Ford new convertible rockets up in gray market; Winn-Dixie spike sparks sellers; Dana bonds better

By Ronda Fears

Memphis, Dec. 5 - Ford Motor Co.'s new $3 billion convertible - distressed CCC+ paper right out of the chute - took off Tuesday in the gray market and left most of the existing Ford paper in its dust.

Meanwhile, traders said the sluggishness of the market, in terms of volume, should subside once the Bank of America 2006 Credit Conference in Orlando, Fla., wraps up Tuesday and everyone is back at their desk Wednesday.

"People are looking for paper. Definitely there are better buyers out there. When you get something for sale, it doesn't sit there very long," said one trader.

"We were getting lots of inquiries but a lot of people have been gone Monday and Tuesday. What was interesting was what we were getting inquiries about - a lot of one-off issues, like PetroHawk Energy Corp., Propex Fabrics, Inc., stuff you don't see much."

In bank circles, Meridian Automotive Systems Inc. held a bank meeting on Tuesday to launch its proposed $175 million exit financing credit facility, and in conjunction with the launch, official price talk on the institutional debt emerged, according to a market source.

The $80 million six-year term loan and $25 million six-year synthetic letter-of-credit facility were presented to lenders with opening price talk of Libor plus 550 basis points, the source said. Previously, it was expected that the two institutional tranches would carry pricing of Libor plus 400 bps based on various court documents that Meridian had filed.

The facility also includes a $70 million five-year asset-based revolver.

Deutsche Bank is the lead bank on the deal.

Meridian is a Dearborn, Mich., supplier of lighting, exterior composites, console modules, instrument panels and other interior systems to automobile and truck manufacturers.

Back in bonds, Hollywood, Fla., homebuilder Technical Olympic USA Inc. said its Transeastern unit is not planning to make a voluntary bankruptcy filing. The Technical Olympic bonds were seen up 1 point each with the 7 1/8% notes due 2015 at 78.5 bid, 79.5 offered and the 7½% notes due 2011 at 82.5 bid, 83.5 offered.

Ford fans fan the fires

Ford isn't pricing its new convertible until after the close Wednesday - a $3 billion 30-year issue of cash-pay convertible senior notes talked to yield 4.75% to 5.25% with an initial conversion premium of 23% to 27% - but the paper was bid up 3 to 4 points in the gray market Tuesday, and market sources said the deal was already at least 5 times oversubscribed.

The notes will be offered at par and were seen early catching a bid of 3.5 points over issue price, which later swelled to 3.9375 over by day's end.

When asked what the attraction was to the new issue versus some of the existing triple-C Ford paper on the market in the 75 context, one market source said, "It will be their only convert bond outstanding and the premium is reasonable. Plus, being a lower premium, the option portion has more value to arbs."

Ford's only other convertible, a 6.5% trust preferred, sank 2% in trade Friday to $33.35, versus a par of $50 on that issue, with some 9.3 million shares moved versus the norm of 1.3 million shares.

Ford shares were off 3% on the day, but onlookers said that was fairly remarkable, given that such a big convertible would normally push a stock much lower. The common stock also saw whopping volume with 113.8 million shares traded versus the norm of 31.3 million shares.

"Over 113 million shares traded today and the stock is only down about 21cents. Very impressive! [There were] lots of buyers present to pick up the short sales," remarked a distressed bond trader.

"Ford may well be one of the best performing large cap stocks next year. Why? Because less the restructuring costs, Ford will no doubt show a profit. All of the present talk about not showing a profit till 2009 includes restructuring costs. Back out restructuring costs (projected at $10 billion in 2007) and the cost savings from letting go 40% of its union work force, white collar force and medical costs reductions agreed to by the union all amount to substantial savings similar to what we saw at GM [General Motors Corp.] this year."

Winn-Dixie bonds go past 98

In a situation that has sparked a great deal of intrigue in the distressed bond market over the past couple of weeks, Winn-Dixie Stores Inc. players threw caution to the wind and ponied up nearly par for the bonds in order to play the when-issued stock, which was driven past the $15 mark on Tuesday.

The bonds closed Tuesday's session at 98.25, up 8.5 points on the day, while the when-issue stock gained 5.5% to close at $5.19. But traders said serious sellers were moving in on the smart gain by late Tuesday and that would likely extend into Wednesday's session.

Arbitrageurs playing the bonds have been getting jammed up on the trade by straight equity players pushing the stock up from $11 - where it began trading a little over two weeks ago - but a trader said Tuesday that the Winn-Dixie bonds fully went along for the ride with the stock.

"The equity guy can't keep his hands out of the cookie jar. The same buyer, or buyers, of WINNV equity came in yet again and pumped the stock up 80 cents to nearly $15.20," the trader said.

"As you'd expect, the higher price on the bond is finding more outright sellers, taking full advantage of this unbelievably high price.

"It was only nine days ago you couldn't find a buyer at 70," the trader continued. "We're now seeing some real selling. People can't believe these bonds are about to par."

Winn-Dixie shares are the trophy in this trade, but the bonds are a means of increasing equity exposure as there will be 54.5 million shares of new Winn-Dixie common stock issued to bondholders and other creditors as the company exits bankruptcy. The company is expected to fully emerge bankruptcy and issue the stock in the next two to three weeks.

The Jacksonville, Fla.-based grocery chain will have authorization to issue up to 150 million shares, minus the distribution.

Traders say the big buyers of Winn-Dixie shares, and bonds, are motivated to put their hands on a controlling interest in the company now, before reporting requirements of stakes larger than 5% go into effect when the stock is official. But as for the identity of the buyer, or buyers, there has been no rumblings emerge.

Dana bonds add 1.25 points

Dana Corp. bonds got a bounce following its request for an eight-month extension to its exclusivity period to file a reorganization plan in order to address its U.S. operations losses.

One trader saw Dana's 6½% notes due 2008 up 1.25 points at 77 bid, 78 offered but also noted that there was "nothing" on the other bankrupt auto parts paper of Delphi Corp., Dura Automotive Inc. and Tower Automotive Inc. He noted that Remy International Inc.'s 8 5/8% notes due 2007 were at 85 bid, 87 offered and pegged General Motors Corp.'s 8 3/8% bonds unchanged at 91 bid, 92 offered.

Dana requested an eight-month extension to its exclusive periods to file a plan of reorganization and solicit votes on the plan, seeking to extend the plan filing period to Sept. 3, 2007 from Jan. 3 and the solicitation period to Nov. 2, 2007 from March 5.

The Toledo, Ohio-based company said that, in addition to stabilizing its business and transitioning into Chapter 11, it has performed an exhaustive analysis of all aspects of its operations to identify initiatives which, if implemented, will form the basis of its reorganization plan and ultimately permit it to rehabilitate its U.S. operations by achieving viability on a sustained basis.

Now, the company said it is embarking on the negotiation and implementation phase of its restructuring, focusing on customers, retirees and workforce, with a primary objective of addressing the U.S. operations' current loss and cash burn situation in 2007.

A hearing is scheduled for Dec. 19.

Sirius seesaws on subs

Sirius Satellite Radio Inc. bonds took a ride Tuesday in tandem with the stock, but as the dust settled following its reduced year-end 2006 subscriber guidance, the paper found some balance, traders said.

After Monday's close, New York-based Sirius lowered its forecast for year-end subscription figures, citing lower-than-expected retail sales since the Thanksgiving weekend.

The Sirius 9 5/8% notes due 2013 hit a bottom of 98 early but bounced back to 100.5, unchanged, around midday. Later, another trader saw the issue at 99.5 and said there were "probably a few odd-lot hedgies unwinding."

"The tree is really getting shaken today," said the latter distressed bond trader, noting an 8% plunge in Sirius common shares on eye-popping volume of 121.8 million shares versus the norm of 36 million shares.

"Hopefully it is just a one-day bloodbath. I think the stock was oversold but I suppose we'll see how the holders feel in a few weeks."

He said the numbers did not appear as bad as the headlines, so he figures there might be a rebound in store, but remarked, "I think Sirius may have lost some credibility with his subscriber over estimation."

Sirius said late Monday that it now expects to have between 5.9 million and 6.1 million subscribers by the end of the year, compared with its previous expectation of 6.3 million subscribers.

The new forecast, at the low end, represents a growth rate nearly 20% above that of 2005. The range works out to net subscriber additions of between 2.6 million and 2.8 million, or year-over-year-subscriber growth of 80% to 85%.

Sirius also said it still expects to reach its first quarter of positive free cash flow, after capital expenditures, this quarter. Early last month, the company reported a narrower third-quarter loss, with subscribers as of Sept. 30 totaling 5.1 million.

Delta, Northwest better

Elsewhere, Delta Air Lines Inc.'s bonds continued to rise, in the wake of Monday's news that the bankrupt Atlanta-based Number-Three U.S. airline carrier had struck a deal with federal pension regulators on the airline's request to terminate its pilots' pension plan. Bankrupt rival Northwest Airlines Corp.'s bonds, which frequently move in tandem with Delta's, were also up.

Bond of both companies were seen by one trader to have risen by a point earlier in the day, continuing the rise which both names had seen during Monday's session, but he saw them finishing Tuesday's trading about unchanged from prior levels.

However, another trader saw both names higher, with Delta's most widely traded issue, its 8.30% notes due 2029, up ½ to 62.5 bid, 63.5 offered, while Eagan, Minn.-based Number-Four carrier Northwest's 8 7/8% notes that were to have matured this year were a point better at 84.

Another trader saw those Northwest bonds also up a point, at 84 bid, 85 offered, and quoted the Delta 8.30s likewise up a point at 62 bid, 63 offered, on top of a 2 point rise Monday.

The Delta bonds have been climbing over the past two sessions, one of the traders said, after the troubled airline said Monday that it had reached a settlement with the government's Pension Benefit Guaranty Corp. - which has taken over a number of pension plans from bankrupt companies - on some key issues related to Delta's effort to terminate its pilots' pension plan. The bankruptcy court has already okayed such a move, over the objections of Delta's pilots, but the federal body must sign off on it as well.

Under terms of that agreement, the PBGC would get an unsecured claim of $2.2 billion against Delta, making it an unsecured creditor - although such creditors typically recover only a fraction of what they are owed.

Delta also agreed to provide in its reorganization plan that the pension insurer would get $225 million in senior unsecured notes, which Delta would repay in full when it emerges from bankruptcy, which the airline figures will happen around the middle of next year.

Technical Olympic up on Transeastern news

Technical Olympic USA Inc.'s bonds were seen better, after the Hollywood, Fla.-based homebuilder declared that its troubled Transeastern homebuilding joint venture in Florida will not be entering any voluntary Chapter 11 filing (see related story elsewhere in this issue).

That is good news for the company's bondholders, since Transeastern's $625 million of outstanding debt would be considered full recourse to Technical Olympic and its 50-50 partner, The Falcone Group, only in the event of such a voluntary filing.

Otherwise - as Technical Olympic officials had discussed with investors on a Nov. 14 conference call - the debt would be limited recourse - meaning the partners would be liable for only part of the amount - if there were misrepresentation or certain other matters, and Technical Olympic would only be responsible for damages or losses suffered by the lenders as a result of the misrepresentation. The debt would be non-recourse in the event of an involuntary bankruptcy filing, say by disgruntled debtholders.

The denial of any intention of voluntarily filing for Chapter 11 was "par for the course," a trader said - "but it's good to hear management say it."

He saw Technical Olympic's 10 3/8% notes due 2012 up 1½ points at 90.5 bid, 91.5 offered, while another trader saw the company's 7½% notes due 2011 at 82.5 bid, 83.5 offered, and its 2015 7½% notes at 78.5 bid, 79.5 offered, both up a point.

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