Dura bank debt up despite downgrades, but bonds extend slide; bankruptcy fears cited

By Paul Deckelman and Sara Rosenberg

New York, July 28 - Dura Automotive Systems Inc.'s second-lien bank debt surprisingly inched its way to stronger levels during market hours Friday, despite downgrades from both Moody's Investors Service and Standard & Poor's, traders said.

However, it was a different story in the junk bond market, where the Rochester Hills, Mich.-based automotive control systems supplier and recreational vehicle manufacturer's notes were lower for a second consecutive session, extending the declines seen Thursday when the company reported poor second-quarter numbers.

Some junk market participants wondered whether troubled Dura might have to end up following such sector peers as Delphi Corp., Dana Corp. and Tower Automotive Inc. into reorganization.

Dura's second-lien paper closed out the session quoted at 99.75 bid, 100.25 offered, up ¼ point from Thursday's levels of 99.5 bid, par offered, a bank debt trader said, explaining that market technicals likely pushed the loan higher.

That rise came despite Moody's having downgraded Dura's senior secured second-lien rating to Caa1 from B3, citing the company's significant performance shortfall while it executes a major restructuring plan to move production to low cost countries. Moody's said that the outlook is negative, reflecting the agency's belief that "industry pressures will continue to negatively impact Dura Automotive's performance given expected lower production levels from the Big 3 OEMs in the second half of 2006 and continued raw material pricing pressures."

Meanwhile, S&P downgraded the company's second-lien rating to CCC+ from B, citing very weak earnings and negative cash flow during the second quarter of 2006, and poor prospects for meaningful improvements for the remainder of the year given tough industry conditions. S&P also maintains a negative outlook on the ratings.

The downgrades were seen as a factor in continuing to push the bonds lower Friday, traders said.

A trader called Dura "the "bond du jour" for junk participants - while another said that the automotive systems maker's Dura Operating Corp. 9% senior subordinated notes due 2009 were "trading like it's going to file" for bankruptcy protection any day, quoting those notes around 25 bid, 26 offered. That was down a couple of more points from the upper-20s level to which those bonds had collapsed on Thursday following the release of poor earnings data. Prior to the release of those second-quarter numbers, the 9s had been pegged around 50-51.

The trader also saw Dura Operating's 8 5/8% senior notes due 2012 - which on Thursday had fallen as much as 7 or 8 points on the day from the mid-80s to closing bid levels around 76 - fall into the lower 70s in the early going before ending at 75 bid, 77 offered - "up slightly from their intraday lows," but still down a point on the session.

Another trader agreed, estimating that "the infamous Dura" sub bonds had fallen as low as 23 during Friday's session, before firming off those lows to end around 24 bid, 25.5 offered, which he called a loss of 1½ points on the day. The 8 5/8% notes, meantime, which "started to see some buyers late [Thursday]," moved off their early lows to close at 75 bid, 76 offered, which he called a 1 point positive move on the day.

The first trader meantime saw the 9s at 26 bid, 27 offered, which he called a 2 point drop on the session, while the 8 5/8s were a point lower at 75.5 bid, 76.5 offered.

The slide in Dura's bonds Thursday, which continued over into Friday, was triggered by the company's release Thursday of second-quarter numbers that included revenues of $573.3 million - well down from $623.8 million in the prior year's quarter.

The company reported a net loss of $131.3 million ($6.96 per diluted share), a marked deterioration from its year-earlier net income of $3 million (16 cents per diluted share).

And, adjusted EBITDA for the second quarter was $21.4 million - less than half the $50.2 million notched in the prior year's quarter.

For the six-month period ended July 2, Dura reported total revenue of $1.2 billion, about flat from the previous year, although its net loss widened out substantially to $138.3 million ($7.35 per diluted share) from a year-earlier net loss of $1.9 million (10 cents per diluted share) last year.

Collins & Aikman gains

Elsewhere in the distressed automotive area, a trader saw Collins & Aikman Corp.'s 10¾% senior notes due 2011 having moved up about 3 points on the session to 21 bid, 22 offered, although he shrugged his shoulders and said he didn't know why the bankrupt Troy, Mich.-based automotive interior components company's bonds had risen.

The company's 12 7/8% subordinated notes due 2012, however, continue to languish at levels around 3 cents on the dollar.

The company's bonds have recently fluctuated, depending on waxing or waning investor optimism that it was going to be able to successfully sell its assets to someone - perhaps to billionaire industrialist Wilbur Ross, who has already bought Collins & Aikman's European operations.

Metaldyne weak

"Lots of auto parts names were weaker," another trader said, in the wake of Dura's poor second-quarter numbers.

One in particular that he noticed was Metaldyne Corp., whose 11% subordinated notes due 2012 lost 2½ points on Friday to end at 80.75 bid, 81.5 offered, while its 10% senior notes due 2013 were off a point at 95 bid, 96 offered.

Rather than blame the drop on sector sympathy after Dura's bad numbers and subsequent slide, he theorized that "there must have been something said on DaimlerChrysler's conference call about production cuts" - which would severely impact Metaldyne, since "Chrysler makes up for something like 25% of Metaldyne's business."

Another trader, however, only saw Metaldyne's 11s down ¼ point at 81.5 bid, 82.5 offered, and said its 10s were unchanged, with "not a hell of a lot going on in them" at 95 bid, 96 offered.

GM, Ford slip

However, he said that General Motors Corp. and Ford Motor Co. "opened a little bit lower, but then just sat there all day, and were pretty much a non-factor."

He saw GM's 8 3/8% notes due 2013 down perhaps 3/8 point at 82 bid, 82.5, while its General Motors Acceptance Corp. financing unit's 8% notes due 2031 were ½ point lower at 97.75 bid, 98.25 offered. Ford's 7.45% notes due 2031 and its Ford Motor Credit Co.'s 7% notes due 2013 were each off ¼ point, at 74 bid, 74.5 offered.

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