Delphi rebounds on numbers, call; Kerr-McGee dips on pay down worries; LifeCare cuts spread

By Sara Rosenberg

New York, Aug. 8 - Delphi Corp.'s bank debt rebounded from morning lows after the company reported second-quarter numbers and held a somewhat reassuring conference call. And, Kerr-McGee Corp.'s term loan B headed south as investors began to worry over a potential pay down with proceeds from significant asset sales.

In the primary market, LifeCare Holdings Inc. reverse flexed pricing on its term loan B by 25 basis points and added a leverage-based step down.

Delphi's revolver and term loan both ticked higher from Monday morning opening levels with sources pointing to financial results and the tone of the company's conference call as the impetus behind the momentum.

The revolver closed out the session quoted at 94¾ bid, 95¾ offered, up from opening levels of 93½ bid, 94½ offered, according to a trader.

Meanwhile, the term loan closed out the session quoted at 101 bid, 102½ offered, up from opening levels of par ½ bid, 101½ offered, the trader said.

"The company reported decent numbers this morning and the conference call had a positive tone to it," the trader explained.

For the quarter, Delphi reported revenues of $7 billion, down from $7.5 billion in the prior year, and a net loss of $338 million, or a loss of $0.60 per share, compared to net income of $143 million, or earnings of $0.25 per share last year.

"While we are pleased with our regional performance, it is apparent that we must immediately address the U.S. legacy issues," said Robert S. Miller, chairman and chief executive officer, in a company news release. "We are engaging our major unions in discussions to seek modifications required to implement our restructuring plan, as well as with GM to seek related financial support.

"As we announced on Aug. 5, we drew $1.5 billion under our revolving credit facility to make additional cash readily available to finance our operations to the extent required during our restructuring discussions with our unions and GM.

"If these discussions do not lead to the implementation of a plan that addresses our existing legacy liabilities and the resulting high cost of U.S. operations, we will consider other strategic alternatives, including Chapter 11 reorganization for our U.S. businesses, to preserve the value of the company and complete our transformation plan."

All eyes have been on Delphi ever since Friday, when the company announced that it initiated the draw down under its $1.8 billion revolving credit facility - a move that sparked downgrades from all three rating agencies.

Moody's Investors Service downgraded Delphi's senior secured credit facility to B3 from B1 and corporate credit rating to Caa1 from B2, with the outlook remaining negative. Standard & Poor's downgraded Delphi's senior secured credit facility to B- from BB- and corporate credit rating to CCC+ from B+, with a developing outlook. And, Fitch Ratings downgraded Delphi's credit facility to B from BB-, with the company remaining on Rating Watch negative.

On Friday, some sources had the revolver quoted at 94½ bid, 95 offered late in the day compared to morning levels of 96 bid, 96½ offered, and the term loan quoted at 101½ bid, 102 offered compared to morning levels of 102½ bid, 103 offered.

However, according to a trader, the revolver actually closed out Friday's session even lower at 93½ bid, 94½ offered and the term loan actually closed out the session at par ½ bid, 101½ offered.

Delphi is a Troy, Mich., supplier of vehicle electronics, transportation components, integrated systems and modules, and other electronic technology to vehicle manufacturers.

Kerr-McGee falls

In other secondary trading, Kerr-McGee's term loan B fell off by about a point, moving to par ½ bid, 101 offered, after the company announced the sale of its North Sea operations for about $3.5 billion in cash, according to a trader.

"It's a $3.5 billion asset sale. Proceeds to pay down $2 billion term loan X, but, no one knows what the remaining proceeds will be used for. Some assume that it will pay down the ($2.25 billion) term loan B. Plus, they still have the chemicals asset to sell so the B could be gone within the next nine months, which wasn't expected," the trader explained.

On Monday, Kerr-McGee announced that it would be selling interests in four non-operated fields and related exploratory acreage and facilities to Centrica plc for about $566 million and all remaining North Sea assets would be sold to Maersk Olie og Gas AS for $2.95 billion through the sale of 100% of the stock of Kerr-McGee Ltd. and other affiliated entities.

At closings, Kerr-McGee will receive cash proceeds of about $3.5 billion and expects net after-tax cash proceeds will be about $3.1 billion. The company plans to use all net proceeds to reduce debt, according to a company news release.

Under the company's credit agreement, prepayments on its term loans can be made at any time without penalty. Furthermore, the company must use 100% of the net cash proceeds from asset disposals to prepay bank debt, subject to certain exceptions.

The asset sales are subject to approval from appropriate government agencies and customary closing conditions, and closing is expected by early in the fourth quarter.

Kerr-McGee's strategic plan to high grade its asset portfolio also includes the divestiture of its Gulf of Mexico shelf properties and selected U.S. onshore properties. In addition, the company is proceeding with the separation of its chemicals business through a dual-track process as a sale or IPO/spinoff. The company expects to complete the chemical separation and the majority of the divestments prior to year-end.

Kerr-McGee is an Oklahoma City-based energy and inorganic chemical company.

LifeCare lowers pricing

As for primary doings, LifeCare reverse flexed pricing on its $255 million seven-year term loan B to Libor plus 225 basis points, compared to initial price talk at launch of Libor plus 250 basis points, according to a market source.

Furthermore, pricing on the term loan B can drop to Libor plus 200 basis points based on leverage, the source added.

Pricing on LifeCare's $75 million six-year revolver was left unchanged at Libor plus 225 basis points.

JPMorgan and GE Capital are the lead banks on the $330 million senior secured credit facility (B2/B), with JPMorgan on the left.

Proceeds from the credit facility along with proceeds from a recently priced bond offering will be used to help fund the leveraged buyout of LifeCare by The Carlyle Group.

On Friday, LifeCare priced $150 million of eight-year senior subordinated notes at par to yield 9¼% - the wide end of the 9% to 9¼% price talk.

LifeCare is a Plano, Texas, operator of long-term acute care hospitals.

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