Dura bank debt up on DIP expectations; airline bonds head for wild blue yonder

By Paul Deckelman and Sara Rosenberg

New York, Oct. 20 - Dura Automotive Systems, Inc.'s second-lien term loan rallied on Friday on speculation over potential debtor-in-possession financing that would be obtained if the company ends up filing for bankruptcy, a trader said.

The troubled Rochester Hills, Mich.-based auto parts manufacturer's bonds were meantime also seen better, continuing to recover from the lows they hit after the company failed to make an interest payment on those notes.

Other automotive names were seen generally unchanged to somewhat firmer, including the bonds of Remy International Inc., which had fallen earlier in the week on what some traders characterized as investor bankruptcy fears, but had then rebounded strongly as those fears receded

Elsewhere, airline bonds were again pushing higher, powered by the continued slide in world crude oil prices - seen as a sign that high jet fuel prices will moderate - and on profitable results posted by such operators as American Airlines parent AMR Corp. and Continental Airlines Inc.

Salton Inc.'s bonds got a boost from merger and acquisition expectations, as one of the company's largest shareholders broached the idea of combining it with one of its competitors - which that shareholder has agreed to acquire.

Dura loan buoyed by DIP hopes

Bank debt traders said that Dura's second-lien term loan was quoted at 85 bid, 86 offered late in the day Friday, up from Thursday's closing levels of 81 bid, 82 offered, one trader said.

"There was a [news] story that JPMorgan of Bank of America will be doing the DIP. It's pretty stupid. People are now feeling better about them getting DIP financing when they file. But the DIP would actually come ahead of the second-lien, so there's no reason this thing should be trading at 85, 86," the trader said.

The company's 8 5/8% senior notes due 2012 meantime "moved up" to 33.5 bid, 35 offered, a trader said, which he called a gain of about a point, while seeing its 9% subordinated bonds due 2009 "up a bit" at 8 bid, 9 offered.

Another trader said that the Dura junior bonds were up a point on the week, while the seniors gained 3½ points on the week. The bonds were up from the lows they had hit last Monday when they began trading flat, or without their accrued interest, after the company failed to make the $17.25 million scheduled coupon interest payment on those notes, sparking a renewal of market bankruptcy rumors.

The company instead invoked the standard 30-day grace period.

A trader said that while "Dura moved up, Delphi [Corp.] and Dana [Corp.] didn't move very much. Dura's 6½% notes due 2008 were recently quoted at 72 bid, 73 offered, while Delphi's 6.55% notes that were to have matured in June were around par bid.

Remy holds rebound gains

Remy International's bonds were "pretty much where they were," a trader said, with the Anderson, Ind.-based auto electronics manufacturer's 8 5/8% senior notes due 2007 at 89 bid, 91 offered, and its floating-rate notes due 2010 at 96 bid, 98 offered. Remy's subordinated 11% notes due 2009 held steady at 41 bid, 43 offered, while its 9 3/8% subs due 2012 hung in at 40 bid, 42 offered, he said. Those bonds had swooned badly earlier in the week, but bounced back around mid-week, a trader said, when investor bankruptcy angst proved to be unfounded.

Another trader pegged the 9 3/8s at 40 bid, 42 offered, and the 11s at 44 bid, 45 offered, both "up a point or so."

Elsewhere among the autos, a trader saw wheelmaker Hayes Lammerz's 10½% notes "up a little bit" at 81 bid, 82 offered.

However, the trader saw no price movement in Ford Motor Co.'s 7.45% notes due 2031, unchanged at 76.25 bid, 76.75 offered, or in Ford Motor Credit Co.'s 7% notes due 2013, which held at 92.625 bid, 93.125 offered. The Number-Two domestic automaker is scheduled to report third-quarter numbers Monday - and is expected to record its third straight quarterly loss. Ford has lost $1.44 billion so far this year.

Airlines gain altitude

Recently firm airline bonds continued to head upward Friday, propelled by the twin factors of lower oil prices and better financial results from some industry players.

"The airlines were better, especially the defaulted stuff," a trader observed, quoting bankrupt Atlanta-based Number-Three domestic carrier Delta Air Lines Inc.'s 8.30% notes due 2029 at 36 bid, 37 offered, which he called up a point, while Northwest Airlines Corp.'s 9 7/8% notes due 2007 advanced to 63 bid, 64 offered.

A second trader saw those bonds in a similar context.

The Delta bonds began the week at 31-32, while the Northwests were around 59. A year ago, the Northwests were trading in a 26 context and the Delta bonds were at 15-16.

Delta's bonds, and those of Northwest, the bankrupt Eagan, Minn.-based Number-Four domestic air carrier, have lately gotten a boost, the traders said, from the cascading price of oil.

Light sweet crude for November delivery on the New York Mercantile Exchange fell $1.68 on Friday, to settle at $56.82 a barrel. It was the first time since last November that oil futures had settled below $57 - down more than $20 a barrel from the peak levels around $78, at which crude was trading during mid-summer. Oil prices have tumbled since then in response to rising global supplies, a weaker-than-anticipated hurricane season - unlike last year, when storms played havoc with U.S. Gulf Coast oil output - and expectations for slower economic growth.

Analysts said that oil fell Friday on market skepticism that the members of the Organization of Petroleum Exporting Countries would actually cut their collective output by some 1.2 million barrels a day, as the cartel's ministers had decreed following an emergency meeting of the group this week in Qatar.

Airline-industry watchers believe that the falling price of crude oil could translate into lower prices down the line for jet fuel, a key crude distillate, which has become an increasingly expensive component of the finances of Delta, Northwest, and other carriers. Rising fuel prices helped to force both carriers into crash-landings in the bankruptcy courts within hours of one another on the same day a little over a year ago.

The airline bonds are also seen having firmed as airline companies not in bankruptcy, such as Fort Worth-based AMR, the industry leader, and Houston-based Continental, the Number-Five carrier, reported profits for the most recent quarter, a far cry from the losses of a year ago. That boosted investor confidence in the industry's nascent recovery.

And that optimism was reflected on Friday as Fitch ratings raised its assessment on both AMR and Continental, upping both airlines' issuer default ratings to B from CCC previously, while their senior unsecured debt ratings were raised to CCC, from CC. The agency cited factors such as improved balance sheets and free cash flow in upping the ratings.

Salton gets buyout buzz boost

Elsewhere, Salton's 12¼% notes due 2012 were seen having jumped to 78 bid, a trader said, from prior levels in the lower 70s.

At another desk, the bonds were seen even up more, ending at 81 bid, up from 74 on Thursday.

However, traders said that while the quotes were impressive, actual activity in the bonds was pretty light.

The rise in the bonds' price coincided with a sharp boost in the Lake Forest, Ill.-based small appliance maker's New York Stock Exchange-traded shares, which jumped 31 cents (15.20%) to end at $2.35. Volume was 807,000 shares - more than 13 times the usual turnover.

A bond trader said that "someone was talking about buying" the company. "Harbinger was said to be interested."

He was referring to Harbinger Capital Partners - the largest shareholder in Salton rival Applica Inc., which on Thursday agreed to be bought out by Harbinger for $88 million. Harbinger also owns some 30,000 shares of Salton preferred stock, convertible into a 15% stake in the latter company, making it one of Salton's largest shareholders as well.

Harbinger sent a letter to Salton's board of directors, touting the benefits of a link-up with Applica, declaring that "we are enthusiastic about the small household appliance market and believe that a combination of Salton and Applica is compelling."

Harbinger asked for access to Salton's books, to conduct due diligence.

Salton had no public comment on the overtures from Harbinger.

Movie Gallery rise continues

Among other distressed names, a trader saw Movie Gallery Inc.'s 11% notes due 2012 continuing to rebound, firming to 59.75 bid, 60.l75 offered.

Those bonds had fallen as low as 57 earlier in the week, down about 4 or 5 points, on a news report that the Securities and Exchange Commission is looking into whether hedge funds that hold much of the Dothan, Ala.-based video chain rental company's debt used inside information they gleaned during a lender call by the troubled company in March to then go out and short its shares, bonds and bank debt.

Tembec up on Quebec plan

And he saw Tembec Inc. bonds gaining after the Quebec provincial government announced plans to set aside C$425 million ($378 million) for lumber producers after a number have outlined plans to shut sawmills in the province because of a slump in U.S. home construction.

Montreal-based Tembec's 8 5/8% notes due 2009 were up nearly a point at 58 bid, 60 offered.

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