Delta better by 2 points; Winn-Dixie slips; Delphi steady to firmer; Calpine cools; Metaldyne firms

By Ronda Fears

Memphis, Dec. 4 - Delta Air Lines Inc. bonds gained as much as 2 points Monday on reaching an agreement with the federal Pension Benefit Guaranty Corp. to resolve all issues related to the air carrier's termination of its pilots' retirement plan.

The Delta 8.30% notes gained 2 points to 62 bid, 63 offered while the 7.90% notes gained to 59.6 bid, 60.5 offered.

By the settlement, the PBGC will be allowed a pre-petition unsecured claim against the airline of $2.2 billion and the proposed plan of reorganization will provide for the distribution to the PBGC of $225 million in senior unsecured notes.

In tandem with Delta, Northwest Airlines Corp.'s 8 7/8% notes due 2006 added 1 point to 83.5 bid, 84.5 offered.

Ford Motor Co. paper was rather quiet Monday with the 7.45% notes due 2031 seen ending steady at 78 bid, 79 offered, one trader said, despite news of a $3 billion convertible launched after the close. Another trader pegged the Ford 7.45s better by 1 point at 79.5 bid, 79.75 offered. Other auto-related paper was mixed in the session.

Elsewhere of note, Movie Gallery Inc.'s 11% notes due 2012 were better by 1.5 points to 72 bid, 73 offered, attributed to short covering. And Solo Cup Co.'s 8½% notes due 2014 firmed by a point or so to 87 bid, 88 offered, while the Technical Olympic USA Inc. 7½% notes due 2011 also added a point to 82 bid, 83 offered.

On the downside, Remy International Inc. paper was off by a point with the 8 5/8% notes at 85 bid, 87 offered and the 11% notes at 35 bid, 37 offered.

Calpine Corp. was cooling off from a streak of gains over the past week or so, too. One trader said he saw the paper at a wash with the 4% notes due 2009 up 2 points at 91 bid, 93 offered but also saw the 8½% notes due 2008 lower by 2 points at 89 bid, 91 offered, "so one's up, one's down." Another trader saw Calpine paper "a little weaker" with the 8½% notes due 2011 off by 2 points at 75 bid, 76 offered, and pre-2000 bonds pretty much unchanged with the 10½% notes due 2006 at 94 bid, 95 offered.

Winn-Dixie arbs squeezed

Winn-Dixie bond players basically were getting jammed up in the arbitrage trade by straight equity players pushing up the when-issued share price, as the distribution of stock per bond has been set in the bankruptcy reorganization plan.

A bond trader said as of Friday the arb players had capped their willingness to buy bonds pretty much at 92 to maybe as much as 92.5, based on a discount of 1 point for their pockets, but with the stock having run up so sharply by the straight equity players, they backed down from there sharply.

"I would have told you Friday that you could get a bid on those bonds at 92.25 and that would be cheap," the trader said.

"We don't have that today [Monday]. There are still buyers for the bonds, but just not right there."

The Winn-Dixie bonds traded in a range of 89 to 91 during the session but another trader pegged the paper going out at 88 bid, 89 offered. Winn-Dixie when-issued shares settled with a 1.5% gain to $14.40.

Winn-Dixie equity the prize

Winn-Dixie shares ultimately are the prize, since the bonds will go away once the bankruptcy reorganization plan is executed and final, but the bonds are a means of increasing equity exposure. And traders said the enticement to buying up as much of the stock now is based on no reporting requirements until the stock is officially issued.

"We have heard that with the stock in a when-issued status you could buy over 5% without having to report it, at least for now," one bond trader said.

Thus, a person could become a majority stakeholder, with the chance of gaining a seat on the company's board of directors, or a controlling interest, with no visibility until the stock is officially issued and by then the position would already be established.

Dana off despite sale news

Dana Corp. bonds eased a tad Monday despite news of an asset sale, which one trader surmised was because players do not feel Dana got as much as they had been hoping for in the $157 million transaction with German automotive parts supplier Mahle GmBH.

The Dana 6½% notes due 2008 were pegged lower by 0.75 point at 75.75 bid, 76.75 offered by one trader, but another pointed out that he saw the bonds trade at 78, or up 2.5 points from Friday, before easing back late in the afternoon to the 76 area.

Mahle agreed to pay Dana $98 million in cash and assume $59 million in debt associated with its engine parts operations in the transaction.

In another troubled auto name heading south, R.J. Tower Corp., parent to Tower Automotive Inc., saw its 12% notes due 2013 trade at 17.5, still offered there; or down from 19.5 on Friday, according to a trader.

Delphi up on Cerberus buzz

Delphi Corp., however, headed sharply north on reports that the bankrupt auto parts supplier was in talks with private equity firm Cerberus Capital Management LP and the United Auto Workers union officials about buying some of bankrupt Delphi's U.S. and European plants.

Yet, traders were divided on the impact of the speculation.

One trader said the Delphi bonds didn't go anywhere, as the paper is already trading very tight, pegging the 6.55% notes due 2006 at 105 bid, 106 offered and the 7% notes due 2029 at 103 bid, 104 offered, also unchanged on the session. The first trader did see GM up 1 point on the news, with the 8 3/8% notes due 2033s at 91.25 bid, 91.75 offering ; another, though, pegged the 6.55s up a half-point at 105.75 bid, 106.75 offered and saw the 6½% notes due 2013 better by 1 point at 103.5 bid, 104.5 offered.

"Somebody ought to be talking about this situation. It's too big to ignore," said a distressed bond trader. "There isn't a lot of visibility as to what is going on ... And, yes, the bonds are trading very, very tight."

Delphi has been in talks for months with former parent General Motors Corp., union employees, creditors and potential investors as it works on several fronts to develop a reorganization plan; it filed bankruptcy in October 2005. The Troy, Mich.-based company hopes to exit bankruptcy by mid-2007.

The company has begun to market numerous assets it plans to divest and has named Rothschild Inc. the primary financial adviser and investment banker for the potential sale of its steering and interiors divisions. Delphi also has signed confidentiality agreements with several potential investors, including a group led by Appaloosa Management LP and Harbinger Capital Partners.

Metaldyne terms appeasing

In another troubled transportation name, Metaldyne Corp.'s paper was better Monday on news that a majority of its bondholders have agreed to terms of a consent to proceed with its previously announced acquisition by Asahi Tec Corp. Metaldyne intends to promptly launch a consent solicitation to bondholders of record as of Dec. 4, 2006.

While the bonds did not change much - one trader pegged the 11% notes better by a half-point at 99.5 bid, 100.5 offered - the terms were enough to gain support from the bondholders.

In mid-November, the two companies said the $1.2 billion merger would be delayed until January primarily due to delays in obtaining required consents from holders of Metaldyne 10% senior notes due 2013 and the 11% senior subordinated notes due 2012. The deal, announced Sept. 1, calls for Asahi Tech's majority owner, Belgium-based RHJ International, and Mitsui & Co. Ltd., to invest $188 million in Asahi Tec, with $150 million and $175 million to be contributed to Metaldyne for debt reduction. Plus, Metaldyne is working to refinance its senior bank debt.

Last week Plymouth, Mich.-based Metaldyne, a supplier of powertrain components, said it was restructuring the Asahi Tec deal because bondholders had refused to approve it. Metaldyne said it expects to pay about $48 million in consent fees to bondholders to obtain their approval of the sale.

According to a Securities and Exchange Commission filing on Monday, holders of the 10% notes will be paid a consent fee of $80.00 in cash per $1,000 principal amount of notes (without interest) and holders of the 11% notes will be paid a consent fee of $127.50 in cash per $1,000 principal amount of notes (without interest).

Bank facility launch set

It also was learned Monday that Metaldyne has scheduled a bank meeting Wednesday to launch its proposed $655 million credit facility. JPMorgan and Citigroup are the joint lead arrangers on the deal, and JPMorgan, Citigroup and Deutsche Bank are the bookrunners. JPMorgan is administrative agent, Citigroup is syndication agent and Deutsche is documentation agent.

The facility consists of a $150 million five-year asset-based revolver, a $420 million seven-year term loan, a $60 million five-year deposit-linked synthetic supplemental letter-of-credit facility and a $25 million delayed-draw term loan, the source said.

According to recent filings with the SEC, the revolver is expected to carry an initial rate of Libor plus 200 basis points, and the term loans and letter-of-credit facility are expected to carry an interest rate of Libor plus 350 bps.

Unused fees on the revolver can range from 25 to 50 bps, and the unused fee on the delayed-draw term loan will be 175 bps.

The delayed-draw term loan will be available for drawing for 59 days after the closing date for the purpose of funding the purchase of senior notes in a tender offer.

Proceeds from the credit facility will be used to help back Asahi Tec's acquisition and replace Metaldyne's existing revolver, letter-of-credit facility, term loan debt and off-balance sheet accounts receivable securitization facility.

Asahi Tec may elect not to close on the merger if both Metaldyne's corporate credit ratings from Moody's Investors Service and Standard & Poor's are not at least B3/B- with a stable outlook and the cost of the new senior term loan under the new credit facility is greater than Libor plus 450 bps, or Libor plus 500 bps if the closing occurs after Dec. 31.

Asahi Tec, a Shizuoka, Japan-based chassis and powertrain component supplier, is buying Metaldyne from Heartland Industrial Partners LP and CSFB Private Equity.

Paul Deckelman and Sara Rosenberg contributed to this article.

© 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.