Solutia bonds in 97 context; Solo Cup off; Delta bonds holding in 63.5 area; Sea Containers about 68

By Ronda Fears

Memphis, Jan. 2 - It was another excruciatingly thin market for distressed bonds Tuesday as news flow was light with the bond market closing early in remembrance of former President Gerald R. Ford, traders said. The stock markets closed altogether Tuesday.

Tuesday's session was even slower than the pre-Christmas and pre-New Year's sessions, traders said, typically characterizing last week's business as year-end selling, or profit taking.

"It's hard not to take profits and let it ride," said one fixed-income fund manager in New York.

"We think there's going to be an initial dip in the markets and then around the middle of January we will become buyers again."

Delta Air Lines Inc. bonds saw little if any traffic Tuesday, and traders described those bonds in a holding pattern at around 63.5 as the market awaits bankruptcy hearings next month on its reorganization plan versus a buyout offer from US Airways Group Inc. Unofficial unsecured creditors are supporting the US Airways plan, whereas the official unsecured creditors are supporting the Atlanta-based domestic carrier's plan to remain independent. Union pilots have backed the company plan as well.

"The (unofficial) committee will want their money, and I think they will make a good argument," said the New York buysider.

"As of today I put a US Airways deal at 72% of happening."

Elsewhere, traders pegged Sea Containers Ltd. bonds in the 68 neighborhood following a request last week from the Bermuda-based merchant freight company for a 120-day extension to its exclusive periods to file a plan of reorganization to June 12. A hearing is scheduled for Jan. 17.

In context of the few trades and any indications for bonds in the market Tuesday, however, traders were quick to admonish that there were indeed very few trades printed.

Solutia bonds bob up, down

Solutia Inc. bonds were seen around noontime Tuesday at 97 bid, 98 offered in the wake of a confidentiality agreement with some bondholders to resolve disputed issues in its reorganization plan. One trader said the paper traded up about 2 points and then traded back down 2 points to essentially sit unchanged from last week.

Last week, the St. Louis-based specialty chemicals maker said it had entered into a confidentiality agreement with some holders of its 6.72% notes due 2037 and 7 3/8% notes due 2027 in an effort to resolve points of contention concerning its reorganization. In part, the agreement was designed to limit trade in the bonds.

Meanwhile, it was learned Tuesday that Solutia has finalized timing on the launch of $250 million of add-ons under its debtor-in-possession financing facility with the scheduling of a bank meeting Thursday.

Previously, all that was known on timing was that there would be an early January launch.

The incremental debt is comprised of a $75 million add-on to its revolver, which would bring the total revolver size to $250 million, and a $175 million add-on to its term loan, which would bring the total term loan size to $825 million. In addition, the company will be asking lenders to extend the maturity on its entire DIP facility by one year to March 31, 2008.

The amendment would also allow Solutia to acquire Akzo Nobel's stake in Flexsys, the joint venture between Akzo Nobel and Solutia, which was announced last month. To facilitate the acquisition, up to $150 million of additional funds could be raised under this DIP facility through an accordion feature, bringing the total to $1.225 billion.

Under Solutia's proposed reorganization plan, the company would have a total enterprise value of $2.507 billion, net debt of $1.507 billion and implied equity value of $1 billion, including the full assumption of full ownership in Flexsys and the sale of another business unit.

The plan includes a general unsecured claims pool of $765 million, and 108.3 million common shares to be issued upon emergence with 75 million shares to be distributed to noteholders and other claimants, and another 33.3 million shares distributed under a $250 million rights offering. Holders of equity interests will not receive a distribution under the plan.

Stock in the rights offering would be priced at $7.50 per share, a 25% discount to the plan stock price, and would be backstopped by an unidentified market participant.

Solo Cup bonds softer

There were a couple of trades in Solo Cup Co. bonds, as well, Tuesday, with the 8½% notes due 2014 trading down to 87.75 from 89 on Friday, according to another trader.

The Highland Park, Ill.-based manufacturer of disposable foodservice products has been talking of restructuring efforts for several weeks and in mid-December announced a reduction of 5% of its workforce, which is expected to generate $9 million in annual savings, and plans to rework its bank debt. The company also has mentioned asset sales, but nothing has come of that so far.

Last week, the company outlined amendments to permit an additional $50 million of borrowing under its second-lien credit agreement with proceeds to pay down the revolving credit loans under the first-lien facility, provided that it would not be a permanent reduction to the first-lien revolver. The applicable interest rate also was modified to provide for different pricing levels depending on the company's consolidated leverage ratio and the type of loan.

In addition, the first-lien amendment revised the ratios of the financial covenants that Solo Cup is required to maintain for 2006, 2007, 2008 and 2009 by allowing lower ratios in some quarters of consolidated EBITDA to consolidated cash interest expense and allowing higher ratios in some quarters of average total debt to consolidated EBITDA.

Doral floaters steady at 91

Traders pegged the Doral Financial Corp. floaters due 2007, for which the Puerto Rico bank has prioritized to refinance, at 91 on Tuesday. Interest has been focused on news from the company last week that it will need significant outside resources in order to refinance the $625 million issue, including possibilities such as additional equity, new debt and/or the sale of assets.

None of it was news, as one trader said, speculating that there will be "monster dilution to equity" with bondholders ending up with the majority of the company. He also said holders of the Doral 4.75% preferreds should "make out well." He anticipates bondholders will get in the neighborhood of $275 million in cash from asset sales.

Value going forward, he said, is constrained by both the equity dilution and asset sales.

"Book value shows $4.22 but with [the debt-for-equity] swap you lose $2 of book value there. Plus, with class action and derivatives lawsuit costs, I see the common dropping to $1," he said.

"The future earnings after this will be lower due to asset sales."

In the filing, Doral said during fourth-quarter 2006 its banking subsidiaries sold roughly $1.7 billion of its available-for-sale investment securities and reduced its borrowings by $1.7 billion, according to the release. The company said it has selected advisers to review means of refinancing the notes and further restructuring its balance sheet to reduce the high level of interest rate risk and volatility.

Doral warned, however, that the restructuring of its balance sheet may increase its capital and liquidity requirements and that its ability to implement any restructuring initiatives may be adversely affected by the company's credit ratings, the ongoing shareholder litigation, its deteriorated earnings and balance sheet composition, its holding company structure, restrictions under existing cease and desist orders and banking regulations and the ability of the company to rely on the liquidity of its banking subsidiaries.

For the first nine months of 2006, Doral said it had a net loss of $62.5 million, a consolidated loss per diluted common share of $0.81, net income of $57.4 million and consolidated earnings per diluted common share of $0.29. For the third quarter ended Sept. 30, the company had a net loss of $28.7 million, a consolidated loss per diluted common share of $0.34, net income of $40.9 million and earnings per diluted common share of $0.30.

Doral is a mortgage lender and commercial bank based in San Juan, Puerto Rico.

Delphi issues bid down

Another trader said he noticed a sharp drop in bids for Delphi Corp. bonds, which he attributed to an effort to take advantage of any extension in year-end selling. He described the bid on Delphi's 6.55% benchmark issue, for example, as declining intraday Tuesday from 105.5 to 100.5, down from Friday's last trade at 110.5.

"I don't think there will be many hits on that [bid]," the trader added.

"It's a low-ball bid."

Last week, the Troy, Mich.-based auto parts maker requested an extension to its exclusive periods to file a plan of reorganization to July 31, 2007 from Feb. 1. A hearing is scheduled for Jan. 12.

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