a distressed bond trader begged off making any comments until well beyond the close of trading because he was so busy during the session. "Whew," he said. "You'd have thought the door was closing on the market or something. I mean people seemed to be backing the truck up, you know, like they were really moving in ahead of some big news."

General Motors Corp. and the Detroit car show, technically named the North American International Auto Show, were headliners moving many distressed names in the sector like GM's biggest component supplier Delphi Corp., but also off-the-road transport names so to speak - the troubled airlines like Delta Air Lines Inc., Northwest Airlines Corp. and UAL Corp., parent to United Airlines Inc.

Then there was Owens Corning. In the bankruptcy case of Toledo, Ohio-based Owens Corning, bond and trade creditors are trying to subordinate bank debt claims and the stock assets of "sham" affiliates, and the Owens Corning's bonds moved up 1 point to 83 bid, 85 offered. Of note as well, the stock was up Monday by 7.5% to $3.28 on heavy volume.

Refco bonds go to 77, ease

Refco Inc. finance bonds traded up to 77 on Monday, without any direct news in the futures broker's bankruptcy, but by the end of the day traders described the bonds as unchanged at 76 bid, 78 offered.

One distressed bond trader said there was decent chatter about Refco on news Monday that the giant hedge fund Angelo, Gordon & Co. has agreed to buy the investment management firm ForstmannLeff Associates LLC, an investment firm with $3 billion in assets and a former subsidiary of Refco. The deal reportedly would push Angelo Gordon's assets under management to $13 billion.

ForstmannLeff originally was part of Refco when Thomas H. Lee & Partners bought Refco in 2004. The Wall Street Journal reported Monday that in October, just before the financial firm took a fatal dive amid a federal fraud investigation, Refco was in talks to sell ForstmannLeff to Old Mutual Asset Management but the deal fell apart, paving the way for Angelo Gordon deal.

Terms were not disclosed.

"It caught everyone's eye, but really no one knows yet what this means for Refco exactly," said a distressed bond trader.

On Friday, Refco, which has racked up some $16.8 billion in claims in its bankruptcy, asked for court permission to pay $685 an hour for the services of its new chief executive Harrison Goldin of Goldin Associates LLC. Goldin is described as "crisis manager," but Refco also hired another Goldin executive, Mark Slane, as chief restructuring officer, with a proposed salary of $550 an hour. Five other executives would be paid $350 to $500 an hour.

Refco filed for protection from creditors two months after conducting a $583 million initial public offering of stock and one week after accusing former chief executive Phillip Bennett of hiding $430 million of debt. Bennett pleaded innocent on Nov. 18 to conspiracy, fraud and other charges.

HealthSouth turning heads

HealthSouth Corp.'s unsecured term loan has now moved into the upper-101 region as more and more investors are viewing this loan as an attractive piece of paper when compared to the company's bonds, according to a bank debt trader. The Birmingham, Ala.-based company operates outpatient surgery, diagnostic imaging and rehabilitative facilities.

"People are really starting to look at it," the trader said. "There are definitely more buyers out there. [The loan] is 200 basis points cheaper than the bonds. The bonds are up another point over the last three days, so the loan has pushed higher."

The unsecured term loan is currently being quoted at 101 3/8 bid, 101 7/8 offered, according to the trader. Around mid-last week, the paper was being quoted in the 101 bid, 101½ offered context.

The bank debt started last week quoted around par ¼ bid, par ¾ offered but has been gliding higher primarily driven by improved performance in the company's bonds, which was sparked by the expectation that current financials will be filed shortly.

The anticipation of a near-term filing was created by the company as, during its 2005 annual meeting of stockholders, HealthSouth said that it expects being in the position to file its 2005 form 10-K in a timely manner in the first quarter of 2006 and intends to hold its 2006 annual meeting of stockholders during the second quarter of 2006.

And, as was reported last week, there is also a whisper in the market that the company may attempt some sort of a global refinancing after the financials are completed, which would push the call-protected bank debt to premium levels.

The term loan currently carries call protection of 102, which will later on drop to 101 and then par, and contains pricing of Libor plus 500 basis points.

Delta, UAL paper takes off

UAL bonds were higher as the United Airline parent prepares for clearance to leave the bankruptcy arena, with distressed bond traders pegging the notes up about a half point to 24½ bid, 25½ offered as the Elk Grove Township, Ill.-based carrier's $3 billion six-year exit facility (B1/B+) launched.

The facility consists of a $300 million revolver and a $2.7 billion term loan, with both tranches talked at Libor plus 450 basis points. UAL anticipates exiting from Chapter 11 in February.

Meanwhile, other airline paper tracked UAL higher.

Delta Air Lines bonds were quoted up about 1½ points at 25 bid, 26 offered, and Northwest bonds moved up 1 point to 40 bid, 42 offered from 39 bid, 41 offered on Friday.

Atlanta-based Delta, the third largest U.S.-based airline, has gotten a six-month extension until July 11 to the exclusivity period for it to file a reorganization plan, which had been due this coming Thursday. On Monday, it was reported that the Delta bankruptcy judge had taken medical leave and a new one would be assigned to the case. Judge Prudence Carter Beatty is taking a two-month leave of absence and the case has been reassigned to judge Adlai Hardin.

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