Delphi bonds, bank debt easier as GM remains mum; airlines unchanged to easier as oil spikes

By Paul Deckelman and Sara Rosenberg

New York, Aug. 30 - Delphi Corp.'s bonds were seen off about two points across the board and its term loan was off by about an eighth of a point during Tuesday's session as market participants continued to fret over negotiations between Delphi's former corporate parent, General Motors Corp., and the United Auto Workers union, hoping that those talks will produce some labor-cost relief for Delphi that will enable it to stay out of bankruptcy.

Elsewhere, world crude oil prices jumped to record intra-day and closing levels Tuesday, throwing prompting further jitters for investors in airline bonds. The securities of two of the more troubled names out of that sector - Delta Air Lines Inc and Northwest Airlines Corp. - were seen little changed to somewhat lower on the session.

Delphi's 6.55% notes due 2006 were seen by a trader as having dipped to 86.25 bid, 87 offered from prior levels around 87 bid, 87.5 offered, while its 7 1/8% notes due 2029 eased by a point to 71 bid, 72 offered.

Another trader saw those 6.55s two points lower on the day at 85.5 bid, 86.5 offered and saw the troubled Troy, Mich.-based automotive electronics manufacturer's other bonds likewise down a deuce across the board, with its 6½% notes due 2009 and due 2013 ending at 80 bid, 82 offered and 76 bid, 78 offered, respectively. He saw Delphi's 7 1/8% notes due 2029 two points down at 70 bid, 72 offered.

A third trader also saw Delphi's '06s down two points at 85.5 bid, 86.5 offered.

In the bank debt market, Delphi's term loan was quoted at 102.375 bid, 102.75 offered and the revolver was quoted basically unchanged to slightly lower on the offer side at 95 bid, 95.25 to 95.5 offered, traders said.

"It was definitely the focus with the GM analyst meeting going on today," one trader remarked

Delphi - which inherited an unfavorable labor contract when it was spun off from GM several years ago - is asking its former parent and the UAW for some help, warning that it might have to go into Chapter 11 if sufficient help is not forthcoming.

Delphi notes that under the terms of that contract, it is currently obligated to maintain the workers' wages at levels comparable to those paid to UAW members by GM and rivals Ford Motor Co. and DaimlerChrysler's Chrysler Corp. unit, rather than at the lower wage rate that prevails in the union's contracts with Delphi's peers among the automotive parts and component makers.

The UAW has asked GM to take back some 7,000 workers from Delphi, to help the supplier company to lower its burdensome labor costs.

GM met with securities analysts and investors Tuesday in Detroit, at which it basically reiterated that its GMAC financial unit and the company's global operations - other than in North America - remain on-track to meet or exceed 2005 targets.

However, as many had expected - even though they were hoping otherwise - company chairman and chief executive officer Rick Wagoner declined to give any kind of earnings guidance, and did not offer much in the way of an update on the Delphi situation.

Delphi is hoping to craft some sort of financial bailout with GM, not unlike the recent accord Ford forged with its former unit, Visteon Corp., which was spun off from Ford several years ago, with the same kind of labor provisions imposed on Delphi. Ford agreed to take 25 underperforming plants back from Visteon and assume the responsibility for paying their workers while it tries to either run the plants itself or broker their sale to a third party.

Delphi's recently appointed CEO, turnaround specialist Robert "Steve" Miller, has warned that the company could be forced into Chapter 11 if it does not get concessions from the union and help from GM. He suggested that such a filing could come before Oct. 17, when changes in the federal bankruptcy code enacted by Congress that make it tougher on debtor companies, are slated to take effect.

A bank debt trader said people were optimistic about GM coming to Delphi's rescue - until multiple media reports emerged this past weekend, saying that UAW wouldn't support all the concessions being sought by the companies - causing bank debt levels to drop by about half a point on Monday and by another one-eighth point on Tuesday.

As if things weren't already bad enough in the automotive sector - from GM and Ford on down to supplier companies like Delphi, Visteon, and bankrupt operators Collins & Aikman Corp. and Tower Automotive - the continually rising price of energy is throwing a damper on consumer confidence and making them hesitate to buy new cars, trucks or SUVs. That has forced GM, Ford and Chrysler into costly incentive offers, like the current "employee discount" promotions each of the Big Three has going.

And the prices kept skyrocketing on Tuesday, with light sweet crude for October delivery rising $2.61 on the Nymex to settle at $69.81 a barrel, a record nominal close since trading began there in 1983, although it was still below the inflation-adjusted high of about $90 a barrel that was set in 1980. On an intra-day basis, crude spiked up to record highs around $70.85 per barrel. Crude jumped in the wake of Hurricane Katrina, as commodities traders feared disruption of production in the Gulf of Mexico, from where the United States gets about a quarter of its daily energy needs by some estimates.

"Autos were still definitely underperforming" on Tuesday, "with what was going on in the energy markets," a trader said, quoting GM's benchmark 8 3/8% notes due 2033 as having retreated half a point to 84.75 bid, 85.75 offered, while Ford's flagship 7.45% notes due 2031 did even worse, falling a point and a half to 81.25 bid, 81.75 offered.

He also saw Visteon's 8¼% notes due 2010 down two points at 97 bid, 98 offered.

Airlines lower

Besides autos, another sector closely rising and falling in line with energy movements is the airlines, whose already high jet fuel prices are expected to move even higher in line with crude costs.

A trader saw Delta's benchmark 7.70% notes slated to come due on Dec. 15 down a point at 23 bid, 25 offered, while the problem-plagued Atlanta-based Number-Three carrier's other bonds were likewise a point lower across the board. Delta's 8.30% notes due 2029 fell to 16 bid, 17 offered, its 7.90% notes due 2009 eased to 17 bid, 18 offered, while its 10% notes due 2008 ended at 18 bid, 19 offered.

He also saw Northwest's shorter bonds, like its 8 7/8% notes due 2006 and its 9 7/8% notes due 2007 each unchanged, at 63 bid, 65 offered, and 51 bid, 53 offered, respectively.

The company's 7 7/8% notes due 2008 and 10% notes due 2009 "were actually down a point" at 44 bid, 46 offered and 45 bid, 47 offered, respectively.

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