GM bank debt higher, bonds as well; Adelphia bonds continue to weaken

By Paul Deckelman and Sara Rosenberg

New York, March 31 - General Motors Corp.'s revolving credit facility ground higher by another couple of points Friday as talk of a refinancing potentially being in the works continued to intrigue the marketplace.

The automotive giant's bonds, and those of its General Motors Acceptance Corp. financing subsidiary, were meantime seen mostly higher amid continued speculation that GM may be nearing a decision on the potential sale of a majority stake in GMAC.

That hopeful speculation seemed to take some of the sting out of the news that former GM subsidiary Delphi Corp. had made good on its threat to ask the bankruptcy judge hearing its reorganization case to let Delphi void out its labor union contracts, which could produce a strike by those union members. That in term might have the potential to severely disrupt GM's production schedule, just as the carmaker needs to turn out a stream of new vehicles to help it climb out of last year's nearly $11 billion financial hold.

Apart from the automotive names, Adelphia Communications Corp.'s bonds continued to retreat, hurt by fallout from the mid-week announcement that prospective acquirers Time Warner Corp. and Comcast have accused Adelphi of possibly breaching their purchase agreement.

And in what must seem like an old, old story by now, Calpine Corp's bonds continued to firm for yet another session, though with no discernible explanation as to what was going on.

GM's revolver continued to rise, traders in the bank loan market said, spurred on by the refinancing talk as well as by the sentiment that Thursday's technically driven retreat gave investors a good buying opportunity in that paper.

The revolver closed out Friday's session quoted at 95 bid, 97 offered, up about five points from Thursday's levels of 90 bid, 92 offered, a trader said. And at some point during Friday's market hours, the revolver had actually reached a height of 98 bid for a brief while.

The momentum in GM's revolver really started on Wednesday of this past week as investors viewed some remarks in the company's 10-K filing with the Securities and Exchange Commission as an implication that a refinancing of the $5.6 billion unsecured line of credit is soon to come.

GM had said in the filing that it is currently exploring the possibility of amending or replacing its existing revolver since it is unsure as to whether lenders would allow any borrowings under the facility due to the recent restatement of prior financial statements.

The company needed to restate financial results for GMAC from 2003 through the third quarter of 2005 as a result of improper classification and presentation of cash flows for certain mortgage loans.

Shortly after news of these refinancing allusions made the rounds of market players Wednesday, the Detroit-based automotive giant's revolver jumped to levels of 92.5 bid, 94 offered - well up from the previously 83 bid, 84 offered context.

But on Thursday, the paper came in by about two points as people were probably just engaging in some profit taking. Once those levels went down, investors saw a good buying opportunity, helping to push the paper to the much stronger levels seen on Friday, the trader explained.

"The market figures they're doing this thing over, it's just a matter of time. We'll see if there's any truth to this refi stuff. Otherwise this 15 point jump is ridiculous," he added.

"There was an article [Friday] saying that GM is deciding on April 3 whether or not the 51% stake in GMAC will be sold. If they do sell it, they'll have more near-term liquidity so they could push this refi thing off. That's why [the revolver] is not at like 99 right now," the trader added.

In addition, the Wall Street Journal recently reported that GM is close to selling its GMAC stake to an investor group led by private equity company Cerberus Capital Management for $11 billion.

The other possible contender in the GMAC sweepstakes is a group led Kohlberg Kravis Roberts & Co., which, according to reports, would give GM estimated proceeds of $13 billion.

The speculation that the company's board could meet over the weekend and perhaps decide to go ahead with the sale of that stake in GMAC also helped boost the bonds of GM and its financing arm.

A market source saw GM's benchmark 8 3/8% notes due 2033 at 74 bid, up 5/8 on the session while its 7 1/8% notes due 2013 were up 1 1/8 points at 75.125. The source also saw GMAC's 8% notes due 2031 two points up at 94.75 offered.

Another market source saw GMAC's 6.875% notes due 2012 ahead by 1½ points at 92.5 bid.

A trader at another shop said that GM "opened strongly, then dipped a point" - presumably on the Delphi news - "but then came back, and ended pretty much unchanged. It traded in a one-point range, but never broke out."

He saw the 8 3/8% notes at 73.75 bid, 74.75 offered. On the other hand, the trader saw the GMAC 8s at 94.25 bid, 94.75 offered, "a two-point move from close [on Thursday] to close [on Friday]."

Yet another trader saw the GM bonds actually easier, with the 8 3/8s down half a point at 73.25 bid, 73.75 offered, but he allowed that GMAC "moved up a bit," with the 8% notes at 95 bid, 96 offered, up 2¾ on the day, "believe it or not," he said.

GM's bonds, and GMAC's, apparently withstood the potential bad news coming out of Delphi, which, as expected, filed motions with the U.S. Bankruptcy Court for the Southern District of New York, asking the court to let it junk existing contracts with the United Auto Workers union and two other labor groups. Delphi also asked the court to allow it to reject certain of its contracts to supply components to GM, its former corporate parent and still its largest customer.

GM for its part said that it was "disappointed" with its problem child's move to reject certain supply contracts with GM but "remains committed to working with Delphi and its unions to reach a consensual agreement."

Delphi - which sought Chapter 11 protection from its junk bond holders and other creditors last October - has long contended that the labor cost structure it inherited from GM when it was spun off in 1999, including union contracts more suited to an automaker like GM than an auto parts company, makes its operations unprofitable.

After it entered bankruptcy, Delphi began talks with the UAW and with GM in the hopes of getting some relief from its heavy labor costs. It had previously threatened to go to court to seek authority to reject its contracts, but each time had extended its self-imposed deadlines in order to keep talking. But this time, there was no extension, as Thursday's deadline for having a deal in place came and went. However, Delphi said that it "remains committed to finding a consensual resolution to our issues and intends to continue to discuss with our unions and GM ways to become competitive in our U.S. operations."

The move to scrap the union pacts and its unprofitable GM supply contracts is part of a larger "transformation plan" the company outlined on Friday, aimed at getting Delphi out of bankruptcy by the first half of 2007. Other features of the plan include focusing on higher-margin products such as electronics, navigation and safety. It identified just eight of its 29 U.S. plants as core operations that it plans to hang on to.

The other 21 plants would ideally be sold or, lacking that, wound down and closed. All told, 20,000 hourly wage jobs would be slated for elimination, about two-thirds of its hourly U.S. work force, along with about 8,500 salaried jobs worldwide, or about a quarter of that workforce. Hourly and salaried U.S. defined-benefit pension plans would be retained, but would be frozen by end of this year.

Delphi estimates that wages and benefits for its hourly workers cost on average about $75 per hour per employee, with $27 of that as straight cash salary. After it filed for bankruptcy, Delphi sought to immediately lower wages to around $12.50 per hour, but the UAW rejected that move, and warned that a strike would be likely if Delphi persisted. Delphi backed off, but continued to float the idea of a wage cut during the months of talks that followed.

In mid-March, Delphi presented the union with a new proposal, which would lower the hourly wage to $16.50 in two stages - first, an immediate reduction to $22 per hour, which would be in effect through September 2007, then the final cut to $16.50, which would be accompanied by a $50,000 "wage buydown." The unions didn't think that plan was much better than the first idea, and rejected it this past week, with the president of the UAW declaring that "today it appears there is no basis for continuing discussions," and warning that if the court gives Delphi the power to unilaterally impose its lower wage schedule, "it appears that it will be impossible to avoid a long strike."

For GM, the danger from Delphi's course is two-fold: any kind of prolonged strike would wreak havoc with the auto giant's production operations just when it is trying to get back on its feet after losing more than $10 billion last year. At the same time, even if there is no strike, Delphi's move to void its supply contracts could leave GM in the same leaky boat.

Delphi's chief executive officer, Robert S. Miller, said in the company's statement that "we need GM to cover a greater portion of the costs of manufacturing products for GM at plants that bear the burden of our legacy costs. We simply cannot continue to sell products at a loss."

Any decision by U.S. bankruptcy judge Robert D. Drain on Delphi's motions to reject the UAW and GM contracts, along with the other elements of its transformation plan, is at least several months away, with the first court hearings on its motions not scheduled before May 9 at the earliest. In the interim, the three parties plan to keep talking.

Delphi mixed

Delphi's bonds were seen all over the map on Friday as market players tried to digest its news and figure out what it would mean for those bonds.

A trader saw those bonds up about half a point to a full point on the day's news, quoting its 6.55% notes due 2006 a point better at 61.5 bid, 62.5 offered.

Another trader, however, saw those notes at around that same level - 61.25 bid, 62.25 offered - but called that down 1¾ points on the session. He saw Delphi's 7 1/8% notes due 2029 at 61.5 bid, 62.5 offered, which he called down ¾ point on the day.

A market source at another desk called Delphi's bonds a mixed bag, with its 6.55s a quarter point lower at 60.75 and its 6½% notes due 2013 down 1½ points at 59 and its 6½% 2009 bonds off some three points on the day to 60 bid - but also with its 7 1/8s up ¾ point to 62.25.

Dana weak

Apart from GM, GMAC and Delphi, the auto sector saw Dana Corp.'s bonds unchanged to lower, with a trader seeing the bankrupt Toledo, Ohio-based components manufacturer's 6½% notes due 2008 down a point at 78 bid, 79 offered, while its 5.85% notes due 2015 were a quarter-point lower at 74 bid, 75 offered and its 7% notes due 2028 unchanged at 75.5 bid, 76.5 offered.

But the bonds may not stay at those levels for too long; on Friday, key players in the derivatives industry staged an auction which decided on a settlement price of 73.5 for some credit default swaps contracts involving Dana - a level subsequently corrected to 75 because of a "genuine clerical error." That means that instead of having to actually surrender Dana bonds to the sellers of the CDS protection contracts - a condition of being made whole and reimbursed at par for a defaulted bond - contract holders can substitute a monetary settlement.

The settlement price does not, however, affect single-name CDS protection contracts on Dana; these must still be settled with the actual delivery of bonds - a potential support for the Dana bonds.

In recent past bankruptcies, such as Delphi's and Calpine's, demand for the bonds to settle single-name CDS contracts helped push those bonds higher, up to and even above the settlement price set by the derivatives industry. However, once those contracts were settled - and there was no longer any artificial motive propping the bonds up - the prices for each company's bonds fell back below the settlement price to levels closer to those they were holding after their respective Chapter 11 filings.

Adelphia down again

Elsewhere, bankrupt Greenwood Village, Colo.-based Adelphia's bonds - which had begun retreating at mid week on the possibility that its sale to Time Warner and Comcast could be delayed or even disrupted by the alleged breach of the agreement, continued to ease. A trader saw its 10¼% notes due 2011 at 63 bid, 64 offered, down from Thursday's 64 bid, 65 offered.

Another trader saw those same notes at 63.5, calling that down 1½ points to two points. Adelphia's 7 5/8% notes eased more than a point to 58 bid, while its 7¾% notes ended at 59, also down more than a point.

Calpine up again

Calpine's bonds continued their astounding recent rise, with a trader seeing them up 2½ points to 63 bid. Another trader saw its 8½% notes due 2008 jump to 56 bid, 57 offered from 53 bid, 55 offered previously.

Yet another trader saw the 8½% notes due 2011 at 40.5 bid, 42.5 offered, "up at least a point." He called the recent firming trend in the bankrupt San Jose, Calif.-based power generating company's notes "unbelievable." Noting the lack of fresh fundamental news that would justify the recent firming trend, he merely observed that "someone is going to be very, very right on this one - and someone else is going to be very, very wrong."

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