Refco bank debt, bonds push up as auction ends; Delphi lower

By Paul Deckelman and Sara Rosenberg

New York, Nov. 10 - Refco Inc.'s bank debt and bonds were seen higher Thursday, as the bankrupt New York-based financial company announced that Man Financial Inc., a wholly owned subsidiary of Man Group plc, was the winning bidder at the auction for substantially all of the assets of Refco's regulated commodity futures businesses.

Elsewhere, Delphi Corp.'s bank debt and bonds were seen lower amid a generalized automotive sector weakness in the wake of a retreat in former corporate parent General Motors Corp.'s bonds, as well as specific investor angst over Delphi's poor third-quarter numbers.

Trading in the distressed precincts was generally slow, in line with an overall slow and sleepy junk bond market ahead of Friday's full market close for the Veterans' Day holiday.

Bank debt traders saw Refco's paper up by about 1½ to two points, with one trader seeing it quoted at 97 bid, 98 offered.

Over on the bond side of the ledger, Refco's 9% notes due 2012 "caught a bid" in the wake of the successful auction, a trader said, and moved as high as 78 bid before settling in around 77.75 bid, 78.75 offered, which he pegged up half a point to ¾ of a point.

He noted, with some wonder that Refco "has really come back," after having fallen from levels around par to as low as the lower 30s immediately after the disclosure of problems with an apparently bad secret loan by the company to then-CEO Phillip R. Bennett. That news led to Bennett's eventual ouster from his post and indictment on securities fraud, causing a loss of investor confidence in Refco and an exodus of customers, which led to Refco Inc.'s Oct. 17 Chapter 11 filing with the U.S. Bankruptcy Court for the Southern District of New York. Refco LLC, the company's regulated brokerage business and subject of the auction, was not included in the initial bankruptcy declaration.

At another desk, a trader noted that the Refco bonds, which had finished at around 76 on Wednesday, plunged as low as 73 bid, 75 offered in the early going Thursday, before climbing off that floor to levels as high as 80 bid late in the day, before settling in a 77 bid, 79 offered context.

Although one trader said that there had been some quotes as low as 65 in the early going, the second trader said that was all they were - quotes - with no real trades attached to them.

Man Financial won the auction for Refco LLC's assets with a bid of $282 million in cash and approximately $41 million of assumed liabilities and other considerations, for a total of $323 million.

Man beat out several other bidders, including from private equity firm J.C. Flowers and rival brokerage Interactive Brokers, who had appeared to have the inside track in the days leading up to the auction.

Rather than buying Refco LLC outright, the brokerage unit was put under Chapter 7 of the bankruptcy code, and its customer accounts transferred in bulk to Man Financial in order to ease the transaction and avoid potential legal issues. Man Group reportedly didn't take on the net regulatory capital of Refco LLC - the amount of capital that agencies such as the Commodity Futures Trading Commission require to be set aside to support Refco's futures business - in order not to become embroiled in the litigation surrounding the demise of Refco. Some Refco customers have charged that Refco improperly transferred their accounts from Refco's regulated business to its unregulated capital markets unit without their knowledge or permission. Among those making such claims are funds run by international commodities trader Jim Rogers. Refco denies the allegations.

Delphi lower

Elsewhere, Delphi Corp.'s bank debt levels dropped by about a quarter of a point on Thursday on general sector weakness, according to a trader.

He saw the bankrupt Troy, Mich.-based automotive electronics manufacturer's term loan being quoted at 103.5 bid, 104 offered and its revolving credit facility loan being quoted at 101.5 bid, 102 offered. Delphi recently released third-quarter numbers that included widening losses - however, those results had done little to pressure the bank debt, as term loan levels remained steady, trading around 104.

Delphi's junk bonds, such as its 7 1/8% notes due 2029, were meantime quoted off a point or so to levels around 56 bid, 57 offered.

For the quarter, Delphi's net loss was $788 million ($1.40 per share), far wider than the year-ago loss of $119 million (21 cents per share). Revenue was $6.28 billion, down from $6.64 billion in third quarter 2004.

Delphi bonds have also weakened over the announced resolve of the company's six labor unions to fight management's efforts to slash employee pay and benefits by as much as 60% - a step Delphi says is necessary if the company is to survive. That's raised talk that the roughly 30,000 employees represented by the union coalition could strike Delphi at some point in the future.

That in turn has raised some angst among General Motors bond and stock investors, since Delphi is GM's single largest component supplier.

The worries about Delphi's situation follow hard on the heels of Wednesday's revelations contained in a GM Securities and Exchange Commission filing that an accounting error caused the Detroit-based automotive giant's 2001 earnings to be overstated by $300 million to $400 million, or up to 35% percent of its reported earnings.

That caused GM's bonds and shares to move lower on Wednesday, and they continued to skid on Thursday.

"GM was down another couple of points," a trader said, "and everything [in the automotive sector] was down in sympathy. The company's 7 1/8% notes due 2013 was down nearly two points on the session, at 74.5.

At another shop, a trader saw GM's benchmark issue, the 8 3/8% notes due 2033, trading in a 69.5-71 range, thought to be an historic low for that bond since its issue slightly over two years ago. Those bonds were down from closing levels around 72 on Wednesday, so "they definitely were a little lower."

There were, he said, "a heck of a lot of trades," even if only looking at round-lot dealings of over $1 million, "so that is one very active bond."

Another trader said that the GM 8 3/8s had pushed down to 69.5 bid, 70.5 offered late in the session, in response to the news of the earnings restatement, Wednesday's downgrade by Fitch Ratings, and the possibility of a Delphi strike, breaching the psychologically important 70 threshold. "That's got to be their [all-time] low," he said.

GM's New York Stock Exchange-traded shares were meantime seen at a 16-year low, closing down $1.12 (4.53%), at $23.51, on volume of 35 million, almost four times the norm. At one point intra-day, the shares went as low as $22.75 - the lowest they've been since 1982.

Investors were also nervously watching a vote by GM's unionized employees on the company's demands that those workers and its retirees pay a larger share of their own healthcare costs. GM has said that spiraling healthcare costs must be brought in line for the company to remain economically viable. Although the United Auto Workers union leadership reluctantly approved the plan, a yes in the ballot is by no means certain.

Trading in GM bonds and shares was further roiled by Bank of America Securities analyst Ron Tadross' warning of an increased risk of bankruptcy by the auto giant. He raised the likelihood of a GM bankruptcy filing to 40% from 30% previously, while lowering his target stock price to $16 from $18.

Other auto names weak

With GM and Delphi casting a long, ominous shadow over the automotive sphere, J.L. French Automotive Castings Inc.'s bank debt was seen having also fallen off in trading on Thursday, as levels dropped by about two points during the session to 88 bid, 89 offered, according to a trader.

"The whole auto sector is sucking wind today," the trader said.

Over the course of the week, the bank paper of the Sheboygan, Wis.-based supplier of die cast aluminum components and assemblies has given up about five points because of sector issues, the trader added.

Dura Operating Corp.'s 9% notes due 2009 were seen down half a point at 56 bid.

And Delco Remy International Inc.'s 9 3/8% notes due 2012 were seen two points lower at 36 bid.

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