Collins & Aikman crashes and burns on liquidity problems; Calpine weakens on ratings cut

By Paul Deckelman and Sara Rosenberg

New York, May 12- Collins & Aikman Corp.'s bank debt lost several points Thursday and its bonds took a complete nosedive after the Troy, Mich.-based designer, engineer and manufacturer of automotive interior components announced its intentions of seeking loan waivers, revealed near-term liquidity challenges and announced the resignation of its chief executive officer.

Calpine Corp. bonds were meantime seen lower after the San Jose, Calif.-based power generating company's debt ratings were cut by Moody's Investors Service, following the example of Standard & Poor's, which downgraded the ratings earlier in the week.

And Delta Air Lines Inc.'s short paper pushed up smartly in early dealings on the news that some bondholder have agreed to exchange their bonds for stock - but the rally was short-lived, and the notes came back down to earth.

Collins & Aikman's bank debt was heard down by about five points on the bid side - a huge move for the usually sedate bank loan market - after the company's announcement.

The bank debt was quoted wide at 91 bid, 95 offered, well down from Wednesday's levels of 96 bid, 98 offered, according to a trader.

"That one was just a freefall," another trader added.

Over on the bond side of the ledger, there was nothing to be seen except bloody carnage any which way you looked. Call it the financial equivalent of a 12-car pileup on a busy expressway during the afternoon rush hour.

A trader in distressed debt quoted the company's 10¾% notes scheduled to come due on Dec. 15 as having fallen to 45 bid, 47 offered from previous levels at 67 bid, 68 offered, while its 12 7/8% notes collapsed down to 7 bid, 9 offered from 24 bid, 26 offered, "all because the chairman resigned," adding facetiously that "he's been doing such a good job, too!"

Bond investors saw little opportunity for humor in the situation. Another trader said that "CKC got destroyed," pegging the 103/4s at 45.5 bid, 46.5 offered, down 20 points on the day, while the junior bonds "were just annihilated," falling from Wednesday's close around 23 bid, 24 offered to intra-day lows of 4.5 bid, 5.5 offered, before coming black slightly to end at 7 bid, eight offered, still down some 16 points on the day by his calculations.

"It was just total destruction."

On Thursday, the company said that David A. Stockman, chief executive officer, chairman of the board and director, had resigned. Charles E. Becker, a former director of the company, has agreed to serve as acting chief executive officer. Marshall Cohen, a current director of the company, was named as non-executive interim chairman of the board of directors.

"You might as well just say you're going to file [for bankruptcy], that's the way I look at it," another trader said, referring to the ouster of Stockman. "The head of Heartland [Industrial Partners LP, which along with affiliate Heartland Industrial Associates LLC is far and away Collins' single largest shareholder] gets canned as your CEO - if that's not a message that you're going to restructure . . . it just seems like it's imminent."

Collins & Aikman has been bedeviled by negative market rumors - including talk of a possible Chapter 11 restructuring in the works - for months. Those rumors had always been dismissed as idle chatter by Stockman and other Collins & Aikman executives. But on Thursday, in its announcement, the company revealed just how bleak and critical its liquidity picture is.

It said that it continues to face "significant" near-term liquidity challenges. Its credit facility is fully drawn so it must rely fully on timely access to its accounts receivables facility, foreign receivables factoring arrangement and fast-pay financing programs to fund ongoing operations.

As of May 11, Collins & Aikman had cash and availability under its financing arrangements of just $13.4 million.

It also has a significant foreign factoring arrangement, under which outstanding factored balances were approximately $96 million at March 31. These are generally terminable on short notice.

Furthermore, a material European factoring arrangement that relates principally to one customer is due to expire at the end of this month. If this facility is not extended or renewed, Collins & Aikman will seek more favorable payment terms from the customer.

The company said it is looking at various ways to improve results and enhance liquidity. It is in the process of transitioning the General Motors Corp. fast-pay program administered by GE Commercial Credit to one administered by GMAC that will provide a commitment to October. Also, it said that it is continuing to work with its largest customers and suppliers to "enhance commercial terms to improve operating results, cost recovery and liquidity."

The company also disclosed that it would be seeking a waiver under its credit facility of the consolidated leverage ratio covenant - because it anticipates being unable to comply with this requirement based on estimated first quarter 2005 performance.

The company also said that it had already received a waiver of this covenant under its A/R facility and amended the accounts receivables facility to address immediate liquidity issues resulting from the recent simultaneous S&P credit ratings downgrades of Ford Motor Co. and GM to junk status.

Under the terms of the receivables facility, the downgrades resulted in a change in receivables concentration limits relative to these customers and, therefore, required a partial paydown of the receivables facility and reduced ongoing availability under the facility. Based on receivables balances on the day following the downgrades, the company would have been obligated to reduce its receivables balances by approximately $70 million.

An amendment and waiver was required since the company did not have the funds to make the paydown and availability would otherwise have been insufficient for ongoing operating obligations.

A bankruptcy filing "is imminent," declared high yield automotive and industrials analyst Joseph J. Farricielli Jr. of Imperial Capital LLC in Beverly Hills, Calif.

He noted that while the company has only $13.4 million in cash and available credit, it faces interest payments on its bonds of $26.9 million on June 30 and $26.7 million on August 15, "so that's definitely obvious." He said the company will likely file before the June 30 due date of the first interest payment "that they don't have."

The analyst also thought it was intriguing that "they're pulling all of their guidance for '05, and that their audit committee is investigating their first-quarter '05 guidance. So it seems like there's - something. Something went wrong. Either someone knew something that should have been disclosed, or - something just doesn't smell right."

It's his opinion that the company "put this announcement out there because their lawyers are telling them they need to put some kind of bad news out there" - or else, presumably, face the consequences somewhere down the line from disgruntled shareholders and debt holders.

Farricielli said that Stockman, on the company's last conference call some weeks ago, may have asserted that the company would be OK liquidity-wise "because he knew that they had a term loan B add-on in the works, [for] an additional $75 million, but obviously," things didn't quite shake out that way.

He pointed out that capital spending of totaled some $50 million in the first quarter, "which was higher than they guided to - they said it would be $130 million for the year. I think maybe there were some [new product] launch costs in there, and obviously, there was something else that he either missed or did not report."

On top of this higher-than-expected capex eating up liquidity, the Imperial analyst also noted that the recent GM and Ford ratings downgrades clearly threw a monkey wrench in the company's financing calculations, on the use of its accounts receivable facility.

"They then either had to quickly pay down the A/R facility, so the concentration [of the now split-rated Ford and GM] is reduced, or they have go out and start buying credit default swaps," as a hedge against the possibility - admittedly unlikely, but theoretically possible - that either of the two auto giants might file for bankruptcy.

He also cited the company "blowing their leverage [vs. EBITDA] covenant, so they obviously have operational issues as well."

Farricielli also observed that while Collins & Aikman got a covenant waiver from GE Capital, the lender on the company's A/R facility, "the two revolver and the term loan lenders still need to provide them with an amendment."

And he said that Collins will now have to provide GE Capital with weekly liquidity reports, "and usually, when banks go to weekly liquidity reports, it means that things are pretty tight and dire."

Calpine lower

Outside of the automotive sphere, there wasn't much doing in distressed land - "everyone was doing CKC," a trader said.

He did see, however, that Calpine "was weak," quoting its 8½% notes due 2008 as having fallen to 50 bid, 52 offered from prior levels at 52 bid, 54 offered.

Another trader saw Calpine's 8½% notes due 2008 falling back to 49 bid, 51 offered from Wednesday's closing levels at 53 bid, 54 offered, and saw them down even more from their recent highs around 55 bid, 55.5 offered.

The second trader also observed Calpine's 10½% notes due 2006 off a point at 77 bid, 79 offered, and its 8¼% notes coming due later this year at 91 bid, 93 offered, down from 94 bid, 95 offered previously.

"The 11s and the '08s are pretty much trading on top of each other now," he said - with convergence often seen as a sign that the market is starting to value different bond coupons and/or maturities alike, in preparation for a restructuring which will leave all of the bondholders in pretty much the same boat.

It's getting to be like 2002 all over again," he opined. "If you miss a number or have bad news, you get mowed over."

Earlier in the week, Calpine warned that warned its cash needs over the next year would exceed cash on hand and from operations, and said that maintaining sufficient liquidity would depend on the success of a program to sell assets.

That warning was sandwiched in between ratings downgrades, on Monday from S&P and on Thursday from Moody's Investors Service, which cut the ratings on some $12 billion of Calpine debt. The agency downgraded parent Calpine's senior implied debt to B3 from B2 and subsidiary Calpine Generating Co.'s credit facilities to B2 from B1.

Delta rises then drops back

Another liquidity-challenged company seen trading around Thursday was Delta - whose 7.70% notes due 2005 initially rose on the news that the Atlanta-based carrier had made a deal with the holders of some of those bonds to exchange them for stock. The bonds had previously been hammered down to the lower 70s on liquidity fears.

A trader saw the bonds get as good as 74 bid, 75 offered, up from Wednesday's close at 71 bid, 73 offered. "People got really excited about this equity exchange - but then reality hit, and they went back down" and closed pretty much unchanged.

Delta's 8.30% notes due 2029 meantime continued to languish around their all-time lows, in the lower 20s.

Meanwhile its convertibles were described as little changed with little traffic on Thursday. The 8% issue settled at 29.5 bid, 31 offered and the 2.875s at 25 bid, 26.5 offered, both up slightly.

Delta shares added 3 cents on the day, or 1.04%, to end at $2.77.

"If the equity cooperates and they can do some decent amounts of these swaps they can relieve themselves of quite a bit of the near-term threat," a sellside convertible trader commented.

"It is a negotiating play to all creditors, employees," he said.

"They're only dealing with the closest maturing paper - others they can work on later."

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