Airlines off on lower Continental outlook; autos going backward on Dana results

By Paul Deckelman

New York, Jan. 17 - Bearish guidance from Continental Airlines Inc. and higher crude oil prices combined Tuesday to put airline sector bonds into a tailspin.

Meantime, poor results from Dana Corp. caused that company's bonds to fall, and were towing the whole of the automotive sector lower.

A still bigger loser in autoland was the bankrupt Troy, Mich.-based Collins & Aikman Corp., even as The Wall Street Journal was reporting that the automotive interior components company is hoping to find a buyer, or buyers, for its various operations.

"The airlines were sloppy on Continental's poor outlook and on oil prices," a trader declared. He quoted bankrupt Eagan, Minn.-based Number-Four airline carrier Northwest Airlines Corp.'s 8 7/8% notes due 2006 down 1½ points at 37 bid, 38 offered.

The bonds of the bankrupt, Atlanta-based Number-Three operator, Delta Air Lines Inc., were down two points on the day, with its 7.90% notes due 2009 seen at 21.5 bid, 22.5 offered.

And UAL Corp.'s 9% notes that were to have been redeemed in 2003 were down 1½ points at 21.5 bid, 22.5 offered. Elk Grove Village, Ill.-based UAL is the parent of the second-largest U.S. carrier, United Airlines. The company went into bankruptcy in late 2002, and expects to finally emerge from Chapter 11 next month.

Even among the non-bankrupt carriers, Continental's warnings and higher crude prices pushed bonds downward, with AMR Corp.'s 9% notes due 2012 ending at 88 bid, 89 offered, down two points; AMR is the Fort Worth, Tex.-based parent of the biggest U.S. carrier, American Airlines.

Houston-based Continental, the fifth-largest U.S. operator, said that it expects a "significant" loss in the first quarter. The company's chairman, Larry Kellner, warned on a conference call following the release of Continental's fourth-quarter and year-end numbers that "as we head into 2006, we continue to face low-cost carrier competition in domestic markets, a weak domestic fare environment, high fuel costs and we expect to record a significant loss for the first quarter of 2006."

Continental is projecting first quarter fuel costs of $1.91 a gallon - up 32% from the first quarter a year ago.

And crude oil prices - considered a fairly reliable barometer of potential jet fuel price moves - were heading skyward Tuesday, as spot crude prices topped $66 a barrel on concerns over Iran's nuclear program and unrest in Nigeria's oil fields, both OPEC-member nations. Crude prices in New York got as high as $6.45 a barrel, before closing at $66.31, up $2.39 (3.7%) on the session. It was the highest close on the New York Mercantile Exchange in three months.

Collins & Aikman plummets

Besides helping to clip the wings of such once-high-flying outfits as United, Delta and Northwest, high oil prices - which down the line also translate into higher gas prices for motorists - have played havoc with the automotive industry, particularly General Motors Corp. and Ford Motor Co., and the companies that supply them with all of the components they use for the assembly of their vehicles.

One such parts supplier, brought down to earth last spring, is Collins & Aikman. The Wall Street Journal's report that the bankrupt Troy, Mich.-based interior components manufacturer might seek a buyer for part or all of its operations not only did not help prop the company's deeply distressed bonds - those securities tumbled even worse than Dana's or any other automotive name.

Its Collins & Aikman Products Co. 10¾% senior notes due 2011 nosedived six points to 32.5 bid, 33.5 offered, while its 12 7/8% junior notes due 2012, already down in the single digits, held steady around a 7 bid, 9 offered context, a trader said, although at another desk, those '12s were quoted having gone as low as 5 bid from 8¼ previously.

While the Journal story said that the company, which slid into bankruptcy last May, has sent out an information pack to other auto parts companies as well as financial groups that could be buyers, and quoted chief executive officer Frank Macher as saying that it will begin the process by seeing whether there is any interest in C&A's auto-fabrics and convertible-tops businesses, the story "might also be interpreted that they don't have any major buyers - you would hope that they'd announce that have a deal or something," a trader said, "at least a stalking-horse kind of bid.

"I'd say that the fact that they didn't - even given this amount of time - I would interpret that negatively. It might also maybe even point to a possible Chapter 7 - liquidate the thing [rather than restructure the company] and it'll be done".

Dana drags down other auto names

A market source at another desk opined that it "looked like the autos were getting hit" left and right, primarily due to Dana's poor third-quarter showing, which included a net loss of over $1 billion for the third quarter.

He saw the bankrupt Tower Automotive's 12% notes due 2013 fall to 74.5 bid from 77.5, and saw Dura Operating Corp.'s 9% notes due 2009 half a point down at 55 and the Rochester Hills, Mich.-based components maker's 8 5/8% notes due 2012 a full point down at 82.75.

On top of that, he saw the GM 8 3/8s half a point lower at 69 while its 7.20% notes due 2011 were at 74.5, down two points.

"Quite a few [in that sector] got hit," he said.

At the center of all of the carnage was Dana, which reported a net loss of $1.27 billion ($8.50 per share), for the three months ended Sept. 30 - a sharp deterioration from its year-earlier profit of $42 million (28 cents per share), despite sales having edged higher in the latest period to $2.4 billion from $2.11 billion last year.

Most of the loss - well over $1 billion of it - was attributable to very large charges that Dana took in connection with its efforts to restructure its business, which has been badly hurt by soaring raw materials prices and a slowdown in orders from two of its biggest customers, General Motors Corp. and Ford Motor Co.

Dana said that excluding those charges, its loss from operations was $63 million, which still represented a reversal from its $39 million profit a year ago.

A market source pegged Dana's 5.85% notes due 2015 at 69 bid, down from 71 previously, while seeing its 7 1/8% notes due 2028 drop to 69.5 bid from 72. Even the short-term bonds got whacked, with Dana's 6½% notes due 2008 ending at 80.75 bid, well down from 84, and its 6½% notes due 2009 falling to 78.875 from 82.75 previously.

Another trader saw Dana's bonds down about two points across the board, with its 5.85s going home at 68.5 bid, 69.5 offered and its 6½% 2009 bonds at 78.5 bid, 79.5 offered.

Dana's New York Stock Exchange-traded shares meantime plummeted $1.40 (20.59%) to a close of $5.40, on volume of about 7.4 million, four times the norm.

"The whole auto sector was sloppy on Dana," the second trader said, with ArvinMeritor Inc.'s 8¾% notes due 2012 also down a deuce at 94 bid, 95 offered, and Lear Corp.'s 8.11% notes due 2009 a point lower at 91.5 bid, 92.5 offered.

A source saw Lear's 5¾% notes due 2014 also down a point, at 78.5 bid, 80.5 offered.

In the credit default swaps market, Lear's five-year credit protection on Tuesday widened out to around 725 basis points, or $725,000 for every $10 million of principal protected, up from about 670 basis points last Friday.

Tembec weak again

Outside of the autosphere, a trader saw Tembec Industries Inc.'s bonds - which were falling for most of last week - "still sloppy." He quoted the Montreal-based forest products company's 8 5/8% notes due 2009 at 47 bid, 48 offered, down another point.

But the trader said recent market rumors that the company might be planning to not make the upcoming coupon payments on two issues may just be idle talk; while acknowledging that the rumors "are out there," he cited a news report that the company's chief financial officer said that the coupon payment on the bonds would be made.

"But in this market," he added, "you never know."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.