Refco snaps back; Delphi, auto paper weakens; airline paper firms; Calpine issues drop 1 to 3 points

By Ronda Fears

Nashville, Oct. 26 - In what traders described as another quiet day of distressed debt trading, paper shuffled on those desks was mostly weaker, reflecting the broader markets where corporates and Treasuries also softened. At the top of the distressed paper list, though, Refco Inc. bonds lost ground amid the ongoing legal saga unfolding at the once high-flying commodities and futures broker.

Delphi Corp. bonds declined, too, along with virtually the entire convoy of distressed auto paper. Delphi's issues dropped to the 67 bid, 68 offered area after opening at 69 bid, 70 offered. And, Collins & Aikman Corp.'s 10¾% bonds due 2011 dropped 2½ points to 50.5 bid, 52.5 offered, though traders said there was no specific news on the tape.

In related auto credit events, however, sources in the bank loan market told Prospect News that Hertz Corp. - the car rental agency being spun out of Ford Motor Co. - was readying the launch of a $3.6 billion bank deal next week. Also, junk bond market sources said Ford Motor Credit Co. priced a $1 billion split-rated two-parter, with a $500 million two-year floater paying Libor plus 300 basis points and a $500 million five-year fixed-rate note priced to yield 4 3/8%.

Refco 9s drop to 65/66 area

Refco and Interactive Brokers Group announced Wednesday they have entered into a confidentiality agreement regarding Interactive's plan to bid for Refco's futures business, in order for it to proceed with due diligence for its $858 million bid to buy the business. And, there were reports that Interactive may be interested in more than Refco's futures unit.

Still, amid the mounting turmoil, Refco Finance's 9% bonds due 2012 dropped 3 or 4 points on Wednesday to the 65 bid, 66 area, traders said.

Interactive Brokers is the highest bidder for Refco's futures brokerage business, so far, and has expressed interest in other parts of the bankrupt company. Several groups have expressed interest in buying Refco's futures arm, but Refco has received only two firm bids - the one from Interactive Brokers and a joint bid from Dubai government investment arm Dubai Investment Group and buyout firm Yucaipa Cos.

On Tuesday, Interactive Brokers chairman Thomas Peterffy said his company could also be interested in acquiring Refco Inc.'s broker-dealer unit, Refco Securities LLC, after raising its bid for the futures unit to $858 million. The Dubai-Yucaipa group submitted a bid worth $828 million. Those knocked out the $768 million offer from J.C. Flowers & Co., which was announced in conjunction with the bankruptcy petition. The Flowers group withdrew its bid Monday but said it may participate in the auction.

The action for the futures unit is scheduled for Nov. 9, with bids due five days before that, and a hearing on the sale will be held the day after the auction. The bankruptcy court must officially stamp any deal.

Calpine debt drops on suit

Legal troubles continue to trounce Calpine Corp., the San Jose, Calif.-based independent power producer, as well.

Following news late Tuesday that a couple of hedge funds holding Calpine's 6% convertible bonds had filed suit for the second time since July, alleging a technical default because of the trading levels of those bonds, Calpine paper was said to be trading down by 1 to 3 points on Wednesday.

Minneapolis-based Whitebox Advisors LLC and New York-based Harbert Management Corp., which together holds about $200 million of the $641 million 6% Calpine convertible issue, assert that the price level of the bonds - around 59.5 recently - has caused a technical default.

Calpine paper over the past week had lost about 10 points before the lawsuit surfaced. Last week news that the company had hired workout lawfirm Kirkland & Ellis sent a new bankruptcy scare rippling through the credit markets. But the company asserted it was working with the law firm in a legal battle with noteholder trustees Bank of New York Co. Inc. and Wilmington Trust.

Airline paper firms a tad

Although traders said airline paper was not showing a lot of volume still, in the quiet of the last week of the month, the bonds of several bankruptcy air carriers were firming as crude oil and fuel prices declined Wednesday.

United Airlines Inc., a unit of UAL Corp., saw its bonds settle out the day at around 14/15, one trader said. Another said those bonds ended Tuesday at around 13¾ bid.

Delta Air Lines Inc.'s bonds were trading around 18 on Wednesday with the issues closing at 17 bid, 19 offered. The bonds went out Tuesday, one trader said, at 15 bid, 16 offered.

And, Northwest Airlines Corp. bonds were seen in the 29 area, versus Tuesday's close of 28.

Crude oil and gasoline prices dropped Wednesday on a U.S. Department of Energy report that showed inventories increased last week for the third consecutive week. Crude oil for December delivery fell $1.78 to close at $60.66 a barrel on the New York Mercantile Exchange.

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