Remy continues rebound, Dura as well; airlines keep gaining altitude

By Paul Deckelman and Sara Rosenberg

New York, Oct. 19 - Bonds of the troubled automotive parts sector continued to push higher Thursday, led by Remy International Inc., which was on the rebound for a second straight session after Tuesday's big drop.

Also up, traders said, were the bank debt and bonds of Dura Automotive Systems Inc., bouncing back from the lows they hit earlier in the week after Dura didn't make a scheduled interest payment on a bond issue.

Northwest Airlines Corp. bonds continued to head skyward, along with those of fellow bankrupt air carrier Delta Air Lines Inc., still riding the momentum from Wednesday's better-than-expected earnings from sector leader American Airlines, which also sent the bonds of American's parent, AMR Corp., up for the past two sessions. Another factor seen in the sector surge was generally lower oil prices - although some airline watchers pointed out that the OPEC nations moved to slow, or even stem the price fall, by agreeing to cut their output.

Remy recovery continues

Traders said Remy International's bonds remained the biggest comeback story in the sector over the last two sessions.

On Wednesday the Anderson, Ind.-based maker of Delco Remy automotive electrical and electronic parts' subordinated bonds came back from the lower 30s to move back up to the high 30s.

A trader saw its 9 3/8% notes due 2012 on Thursday at 39 bid, 41 offered and its 11% notes due 2009 at 42.5 bid, both bonds up about a point or two on the session, "so they were a little better."

Another trader saw the 9 3/8s get as good as 40 bid, 42 offered and the 11s rise to 41 bid, 43 offered, while the company's 8 5/8% senior notes due 2007 firm to 89 bid, 91 offered and its floating-rate seniors due 2009 at 96 bid, 98 offered, up about 1½ to 2 points on the day.

The Remy bonds had fallen sharply on Tuesday, with the juniors touching bottom around 30-31, possibly on fears, a trader said, that the company might be considering a bankruptcy filing, sparked by its hiring an investment bank. However, that hire of the Rothschild bank was only in an advisory capacity, on asset allocation, as it turned out, and as the bankruptcy speculation waned, the bonds rebounded.

Dura loans, bonds continue revival

Also on the rebound was Dura Automotive's second-lien term loan, which continued to inch its way higher during Thursday's market hours. A trader saw that paper moving up to 80.5 bid, 82.5 offered from 79 bid, 81 offered.

The bank debt has been under scrutiny since the company announced on Monday that its subsidiary, Dura Operating Corp., would not be making a $17.25 million interest payment on its 8 5/8% senior notes due 2012.

Prior to the news, at the close last Friday, the loan was being quoted at 80 bid, 82 offered. It then spent Monday and Tuesday ticking lower, and Wednesday and Thursday regaining the lost ground.

The notes provide for a 30-day grace period before the nonpayment becomes an event of default under the 8 5/8% notes indenture.

If the payment is not made by the Rochester Hills, Mich.-based automotive parts maker during the grace period, then the company will be in default under its second-lien term loan, 9% senior subordinated notes and, of course, its 8 5/8% notes.

When asked why the bank debt has suddenly reversed its direction, the trader responded, "Can you tell me why it ever moved down? People knew they were going to miss the payment. I don't know why people freak out over this stuff."

Over in the junk-bond market, Dura's notes - which had traded down to about the 28 bid level, or actually even lower than that nominal level in real terms, since the bonds no longer trade with their accrued interest - have recovered the past two sessions, and were seen Thursday at 32, a trader said, "a little better," while the company's subordinated 9% notes due 2009 were also improved, up a point or so, he said, to 7.5 bid, 8.5 offered.

The trader meantime also saw bankrupt parts supplier Dana Corp.'s 6½% notes due 2008 "holding in" around 72 bid, 73 offered, while bankrupt supplier Delphi Corp.'s 6.55% notes that were to have matured in June were around par bid, "where they've been."

Airlines still fly high

Elsewhere, traders saw the bonds of such airlines as Northwest, Delta and AMR continuing to rise, with one of them quoting Northwest's 10% notes due 2009 having pushed as high as 61 bid, 62 offered, and its 9 7/8% notes at 62 bid, 63 offered, up from 58 on Wednesday.

At another desk, the bankrupt Number-Four domestic carrier's 7 7/8% notes due 2008 were seen up as much as 2½ points on the session at 62 bid.

A trader was meantime quoting bankrupt Atlanta-based Number-Three carrier Delta's 8.30% notes due 2029 up a point or more at around 35.

Fort Worth, Tex.-based airline industry leader AMR's 9% notes due 2012 were a point "stronger on the heels of better earnings" for the company, a trader said, seeing the bonds at 102.5 bid, 103.5 offered.

The bonds of all three had also risen on Wednesday, after AMR posted its second consecutive quarterly profit, after some six years of big losses. The airline operator earned 45 cents per share, excluding special items, beating Wall Street's expectations of 42 cents a share ex-items.

Also heartening airline investors recently has been the trend of lower world crude oil prices, which could be an indication that jet fuel prices - a major portion of all airlines' cost structure - might also be trending lower in the future.

Since peaking around $78 per barrel in mid-summer, prices have declined more than 25%, with light sweet crude closing at $58.50 on the New York Mercantile Exchange Thursday, a gain of 85 cents on the day.

Whether they will keep falling, or even steady around the present levels is anyone's guess, with the Organization of Petroleum Exporting Countries announcing that the12-member cartel had decided to cut output by 1.2 million barrels a day - a bigger cut than observers had expected - and remains open to further output reductions should prices fall again.

Movie Gallery heads back up

Movie Gallery Inc.'s 11% notes due 2012 were seen bouncing back from the lower levels that the Dothan, Ala.-based video rental chain operator had hit over the prior two sessions. That tumble brought the bonds down 4 points on the session Tuesday to 58 bid, and an additional point on Wednesday to 57. But on Thursday, the bonds "moved up at the end of the day," a trader said, to a close at 59.

The bonds had fallen on apparent investor dismay with the news that the Securities and Exchange Commission is looking into whether hedge funds that hold Movie Gallery debt wrongly took information they gleaned during a lender call with the company in March and used that intelligence to short the company's stock - an allegation reported earlier in the week by The New York Times.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.