Collins & Aikman debt, bonds up on acquisition news; Delta keeps heading downward

By Paul Deckelman and Sara Rosenberg

New York, Aug. 15 - Collins & Aikman Corp.'s bank debt and bonds were seen stronger on Monday, helped along by talk that a possible second potential buyer might emerge for the bankrupt Troy, Mich.-based automotive interior components company.

The bonds of Delta Air Lines Inc., meantime continued to lose altitude, as weekend news reports indicated that executives of the troubled Atlanta-based Number-Three U.S. airline carrier have approached lenders for the financing Delta would need should it file for Chapter 11.

Collins & Aikman's bank paper was being quoted at 86 bid, 87 offered by one trader, and a little wider at 86 bid, 88 offered by a second trader.

On Friday, a different trader had that bank debt closing out the session at 85 bid, 86.5 offered, up about half a point on some auto sector noise.

"It's stronger on renewed rumors that there's a bid for the company, the first trader explained.

Last week, Collins & Aikman's bank debt pushed higher after news that Plastech Engineered Products Inc. put out a bid for the bankrupt company. Media reports have put the Plastech offer at around $1 billion. However, bank loan traders said those higher levels had a hard time sustaining themselves, as market players began to think that the successful completion of a Plastech buyout could be a stretch.

On Monday, however, another name emerged as a potential suitor for Collins & Aikman - its Southfield, Mich.-based main competitor, Lear Corp.

An automotive industry trade paper, the Automotive News, quoted unidentified sources close to Lear as saying that company "might buy part or all of Collins & Aikman." There was no comment Monday from Lear.

However, the suggestion that Lear - considerably better known in the debt community than is the privately held, heretofore largely unknown Plastech - might step up and buy Collins out of bankruptcy helped push Collins & Aikman Products Co.'s 10¾% senior notes due 2011 up to 33 bid, 34 offered from prior levels around 31 bid, 33 offered.

A trader attributed that rise to "talk that Lear may get involved" and possibly make a bid for the bankrupt Collins.

Another source had the company's subordinated 12 7/8% notes due 2012 up a point to 7 bid.

The emergence of Lear as a possible second suitor seemed to more than overshadow whatever negativity attached itself to the news late Friday that it has received a grand jury subpoena from the United States Attorney's Office in the Southern District of New York, seeking documents and information relating to Collins & Aikman's financial statements for the fiscal years 2000-2005, as well as documents and information pertaining to accounts receivable, rebates given to customers or suppliers and other matters. Collins said it "intends to fully cooperate" with the request.

Delta keeps dropping

Elsewhere, Delta's bonds continued to push ever lower Monday amid renewed speculation that the troubled carrier will soon file for Chapter 11 protection.

That bankruptcy buzz - already pretty strong - got a further boost when the New York Times reported over the weekend that Delta was already in talks with potential lenders for debtor-in-possession financing it would need to survive during a bankruptcy restructuring.

Delta seems to be continuing to try desperately to keep the wolf from the door, though - late in the day, well after trading had wrapped up, the cash-strapped carrier announced that it will sell its Atlantic Southeast Airlines Inc. regional airline unit to another one of its regional airline partners, SkyWest Inc., for $425 million.

That announcement came too late to affect trading Monday, although it could be a factor in Tuesday's market.

On Monday, Delta's benchmark 7.70% notes scheduled to come due on Dec. 15 were seen by a market source to have fallen about three points on the session to 25 bid, while the company's other bonds were all seen converging around the 15-15.5 area.

At another desk, a trader saw the 7.70s down four points on the session to 23 bid, 25 offered, with other issues, like the 10% notes due 2008, the 7.90% notes due 2009 and the 8.30% notes due 2029 each down a point or so to bid levels in the 15-16 neighborhood.

"Delta was down a little bit," he said, "but it wasn't really getting cracked."

Another trader, while seeing the bonds in that same vicinity - 21 bid, 22 offered for the 7.70s and 15 bid for all of the longer issues - said that the bonds had reached those levels "on no real size" trading. "Just some small trades - hundreds and two hundreds.

"There was news out on them," he said, "but nobody really cared," with everyone waiting for the next shoe - probably a bankruptcy filing - to drop.

"It looks inevitable, doesn't it?" he asked, rhetorically. "It doesn't look like they have any hope at all of staying out - so it's really just a question of time now."

Equity players likewise believe that the end is near; they dropped Delta's New York Stock Exchange-traded shares to an all time low of $1.39, down 22 cents (13.66%) on the day. Volume of 35.4 million shares was about six times the norm.

The analyst community pretty much also agrees that time is running out for Delta's efforts to stay out of Chapter 11. For instance, long-time Delta-watcher Ray Neidl of Calyon Securities believes that the filing is likely some time after Labor Day.

While publicly insisting that Delta believes its interest are better served by an out-of-court restructuring, Delta executives may also be coming around to accept the inevitability of bankruptcy in the face of rapidly escalating fuel prices. The Times reported over the weekend that Delta has begun arranging financing that it might be able to tap in the event of a bankruptcy filing, holding talks with its major lender, GE Commercial Finance - which fronted Delta $1 billion last fall to keep it out of bankruptcy. The paper said that the General Electric Corp. unit "could do so again, in or out of bankruptcy," according to people familiar with the talks, which were not confirmed by either Delta or GE Commercial Finance.

Firing what could be its last bullet in an effort to stave of bankruptcy, Delta late Monday announced the sale of Atlantic Southwest Airlines to SkyWest - already one of Delta's regional airline partners - with the latter company to provide $350 million in cash will be payable at closing, representing $330 million of the purchase price and $20 million relating to certain aircraft financing deposits.

The company said that an additional $125 million, representing $95 million of the purchase price and $30 million relating to certain aircraft financing deposits is payable to Delta either upon the earlier assumption by Delta of the ASA and SkyWest Airlines Delta Connection agreements should Delta file for Chapter 11, or four years after the closing of the deal, whichever comes first. Conversely, SkyWest will be entitled to retain the $125 million if Delta were to reject its Delta Connection agreement with either ASA or SkyWest Airlines in a Chapter 11 proceeding before the fourth anniversary of the closing of the transaction.

But with jet fuel costs skyrocketing along with world crude oil prices, which continue to hover above $66 a barrel, it is uncertain how much time Delta has bought itself by selling Atlantic Southwest. Delta has estimated that every one-cent rise in jet fuel prices dents its bottom line by $25 million. Delta has lost about $10 billion since 2001.

Northwest also lower

Over the past two weeks, Delta's move downward has been shadowed by rival carrier Northwest Airlines Corp., whose bonds have also fallen amid bankruptcy talk - although the Chapter 11 speculation has not been as intense for the Eagan, Minn.-based Number-Four air carrier as it has for Delta.

Still, with Northwest hurt by the same industry dynamics eating Delta alive - as well as its own thorny labor problems, which could come to a head as soon 11:59 p.m. Friday - Northwest's bonds have been spiraling downward as well.

On Monday, Northwest's 8 7/8% notes due 2006 were seen down a point, at 50.5 bid, while its other bonds were seen having smaller losses - its 8.70% and 9 7/8% notes, both due 2007, were at 41.875, while its 7 7/8% notes due 2008 and 10% notes due 2009 each were around 34.5, a trader said.

Northwest "was down a point across the board - but very quiet," another trader opined, quoting similar levels.

Delta and Northwest were the only losers seen among the airlines Monday, even though fuel prices remain historically high; American Airlines parent AMR Corp.'s 9% notes due 2012 and 2016 each continued to orbit around the 79 bid level.

Asarco gains

Among other distressed issues, "Asarco was better," a trader said, referring to the Phoenix, Ariz.-based mining company, which filed for Chapter 11 protection last week.

He saw its 8½% notes due 2025, which were in the low 40s after the bankruptcy filing, as having pushed up to 52 bid, 54 offered on Monday. He also saw some of the company's municipal debt issues, such as its Lewis & Clark 5.60% notes due 2027, around that same level.

Foamex seniors higher

Traders said that Foamex International Inc.'s decision to not make the $51.6 million payment due on the its 13¼% notes, which were to have matured on Monday, gave its senior bonds a boost - but sent its subordinated notes in the opposite direction. Holders of Foamex's 10¾% senior notes due 2009 had urged the company not to make the payment, seeing it as a large cash drain on their potential recovery.

News that the payment won't be made - and that Linwood, Pa.-based foam rubber products maker Foamex is in talks with major noteholders on what it called "a significant de-leveraging transaction" - as well as the possibility that the company might restructure under Chapter 11 and has already lined up DIP financing, helped push the 103/4s up more than three points to 89.75, a market source said - while dropping its subordinated bonds, such as the 9 7/8% notes due 2007, by more than two points to around 24.5 bid.

Another trader, however, saw the subs higher at the end of the day - though only because the bonds are now trading flat, or without their accrued interest, which translates to loss of several points of value, despite the nominal rise in the bonds price.

He saw 9 7/8s go from 20 bid, 24 offered, trading with interest, to 24 bid, 26 offered, trading flat, and also saw the 131/4s fall to that 24-26 area from prior levels around 35-40.

At the same time, he saw the 103/4s firm to 90 bid, 92 offered, from 89 bid, 91 offered, but noted that the senior bonds too, were now trading flat.

Foamex's Nasdaq-traded penny stock shares meantime lost half of what little value they still had, dropping 16.1 cents (50.31%) to end at 15.9 cents; volume of 11.9 million shares was almost 22 times the normal activity level.

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