Airline bonds better on lower oil, pension change; Visteon up on takeover buzz

By Paul Deckelman and Sara Rosenberg

New York, Aug. 17 - Airline bonds were seen gaining altitude on Thursday, given a twin boost by the continued fall in world crude oil prices - which is seen as a hopeful sign of moderating jet fuel price costs going forward - and by the news that President Bush has signed into law a long-awaited pension overhaul bill that gives some badly-needed relief to troubled airline industry players like Delta Air Lines Inc. and Northwest Airlines Corp.

The automotive sector was steady to firmer, helped by a rise in Visteon Corp.'s bonds, which along with its shares, were apparently pushed up by market speculation - strictly unofficial and unconfirmed at this time - that French auto parts maker Valeo SA is interested in buying the Van Buren Township, Mich.-based automotive components supplier, which is also supposed to have retained J.P. Morgan to help it evaluate strategic alternatives. The former Ford Motor Co. parts unit also announced Thursday that it plans to sell two of its five German factories and halve its workforce in that country.

That buyout buzz surrounding Visteon in turn helped the whole auto sector have a firmer tone, including the battered subordinated bonds of Dura Automotive Systems Inc., which firmed after several sessions of having gotten pounded.

Trading in the bank debt of distressed companies was meantime called extremely quiet by sources in the loan market.

A trader in distressed notes said that bankrupt Atlanta-based Number-Three U.S carrier Delta Air Lines' were up at least a point on the session, with its 8.30% notes due 2029 at 25 bid, 26 offered.

He also saw a 1 point gain in the bonds of bankrupt Eagan, Minn.-based Northwest Airlines, the Number-Four U.S. carrier. Its 8 7/8% notes firmed to 48.5 bid.

A trader saw the 9% notes due 2012 of AMR Corp., the Fort Worth. Tex.-based parent of the biggest U.S. carrier, American Airlines, up ½ point at 99.5. A market source at another shop also quoted the bonds at that level, but called it a 1½ point rise.

The better levels were seen fueled in part by the continued moderation in world crude oil prices, which are viewed by some as a leading indicator of future price trends for distillate products like jet fuel, which over the past year or so has consumed an increasing share of the airline industries' collective budget, helping to drive a number of carriers, including both Delta and Northwest, into bankruptcy.

U.S. crude oil futures for September delivery slid $1.83 Thursday to settle at $70.06 a barrel on the New York Mercantile Exchange, down for the fourth straight session. Ample U.S. fuel stockpiles and accordingly reduced fears of supply shortages helped to grease the skids under oil prices, as did other developments, including the cease-fire between Israel and Lebanese Hezbollah guerrillas, whose month-long war had sent oil prices skyrocketing in July and early August. Also helping the situation was oil giant BP's decision to shut only half of its 400,000 barrel-per-day Prudhoe Bay oil field in Alaska due to pipeline problems - a smaller closure than originally feared.

Besides moderating oil prices, the airline industry got a boost from one stroke of the pen - in this case, the president's - as he signed into law a comprehensive pension reform bill which, among other things, gives troubled airlines like Northwest and Delta as long as 17 years to make their underfunded pensions whole again, versus the seven years given to most other companies. Even AMR - which is in better shape than its bankrupt rivals, but which still counts heavy pension costs among its daunting industry conditions - stands to get a break from the pension bill - it will have 10 years in which to straighten out its pension situation.

Visteon rises

Back on solid ground, Visteon's bonds were clearly the day's standout performers, helped by speculation that Valeo wants to kick the tires of Visteon - spun off by Ford several years ago - with an eye towards a possible acquisition, as well as by the prospect of a possible asset sale in Germany.

A trader said the company's bonds were "better across the board," quoting its 8¼% notes due 2010 as having firmed to 99.5 bid, while its 7% notes due 2014 finished at 89.75 bid, 90 offered.

A trader at another shop said that the bonds were "up 2 to 3 points on the day." He said the 81/4s had opened at 96 bid, 98 offered, got as good as 101 bid, 103 offered, and then came off that peak level to finish at 98 bid, par offered, up by a pair, while the 7s opened at 85 bid, 87 offered, pushed up to 91 bid, 93 offered, and then settled in around 88 bid, 89 offered, a 3 point gain.

Another market source saw the 81/4s jump 5 points initially to about 99.5, and trade in a 99-par context all day, with the high print at 101.5. Meantime, the 7s jumped 4 points in the early going, from 86 to 90, and briefly pushed up to the dizzying height of 95 for a few trades, before dropping back to finish around 89.75 bid.

Visteon's New York Stock Exchange-traded shares rose 45 cents (5.11%) to close at $9.25. Volume of 8.5 million shares was more than triple the average daily turnover.

Visteon said Thursday that it is looking to sell its parts plants in the German towns of Wuelfrath and Dueren, which no longer fit Visteon's overall strategy of focusing on three areas - vehicle interiors, electronics and climate controls. The Wuelfrath plant, which employs 580 people, builds steering assemblies, while the factory in Dueren employs 850 people to produce drivetrains and transmission differentials - product lines that Visteon is looking to get out of. Visteon's German operations currently employ some 2,800 people.

Visteon said that it was prepared to sell the plants to either industrial or financial buyers, but offered no further details. A company spokesman reached by Prospect News, Jim Fisher, said he had no additional information about the possible timing of any such sales, whether Visteon had received any expressions of interest from potential buyers, ballpark amounts of anticipated proceeds from the divestments or the possible use of any proceeds thus generated.

"These commercial discussions are confidential and we are not at liberty to disclose any parties that may be interested. The specific timing for any actions will depend on the outcome of these discussions," he said in an e-mail message.

The announcement that the two German assets are to be sold is in line, Fisher said, with the previously announced restructuring portion of Visteon's three-year plan, which in part involves identifying non-strategic facilities to be sold or for which the company will seek partnerships. Visteon has said it is "actively working" with investment bankers on some of those facilities, he said, although it has declined to identify them at this stage of the proceedings.

The spokesman also declined to comment on news reports indicating that Valeo might be interested in acquiring Visteon - speculation that caused credit default swap contracts on Valeo's debt to widen out in Thursday dealings in Europe. The cost of protecting €10 million of Valeo debt against a default for five years increased by 20 basis points, or €20,000, to €89,000, or 89 basis points, with market participants citing speculation that the French company was involved in the first round of bids for Visteon.

The speculation had exactly the opposite effect on CDS contracts for Visteon's $3.3 billion of highly speculative junk-rated debt. The five-year Visteon CDS were reported by one source to have tightened roughly 120 bps to trade around 400 bps. Another source in the CDS market pegged the cost of guarding against a possible Visteon default at 449 bps, down from 526 bps.

News reports also mentioned that Visteon has apparently hired J.P. Morgan to help the company explore its strategic options. Fisher said in response to all of this that Visteon does not comment on market rumors or speculation.

Valeo, headquartered in Paris, is the third-largest European car parts supplier, making components for most major car and truck manufacturers, producing parts through three divisions - electronics and electrical, transmissions and thermal systems. Its electronics and electrical systems unit makes wiper systems, motors and actuators, security systems, electrical components, electronics, and lighting products. Valeo's transmissions division makes clutch systems, torque converters, and friction products, while its thermal systems unit offers climate-control and engine-cooling components. News reports indicated that it may be attracted by Visteon's air-conditioning and heating systems product line.

Other auto names better

Elsewhere in the auto sector, a trader said that "everything seemed firmer." Among the names seen benefiting was Dura, whose Dura Operating Corp. 9% notes due 2009 had been beaten down into the high teens over the past several sessions on market speculation - later confirmed by the company - that the Rochester Hills, Mich.-based auto components manufacturer had hired New York-based turnaround specialist Miller Buckfire to help it explore financial alternatives and improve its capital structure. The bonds were seen having fallen badly on investor fears that no matter what kind of alternatives the restructuring firm comes up with, holders of the 9s, located far down the food chain, are likely to take a severe haircut. While those bonds were getting clobbered, the company's 8 5/8% senior notes were quoted holding pretty steady in the high 70s - a sign that those note holders aren't too worried about what may be proposed.

But even the beleaguered 9s were seen better Thursday, apparently helped by Visteon's strength in the sector. The battered bonds were up to 19 bid from prior levels around 17.25, while the 8 5/8s gained ½ point to 79.

Collins & Aikman slips

However, Collins & Aikman Corp.'s even more badly mauled 10¾% senior notes due 2011 could not catch a break - the bankrupt Tory, Mich.-based automotive interior components maker's bonds lost ½ point to 8.5 bid, 9.5 offered.

Refco rebounds

Outside of the automotive arena, a trader saw Refco Inc.'s 9% notes due 2012 - which on Wednesday had fallen 3 points to around 73 bid, 75 offered - gain all of that lost ground back, as the bankrupt New York-based financial company's bonds came back up to 76 bid, 78 offered.

And he saw the bonds of bankrupt Greenwood Village, Colo.-based cable operator Adelphia Communications Corp. "up a couple of points," its 10¼% notes due 2006 and 10¼% notes due 2011 each 2 points better, at 58 bid, 60 offered and 62 bid, 64 offered, respectively.

Sea Containers lower

Sea Containers Ltd.'s bonds "were down with the stock," said a trader, noting a 2 point drop in the troubled Bermuda-based railroad and marine transportation company's close-in 10¾% notes slated to come due on Oct. 15. Those bonds backpedaled to 90.5 bid, 92 offered, while the company's NYSE-traded shares sank 47 cents (12.63%) to $3.25, on volume of 1.56 million shares, nearly four times the norm. The debt-laden company, which on Wednesday met with shareholders to outline its shaky financial status, held a similar meeting Thursday with bondholders. Sea Containers has promised to present a restructuring proposal to its creditors sometime in the next few weeks.

A market source at another desk saw the October bonds open around Wednesday's closing level at 94.25 bid, hold pretty steady just a little below that for most of the day, and then slide badly in the afternoon to around 90.25 at the end. Its 7 7/8% notes due 2008 were down about ½ a point at 91.5.

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