Collins & Aikman off; Delphi pat; bids better for Dura, Tower; Remy mixed; Delta, Northwest lower again

By Stephanie N. Rotondo

Portland, Ore., Jan 25 - Auto-related names in distressed debt circles Thursday were driven largely by Ford Motor Co.'s results, with heavy traffic, although the extremely distressed paper held up fairly well in the face of Ford's massive losses. In more specific news, Collins & Aikman Corp., received approval of its amended plan and Delphi Corp. said a deal with its unions could drag on past the deadline stipulated with equity backers in its reorganization plan.

Judge Steven Rhodes approved Collins & Aikman's disclosure statement in the U.S. Bankruptcy Court for the Eastern District of Michigan in Detroit. All previous objections were settled prior to the hearing.

Delphi, which has been in talks with its labor unions and U.S. automaker General Motors Corp., said the discussions could go past the Jan. 31 deadline set by the company's group of investors. However, all parties could agree to extend the talks if progress is being made.

Outside of the auto names, airlines were still a main theme with Delta Air Lines Inc. and Northwest Airlines Corp. both extending recent losses and most traders saying they expect bankrupt airline paper to continue to weaken.

Moreover, trading flow improved Thursday as many market participants returned from the three-day JP Morgan High Yield Conference in south Florida, but prices remained relatively stable, according to one trader.

"Things are trading, there's things going, but the prices are staying the same," he said.

"More players are back today," he said, accounting for the spike in activity. "More people sitting in their desks. There is more of an audience, though there is no news out there."

Collins & Aikman trades off

Collins & Aikman saw heavy trading in its 10¾% notes due 2011 and one trader said there were significant trades at 3.375 and nearer 4 before the issue eased back to put the last trade of the day at 3.8125.

A hearing held Thursday on the adequacy of the company's revised reorganization plan and disclosure statement elicited good news, as the judge approved the disclosure statement. All previous objections were resolved prior to the hearing, David Youngman, vice president of communications at Collins & Aikman, told Prospect News.

Earlier in the week, the Southfield, Mich.-based auto component company informed the bankruptcy court that it had reached an agreement in principle with the official committee of unsecured creditors and the unofficial steering committee for the company's senior, secured pre-petition lenders regarding the terms of the company's amended plan.

A confirmation hearing is scheduled for April 19.

Collins & Aikman filed the amended plan and disclosure statement Wednesday. According to the plan, the company can begin to look for buyers of the majority of its assets. Proceeds from those sales will be distributed among secured debtholders after obligations outstanding under the company's post-bankruptcy credit agreement and all administrative and priority claims have been paid.

One analyst forecast the company was close to liquidating its assets. News reports have indicated there are buyers already in place for some of them. The company said last month that there was a preferred buyer for the textile plant in Old Fort, N.C., though the identity of the buyer is still unknown; a Port Huron, Mich., auto plastics plant may close if a buyer cannot be found soon.

Delphi pat amid turnover traffic

Delphi bonds settled the day unchanged, according to one trader, but traffic in the bonds accelerated.

"Turnover's back," he said. "That's a good thing."

Delphi was one of many auto suppliers to file for bankruptcy amid cutbacks at U.S. automakers. But it has fared much in the proverbial storm since its October 2005 filing.

"The Delphi story people are more positive about," one analyst said, citing strong equity players and market share connected with GM, which is generally considered to be in better financial condition than Ford.

Delphi has been in talks with GM and the United Auto Workers union to discuss parts contracts and wage and benefit cuts it believes are essential to the company's reorganization plan.

On Tuesday, Delphi announced it had signed an agreement for an investment of up to $3.4 billion from a group led by Appaloosa Management LP and Cerberus Capital Management that is contingent upon an agreement between GM and UAW, among other things. If an agreement is not met by Jan. 31, the deal could be in jeopardy.

But, Delphi has said that the deadlines could be extended if progress is being made and all parties agree to an extension. The Appaloosa/Cerberus deal won court clearance over a $4.7 billion offer by Highland Capital Management, which would have made a bigger equity distribution to current Delphi stockholders, but at the cost of adding more debt to the reorganized company, according to onlookers.

Tower, Dura bonds better bid

In other bankrupt auto supplier paper, one trader said bids were better for Dura Automotive Systems Inc., and Tower Automotive Inc.

"Not that it moved them," he added.

The trader saw small trades for Dura at 35, though the "odd lot" was not necessarily a good indication of levels, the trader said. He noted the 8 5/8% due 2012 closed around 36.25 the previous day. The 9% notes due 2009 also traded in an odd lot, and saw a slight increase to 7.5.

The Tower 12% bonds, however, were "a little bit better than I've seen them," the trader said. The notes saw a bid of 11 most of the day, but no offers were to be found.

He said vehicle battery maker Exide Technologies Inc. also saw a little action, and its 10½% bonds closed at 96.25, down slightly from 96.375 the day before.

Remy mixed amid auto turmoil

Ford's news of a wider $5.8 billion fourth-quarter deficit and a record loss of $12.7 billion in 2006 was not a huge surprise among analysts but the results could signal further pain for auto suppliers.

In addition to several major suppliers already in bankruptcy, the market is closely watching Remy International Inc. in a hot debate over whether it will file Chapter 11 or manage to escape that route with asset sales to shore up its balance sheet. Under its Delco Remy brand, the company supplies starters, alternators and other parts to all the major automakers, including Toyota, Honda and Hyundai/Kia.

"It [Ford's results] is not favorable for fourth quarter results for other distressed companies," one analyst told Prospect News. He said it was symbolic of the theory of bad news "rolling downhill.

"They can't get out of the way fast enough," he said. "Suppliers are much more vulnerable."

Smaller companies, such as Tower, may not weather the storm as well as companies such as Delphi, which has not only performed better in the market but also has better market visibility.

Yet, "it's not clear how they will come out of this," he said.

In an industry that has taken major hits over the last few years, each individual story is different, he explained.

Some distressed bond traders have intimated that management is the problem at companies like Tower. The analyst, however, doesn't think it is as simple as that.

"Management might be a catalyst, but they are not alone as the cause," he said. "The problem is there is lots of leverage."

Still, he sees times like these as "opportunistic": a chance for distressed companies to divest properties, to refocus energy on rebuilding market share and, overall, to restructure.

"It's impossible for a supplier to forecast in advance how much to cut back," he said.

A stronger balance sheet is required to "live to fight another day," he said. If that can be achieved, the "fight" can continue.

And while it is uncertain which companies will be able to emerge as healthier entities, the analyst predicts the ones that do will see better results.

"It's going to be a cycle that gets stronger in the future," he said.

Remy bonds were mixed Thursday with the step-up 11% note due 2009 quoted off almost a point on the day at 38.25 bid, 38.5 offered while the 8 5/8% bond due 2007 was pegged up 1 to 1.5 points at 91 bid, 92 offered.

Delta, Northwest drift lower

In the never-dull airline pack, Delta bonds were hit again Thursday with a 1 point loss from the day before when chief executive officer Gerald Grinstein had argued against a U.S. Airways Group Inc. takeover in front of a Senate Commerce Committee.

Its 8.3% notes were "about the same," according to one trader, closing at 62.5, down 1 point from the previous day.

Meanwhile, Northwest Airlines Corp. bonds continued to lose altitude with its 7 5/8% issue due 2023 trading at "94 or less," according to one trader, which would be a 3 point or more decline from Wednesday.

MAAX sees wide spread

Meanwhile MAAX Corp. saw its 0% notes quoted at a broad 80 bid, 85 offered.

One trader said the "wide spread" was due to a "short squeeze."

Amid weak new construction and existing home sales weaken, it could be a tough road ahead for the Montreal-based manufacturer of bathroom products and spas for the residential housing market.

MAAX obtained a $175 million term loan and a $40 million revolving credit facility earlier this month. Moody's recently downgraded the company's rating, saying the company will be challenged to maintain compliance with the monthly minimum EBITDA requirement of $36 million in this weak environment.

But one analyst said the EBITDA was inline with what she was expecting, even if the investors were surprised.

"60-70% of [Maax's] business is remodel," she said. "They should be less impacted."

The company also possesses the No. 1 market position in Canada, where "the market has been very strong, though we are seeing it soften."

Still, as the company's 9¾% notes trade in the high 60s to low 70s, the analyst said the bonds "looked pretty appetizing to investors."

The analyst said shareholders were "riding out their optionality," and it was unlikely that the company would be forced into default it did not, in fact, meet the new EBITDA requirements, given the "strong lending environment."

"More strategically, [the stockholders] would decide, 'we have too much debt, let's restructure,'" she said.

"Ultimately, do we think [Maax] is a survivor? Yes," she said.

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