Tembec bonds off on sawmill shutdown; Collins & Aikman slide continues

By Paul Deckelman and Sara Rosenberg

New York, July 20- Tembec Industries Inc.'s bonds were felled like a pine tree Thursday, traders said, after the Montreal-based forest products company announced plans to shut its sawmills in the provinces of Quebec and Ontario for as long as four weeks.

Bid-side levels on Collins & Aikman Corp.'s bank debt continued to plunge Thursday - a trend that has been going on for several sessions. Once again, traders could not put their collective finger on specific news that might justify such a movement. The bankrupt Troy, Mich.-based automotive interior components maker's bonds were also lower on the day.

Northwest Airlines Inc.'s bank debt meantime traded down a little on Thursday, in apparent reaction to the company's recent debtor-in-possession refinancing news. However, the bankrupt Number-Four U.S. airline carrier's bonds were seen continuing to wing their way upward, even though world crude oil prices broke out of a three-day slump and moved higher.

A trader said Tembec's 8 5/8% notes due 2009 were down 1½ points to about the 53 level on the news of the sawmill closures. Another market source called those bonds 2 points lower at that same 53 price. The source also saw the company's normally little-traded 7¾% notes due 2012 down ¾ point at 48.75.

Another market source pegged Tembec's 8½% notes due 2011 down ½ point at 49.5.

Tembec said that about 1,500 of its roughly 10,000 workers would be affected by the temporary shutdowns, which will range from one to four weeks, depending on the facility. Company officials said that the shutdowns are the result of overall market conditions, product pricing and the annual two-week construction holiday in Quebec.

Most of the outages are expected to last about two weeks. However, the company's sawmill in Timmins, Ont., will suspend its operations for at least four weeks. A company executive said that this particular facility "has some particular challenges to overcome," although the statement did not elaborate.

The temporary shutdowns will result in a combined capacity withdrawal of 33 million board feet, which is expected to help boost lumber prices.

Collins & Aikman down more

Elsewhere, a trader said that Collins & Aikman's bank debt closed out the day quoted "really wide" at 85 bid, 90 offered, down 4 points on the bid side versus Wednesday's closing levels of 89 bid, 90 offered. He said, in fact, that the paper has spent this entire week slipping ever lower, with levels consecutively dropping by 1 point on all three previous days of trading.

"It's coming in to the appropriate valuation at which it should be trading. It should have never traded as high as it did," the trader remarked.

When asked whether the freefall could have anything to do with potential bids on the company's assets, the trader responded, "no one knows what the bids are" - but added that they probably weren't very substantial, "given what's going on in the sector and being there are so many better assets out there."

Recent market chatter has indicated that the company would need bids of around $1 billion in order for the bank debt to get paid down at par.

Collins & Aikman's 10¾% notes due 2011 had not so very long ago traded in the upper 20s to lower 30s on the expectations that its assets could attract bids from the potential suitors like industrial consolidation magnate Wilbur L. Ross, who has already bought Collins & Aikman's European assets, as he attempts to make over the faltering automotive parts industry.

But no firm bids have been seen either from Ross or from any other would-be purchasers, and those bonds have fallen back to levels around 20 bid, and they were down again Thursday.

One trader said that they were trading "the worst of all" of the troubled auto parts companies, estimating the bonds around 20, and "nobody knows why." Some months ago, he said, those bonds were still trading as high as 50, "and then they cratered, and have kept falling."

Another trader saw the Collins senior bonds down a point on the day at 19 bid, 20 offered, while the company's nearly worthless 12 7/8% notes due 2012 are mired down around one to two cents on the dollar.

Tower drops

Among other bankrupt automotive names, the trader saw Novi, Mich.-based vehicle frame maker Tower Automotive Inc. "slip back," its RJ Tower 12% notes due 2013 dropping to 57 bid, 58 offered from prior levels around 60 bid, 61 offered even as the company announced late Wednesday that it had reached tentative contract agreements with the United Auto Workers union and the United Steelworkers union, which cover some 2,100 of its employees.

Tower provided no details of the new pacts, although its president and chief executive officer Kathleen Ligocki said the agreements marked a "major step" toward assuring Tower's future as a profitable automotive parts supplier.

Ford firm despite loss

Among the non-bankrupt automotive names, even though Ford Motor Co.'s results fell into the red during the second quarter, versus a year-earlier profit, there was little fallout among investors in the Number-Two domestic carmaker's bonds.

News that the Dearborn, Mich.-based automotive giant lost $123 million (7 cents a share) in the second quarter, a sharp deterioration from its year-ago profits of $946 million (47 cents) had "not much impact" on Ford's bonds, a trader said.

Another agreed, actually quoting Ford's flagship 7.45% notes due 2031 ¼ point higher at 71.5 bid, 72 offered. He saw the 7% notes due 2013 of Ford's financial arm, Ford Motor Credit Co., ½ point better at 86.5 bid, 87 offered.

The trader saw General Motors Corp.'s 8 3/8% notes due 2033 up ¾ point at 80.5 bid, 81 offered, while its General Motors Acceptance Corp. financing unit's 8% notes due 2031 jumped 1¼ points to 96.75 bid, 97.25 offered after the world's largest carmaker said the federal government's Pension Benefit Guaranty Corp. has assured it that the buyer of a majority stake in GMAC won't be held responsible for GM's pension plan. That removes one potential hurdle to the pending $14 billion sale of a 51% stake in GMAC to a Cerberus Capital Management-led consortium, which also includes Citigroup Inc., Aozora Bank Ltd., and a unit of PNC Financial Services Group Inc.

Northwest loan weaker

Northwest Airlines' bank debt was seen having eased a little in reaction to the company's recent debtor-in-possession refinancing news, according to a trader.

The Eagan, Minn.-based airline company's bank debt closed out the day lower by about ½ point at 101 3/8 bid, 101 7/8 offered, the trader said.

"People are doing the math of default interest versus call premium and it comes out to almost the same but people want to buy it at a discount to what you might get. That's why it only traded down a little," the trader explained.

Northwest is planning on launching a $1.375 billion DIP during the week of July 31 that will replace its existing bank debt and will be convertible into a permanent five-year exit financing facility upon emergence from Chapter 11.

The facility, being led by Citigroup and JPMorgan, consists of a $1.225 billion term loan and a $150 million revolver, with both tranches talked at Libor plus 250 basis points.

With this refinancing, the company's aggregate cost of borrowing will be approximately 350 basis points lower than the existing facilities, liquidity will be increased, and because the DIP is convertible into an exit facility, Northwest will save approximately $900 million in debt repayment through 2010 due to a longer amortization period.

Northwest's bonds were seen up 1½ points, its 8.70% notes due 2007 closing at 51 bid, 52 offered. Those bonds - which had recently been firming on, among other things, sliding world crude oil prices, apparently shrugged off Thursday's bounce-back in crude prices after three days of declines. That oil upturn was driven by profit-taking and an unexpected rise in U.S. reserves reported Wednesday. A barrel of light crude gained 42 cents to settle at $73.08 on the New York Mercantile Exchange.

Besides the crude slide - which has taken the price of oil down $5 a barrel from its recent highs above $78 per barrel - Northwest bonds have has also benefited from investor optimism about the prospects of pension relief for the airline industry coming out of Congress, and success in getting key labor groups - most recently the flight attendants - to go along with company requests for cost-saving measures.

Back on terra firma, a trader saw a 3 point fall in the 11% notes due 2012 of Movie Gallery Inc., to 77 bid, 78 offered, but saw "no real news" out on the Dothan, Ala.-based Number-Two U.S. video rental store chain operator.

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